India is gearing up to build 20,000 MW of solar farms, including the world's largest solar plant to date. But are India's electricity eyes bigger than its solar stomach? Here's why having the world's biggest solar facility may not be the best option for India.
Move over, Texas
India is getting bigger faster. It's home to 1.27 billion people (17% of the world's population), it has the tenth largest economy in the world, and its annual GDP growth has jumped between 4.7% and 10.3% over the last decade.
As its economy and population expand, India is experiencing unprecedented energy demand. In 2000, the country consumed 376,000 GWh of electricity. In 2012 (most recent data), India ate up 869,000 GWh -- a 130% increase. And while coal will continue to remain core to India's electricity capacity expansion, renewable energies like solar will play an increasingly important role.
With the help of World Bank financing, India is preparing to build the world's largest solar plant. Clocking in at 750 MW, the $1.3 billion project will be 36% larger than the current front-runner, First Solar's (NASDAQ:FSLR) Topaz Power Plant in California.
Although it's currently unclear which companies will be involved in the megasolar project's construction, this isn't India's first rodeo. International solar companies have been making moves to enter India for a while. With sunny land, easy credit, and growing electricity demand, India may be the solar mecca.
So far, SunEdison, (NASDAQOTH:SUNEQ) has emerged as a clear winner in India entry. In October, the solar company won 150 MW worth of project bids in Karnataka state and signed a Memorandum of Understanding, or MOU, with the Rajasthan government to build a whopping 5,000 MW of solar projects in the state. Each solar farm is expected to clock in at over 500 MW, making this one of the most massively scaled solar initiatives ever undertaken.
Unfortunately, large scale solar projects aren't exactly what India needs. Yes, the country is taking steps toward energy independence. But India is creating the world's largest solar project not because it's the best option, but because it's the only way it can operate. Decentralized power is a bureaucratic and infrastructure nightmare in the country, and big projects like this are often the only hope MOUs ever have of reaching fruition.
To give an example, the Indian government previously outlined a plan for 100% village electrification by 2007. Since 70% of India's population is rural, a plan like that is a big deal. Yet a 2012 survey estimated that just 80% of rural households were connected to the grid. Even more telling, a 2011 Census report revealed that just 55% of rural homes use electricity as their main lighting source, evidence that a connection often isn't enough.
Utilities commonly cut off electricity delivery ("load shedding") to avoid bigger issues. In Maharashtra state, one of India's most industrial and populous (Mumbai city of Slumdog Millionaire is here), a utility that delivered power without any issues in 1998-1999 reported 2002-2003 load shedding that cut demand by 20%. In most states, Indians enjoy just 8-12 hours of electricity use per day.
Grow up, India
India is undergoing severe growing pains, and its electricity sector is no different. While that represents incredible opportunity for solar power producers like SunEdison, an MOU signature isn't always enough. International solar companies will have to work hard to ensure that their enormous-sized agreements are palpable for everyone from politicians to power companies to paupers, and that their own contributions coincide with a realistic and grounded electrification strategy for India.
Justin Loiseau has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.