The race into India's potentially massive solar market is on. The Indian government has revised up its targeted solar investment to $100 billion by 2022 and has plans to set up five $5 billion funds to help build solar projects in the next few years. 

For developers, the market potential is huge and some companies are eager to get into India. But with opportunity comes risks and that's something investors need to keep in mind. 

SunEdison's solar project in Chile, once the world's largest merchant solar power plant. Image source: SunEdison.

Accessing India's massive market potential
The company jumping into India with both feet is SunEdison (OTC:SUNEQ), the renewable energy project builder with a background in solar manufacturing. Last year, the company signed a memorandum of understanding, or MOU, with the Rajasthan government for five gigawatts worth of projects, among other deals, and hasn't stopped there.

This week it announced another MOU to build $4 billion in solar manufacturing facilities with Indian power provider Adani Enterprises Ltd. Having local manufacturing could give the company a leg up on the competition if the Indian solar market grows as it expects.

But investors need to keep in mind that these are MOUs, not guaranteed contracts. These projects may not ever see the light of day and there's a reason not everyone is so bullish on India.

SunPower has decided not to invest in the India solar market. Image source: SunPower.

Not everyone is so bullish on India
Before you start thinking India is the next solar hotspot and a no brainer for solar companies, you have to understand why some companies may not want to invest there. India has a long history of poor planning in its energy infrastructure, which was most noticeable in a 2012 blackout that affected 600 million people.

Last year, the Association of Power Producers, which represents 20 private power companies, had to go to the government to ask for help when 100 gigawatts of power plants couldn't get the coal and natural gas they needed to generate power. The government itself had limited energy imports, causing some of the problems. 

Another challenge is that India's infrastructure often doesn't reach the people who need electricity most. City centers may be powered, but the distribution network to homes is often non-existent.

All of this uncertainty has led SunPower (NASDAQ:SPWR) to leave India off its pipeline entirely. This is surprising given the massive potential there, but CEO Tom Werner told me in November that countries like Chile, Mexico, South Africa, and China provided better opportunities because they provide more predictable energy policy. Until India gets its grid in order, it's difficult to calculate a certain return from projects, no matter what the headlines say.

Image source: First Solar.

Why SunEdison is betting on India
None of this is to say SunEdison is wrong in betting on India. Not all of the details of India's solar plans are known, but one reason SunEdison may be interested in the country is the relatively low risk. It appears as if India's state owned entities plan to own most of the $100 billion in solar investment, starting with the five $5 billion funds announced this week. If that's the case, SunEdison would be a project builder and take little risk in the projects (and interconnection) after they're completed.

The $4 billion in manufacturing capacity is another story. Again, if SunEdison has little financial downside given its partnership with Adani Enterprises the risk is minimal, but risking billions on the same manufacturing technology that led to massive losses for SunEdison's predecessor MEMC Electronics just a few years ago is a big risk.

Don't be fooled by the big numbers floating around India's solar industry because they may not create the value for solar companies that you would assume. India's electric grid has been a nightmare for decades and policies related to the energy seem to be a moving target. The upside is big if India remains a stable source of solar demand, but that's a high risk given the country's history of unstable energy markets.