India is making a $100 billion bet on solar energy by 2022, but it's doing so with "megasolar projects" designed to be 500 MW in size or more. The problem with projects that size is that India can't get its centralized fossil fuel industry to run properly, and adding massive energy sources with intermittent energy supply may only make the problem worse.
The better solution for supplying energy to India's remote, underserved population would be through distributed energy sources like rooftop or small solar projects. Last year, Prime Minister Narendra Modi said 2 GW of 20 GW built by 2022 should be distributed solar, but those projects have been slow to develop. One deal signed this week may finally show that distributed solar is getting its day in India.
India's distributed energy plan
SunEdison (NASDAQOTH:SUNEQ) announced this week that it is working with Omnigrid Micropower Company to build 5,000 solar projects in rural India over 3-5 years, totaling 250 MW. For perspective, these projects would average 50 kW in size, about 10 times the size of an average residential installation in the U.S. SunEdison's newest plan is in addition to 60 mini-grids it's already building in India.
This is also in addition to large-scale solar projects, but reliable mini-grids could prove to be far more valuable for India, increasing the reliability of the grid while simultaneously lowering costs for customers. Even distributed solar is competitive with grid prices if financing is available for these projects.
The next step would be adding storage to these mini-grids, allowing for 24/7 power in remote towns. Storage is something that's beginning to gain acceptance around the world, so it's a possible solution to India's power issues. In time, this will help with reliability, and potentially bring economic growth to regions of India that have yet to develop.
Could this be an opening for other solar companies?
If India does grow its distributed solar industry, it could present opportunities for companies which have thus far eschewed the market. SunPower (NASDAQ:SPWR) hasn't had India in its sights yet, but, as one of the largest solar companies in the world and a leader in distributed energy, it is a natural fit for the country. It is already building distributed solar systems with energy storage, which would be ideal for India's rural market.
Tesla Motors (NASDAQ:TSLA) and SolarCity (NASDAQ:SCTY.DL) could also view the market as a massive opportunity for their storage product. Around 30% of Tesla's gigafactory is earmarked for energy storage, and India is an emerging market the companies could pursue. I doubt SolarCity itself would move into India, but it could supply product if its costs are competitive.
Building a more reliable grid
If solar energy can help India lower costs and build a more reliable grid, I think it would be a great benefit to the country. But building massive solar projects may only make the grid's current problems worse.
It's the distributed solar energy market that provides far more value for the grid and rural consumers, who are among the most underserved in India. If done right, distributed solar could be a win-win for everyone involved.
Travis Hoium is long shares of SunPower. The Motley Fool recommends SolarCity and Tesla Motors. The Motley Fool owns shares of SolarCity and Tesla Motors. 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.