Solar Market in India Booms with a Drop in Panel Prices

First Solar‘s (NASDAQ:FSLR) thin cell technology-based PV panels are gaining prominence in the Indian market. While demand from the traditional European markets is expected to falter because of declining subsidies, emerging countries such as India and China are set to see increasing capacity additions because of the improving economics of solar power generation. ^[1] A sharp fall in solar panel prices in the second half of 2011 has brought down the cost of generating solar electricity considerably, and industry participants hope that solar power will become competitive with traditional sources of electricity over the next few years. Chinese players such as Suntech Power (NYSE:STP) are also supplying to the Indian market.

We are currently revisiting our price estimate for First Solar which is considerably higher than the current market price.

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Growing Indian market

First Solar is presently the leading provider of PV panels to Indian solar farms. In the recently concluded round of bidding for government contracts, winning participants bid to supply at an average $0.16 cents per kilowatt hour (KW hr) which was 27% below the bids last year. ^[1] In comparison, German utilities buy solar electricity at $0.23 /KW hr. India receives more daylight than countries in the temperate zone, which further improves the economics of generating solar electricity. The country’s solar market is still in a nascent stage, with a total of only about 140 MW of installations. In the latest round, 350 MW of capacity was auctioned, which is way below the government’s target of installing 20 GW of solar capacity by 2020. Compare this with Germany, which had around 17 GW of capacity at the end of 2010.

The apparent reason for the auctioning of limited capacity is that the Indian government wants to cap its subsidy costs while expecting solar electricity to get cheaper with time. ^[1] Presently, coal fired plants produce the bulk of electricity in India at about $0.08, roughly half the cost of solar electricity. Solar has, however, become competitive with petroleum fuel-based plants.

First Solar, which has gained a strong lead in the Indian market, is looking to demand from the emerging markets to absorb excess capacity in the PV market.

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1. In Solar Power, India Begins Living Up to Its Own Ambitions, NYT [↩] [↩] [↩]