Why First Solar is sweeping solar in India

For about a decade now, the solar industry has soared thanks to government incentives that guarantee handsome returns for power generation projects. These subsidies have made countries such as Germany and Italy the largest markets in the world and spawned copycat policies elsewhere. As these European markets mature, though, solar companies have begun to for new territories in earnest.

India presents an interesting case study for how to architect an emerging solar market. The country seems primed for renewable energy development: it’s got a large and growing population, many of them poor and about 404 million of them have no access to electricity. India also has to figure out how to curb its growing carbon emissions. India’s national government also has promised to install 20 GW of grid-tied solar by 2022 under a program called National Solar Mission.

National Solar Mission is run under a competitive bidding process rather than the price-guarantee model that Germany has made famous. The state of Gujarat offers its own solar subsidy, which is similar to German’s version. But it’s not just the solar incentive programs that are making India so attractive. Some help from the U.S. government also is making a big difference. The Export-Import Bank of the United States announced Friday that it approved financing worth $176.4 million of financing to six solar projects during fiscal 2011.

A policy twist

Several American manufacturers and project developers have been aggressively pursuing sales in India. First Solar (s FSLR) began announcing sales agreements for its cadmium-telluride solar panels last December and has since upped its shipment forecast from 100 MW to around 200 MW for 2011. The company sold 10 MW in 2010.

In September, First Solar announced the largest sales deal in India to date: a 100 MW deliveries to Reliance Power. The solar panel maker will ship 40 MW before this year is over and send the remainder 60 MW next year. The company is looking at shipping about 200 MW for at least five projects in 2012, according to estimates by GTM Research.

First Solar has a big advantage that many other solar panels makers don’t have: it’s not subject to a rule that requires project developers in India to use only solar cells made in India. This local content rule applies to projects under the National Solar Mission, which went into effect in 2010 and held its first auction last December. The rule affects only projects that use silicon solar panels, and since First Solar’s panels aren’t made of silicon it’s exempt.

The local content rule not only protects India’s own solar cell makers, it also makes it difficult for manufacturers in neighboring China – the largest solar panel producing country in the world – to compete for projects. China is home to some of the world’s largest silicon solar panel makers, including Suntech Power (s STP), Trina Solar (s TSL) and Yingli Green Energy (s YGE).

Non-Indian silicon solar cell makers can still vie for projects under state solar programs, such as the one in the state of Gujarat. Suntech inked a deal to supply 100 MW of solar panels to SunBorne Energy, with an initial 10 MW going to a project in Gujarat. A 5 MW project in Gujarat was completed last year using Trina’s solar panels.

Winners and their helpers

First Solar’s ability to produce solar panels more cheaply than others is its true advantage because the national solar program seeks competitive bids and selects those who promise to complete projects at lower prices. Manufacturing at a large scale makes it possible to keep solar panel prices low, and at this point, First Solar is the largest non-silicon solar panel maker worldwide and the only one with an army of factories and big sales team.

The only other non-silicon solar manufacturer that is closer in scale to First Solar is Japan-based Solar Frontier, which makes solar panels using copper-indium-gallium-selenide cells. The company recent announced sales agreements totaling roughly 30 MW, which should be installed before the year ends.

Smaller players that make non-silicon panels also could benefit from India’s solar rules.  Abound Solar, a Colorado manufacturer of cadmium-telluride solar panels, has a deal to sell 5 MW to an Indian project developer, which has gotten a loan from the Export-Import Bank of the United States. The Ex-Im bank also has offered loans to Indian buyers of First Solar panels.

And belatedly, the bank announced Friday that it approved, back in August a $84.3 million loan to Dahanu Solar Power to build a 40 MW project in Rajasthan using First Solar’s panels. The same announcement also touted a $18.9 million loan to Tatith Energies to build a 5 MW project in Gujarat using SolarWorld’s panels.

India’s solar programs are only in the early stage of deployment, so it’s too early to say whether India can achieve its solar generation goals. While long-term policy is a nice assurance to solar companies and their investors, it often doesn’t remain static and shifts with changes in ruling parties. But for now, India is enjoying a most-favored status in the solar world.

Photos courtesy of Emmanuel Dyan, hiyori13 and  Ajay Tallam