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Is India’s Solar Bubble Popping?

Solar energy is booming in India right now, but investors are started to cast nervous glances at one another as worries grow that companies may have been over-eager in their attempts to win government contracts. The FT reports:

Months of highly aggressive bids for solar power projects, led by foreign developers including Finland’s Fortum Corp, Canada’s SkyPower and now-bankrupt SunEdison of the US, have started to shake the confidence of investors in one of the world’s fastest-growing renewable energy markets.

[T]he electricity prices contracted in recent reverse auctions are so low — sometimes half the levels in China and close to the cost of coal-generated power — that bankers are starting to get cold feet about the viability of some of the projects springing up from Tamil Nadu in the south to Rajasthan in the north. […]

“It almost seems like they are doing too much too fast right now,” says Raj Prabhu, chief executive of Mercom Capital, a clean energy communications and consulting firm…Bob Smith of Mytrah Energy, the Aim-listed Indian developer of wind and solar projects, says the company is not bidding for any more assets right now “because the prices are too low”. He blames the low bids on an “over-exuberance” in the solar sector that is not unique to India.

Just last week the solar industry saw one of its giants, SunEdison, file for Chapter 11 bankruptcy protection. SunEdison had significant holdings in India, and its exuberant investing in the south Asian country was part of the pattern of overreaching that led to its precipitous fall.

But the SunEdison bankruptcy wasn’t a one-off problem, and in fact hints at deeper issues within the global solar industry. It’s not surprising that investors are having second thoughts in the country that’s seen one of the most rapid recent increases in solar deployment. In their desire to get a foot in the door in India, companies have locked themselves into too-low electricity rates, and it doesn’t matter how renewable your product is—if you can’t turn a profit, you’re not in a sustainable business.

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