India will install another 1.3 to 1.4GW of PV capacity despite its lacklustre 2012, predicts clean energy communications and consulting firm Mercom Capital.

Cumulative PV installations to date in India now stand at only 1.2GW due to delays in Gujarat to commission 144.5 MW of PV projects.

The Ministry of New and Renewable Energy (MNRE) recently issued a draft solar policy for Phase II of the country’s Jawaharlal Nehru National Solar Mission (JNNSM), outlining its strategy to install 10GW of PV capacity by 2017 through an aggressive approach to domestic manufacturing and by implementing a domestic content requirement.

The majority of project allocations will be completed under the Viability Gap Funding (VGF) offered to private investors in the form of grants from the government.

Ruby Barcklay, Communications Director of CPI told PV-Tech that this could help to reduce project costs in India to offset the high interest rates and short-term loans which would make it more expensive for India to meet its renewable energy target.

However, Mercom believes the VGF to be a “pretty risky approach” due to India’s relatively recent entry into the solar industry.

“If the policy goes in this direction, solar in India will soon start to resemble other infrastructure/conventional energy projects that haven’t been so successful thus far,” writes Raj Prabhu, author of the report.

Last week it was announced that India-based Power Finance Corporation, a state lender to electricity utilities, had reduced its interest rates for renewables projects by 50 basis points, equating to a 0.50% cut. Although this is sending out the right signals to peers, Jasmeet Khurana, Consultant for Bridge to India, does not believe this to be a significant development opportunity as there are other avenues of international and Indian debt finance that can offer better terms.

Tamil Nadu proposes to hit a target of 3GW by 2015 through a new solar purchase obligation which would require a total of 1,000MW to be generated by 2015.

However, last month’s tender received a "lukewarm" response from bidders. Analysts have attributed this to an unattractive bidding process and prospective bidders’ distrust in Tamil Nadu’s state utility Tangedco’s reputation.

Gujarat is the only state that has a feed-in tariff, which Mercom states has proved more lucrative to programmes like the JNNSM.

Mercom also points out that 84.5MW of projects are facing threats of being cancelled. Nonetheless, earlier this month, Mizuho Financial Group, in conjunction with several Japanese companies, announced plans to construct a 200MW solar plant in Gujarat, expected to generate as much as US$325 million with further plans to expand it to a capacity of 2,200MW.

However, the Indian market is currently in disarray due to the uncertainty surrounding the row over domestic content restrictions on imported modules that is now awaiting a resolution from the WTO.

Prabhu states that “For a solar market still in its infancy, starting a trade war could become a costly distraction when the focus should be to encourage new technologies, competition and free markets.”

In response to this the US government has filed a complaint with the World Trade Organization (WTO) over India's national solar programme, claiming it is "discriminatory" against US solar manufacturers.

“The trade dispute is sure to add unwanted uncertainty to the young Indian market where financing is already a challenge as it is, and would make investors further skittish. It is surprising that a country with approximately 300-400 million people without power, about 9% power deficit and about 10% peak power shortage, has decided to go this route instead of an “all of the above policy” to meet the power requirement goals,” concludes Prabhu.