If his ministry’s ambitious renewable energy targets are successfully met, India’s minister of state for power, R K Singh, may well have harnessed Icarus’ wings far more effectively than the mythological Greek ever did.

But questions over a recent and bewildering 25% “safeguard” tariffs imposed on solar modules from China and Malaysia and poor equipment quality in the solar power industry could still cause Singh a meltdown. However, the considerable spread between solar and conventional thermal power prices could remain large enough to continue making the industry attractive to investors.

In April this year, Singh’s ministry set an audacious renewable energy target of 275 GW by the year 2027. About 225 GW is expected to materialize by the year 2022, according to ministry data. Another 40 GW is expected to come from urban rooftop solar installations, vital for India’s smart cities projects.

The India Brand Equity Foundation, or IBEF, a trust established by the Department of Commerce, Ministry of Commerce and Industry, estimates that in April 2018, total installed thermal capacity in the country stood at 222.69 GW, while installed capacity in hydro and other renewable energy totaled 45.29 GW and 69.02 GW, respectively.

“The amount of solar installations that have come up in India are probably the highest in the world,” said Dr Sumit Choudhary of Gaia Smart Cities, a startup involved in several major smart city projects.

However, not all analysts are confident the targets will be met. Credit rating agency ICRA argued in a recent note that only about 80 GW might be available by 2022. Fears that targets might not be met stem largely from the rising per unit solar power costs due to the safeguard duties.

Vinay Rustagi of the power sector consulting firm Bridge to India argued: “The duty would pose financial and execution challenges for all ongoing projects and adversely impact government plans for the sector.”

Solar modules make up more than 50% of a solar power project’s total cost and about 90% of India’s needs are imported. China and Malaysia with their low-cost manufacturing bases and excess photo-voltaic (PV) cell capacities dominate the Indian market.

Analysts argue that the government-led reverse bidding process for power pricing pushed costs artificially low. As energy research firm Wood Mackenzie recently pointed out: “India’s tenders are hyper-competitive and bidders consider forward module price reduction, hence the lower-than-anticipated cost reductions awarded to projects that are at risk.”

A June 2018 note by ICRA noted: “Out of the total 5.5 GW solar power capacity that has been bid out during FY18, as much as 2.9 GW has been bid at tariffs equal to or lower than Rs 3 per unit. The developers have based the bids on expectations of a fall in imported module prices and certain other advantages like the availability of land and evacuation infrastructure for projects in solar parks.”

Quality of the local products remains an issue. Research firm PI Berlin recently argued in a report that price pressures in the Indian market meant that little attention was paid to PV module quality.

“The Indian market is one of the most profitable yet risky for project developers and investors in photo-voltaics (PV or silicon-based solar panels). While large-scale projects of over 100 megawatts are now common, the investment risks caused by the climate, poor installation and lack of proper maintenance is on the rise,” PI Berlin said, in effect calling the numbers on which several Indian solar power projects are based questionable.

Industry analyst, Urvish Dave agreed: “It seems that the current focus is merely on reducing the price per kWh. This in turn is severely affecting the quality of solar project installations,” he said.

However, even after the new tariffs the sector may still be attractive to investors. Dhavan Shah, a power sector analyst at brokerage firm KR Choksey, pointed out that the price of Rs 3 per KwH in renewables when compared to Rs. 11-12 per KwH for thermal power could see a rush for Indian states signing long-term power purchase agreements for renewables.

“We will see the adoption of more green energy as against thermal in the years to come which could result into strong renewable capacity additions,” Shah argued in a note.

Japan’s SoftBank teamed up with Taiwan’s Foxconn and India’s Bharti Airtel to grab solar projects in Karnataka at a price of Rs. 2.82 per unit.  Other key investors include GIC of Singapore and the Abu Dhabi Investment Authority (ADIA), which has bought large stakes in one of India’s biggest renewables players, Greenko, which has a current portfolio of 3.2 GW with about 2 GW in the pipeline.

Greenko recently acquired Orange Renewables for nearly $1 billion in enterprise value, adding 750 MW of operational wind and solar generating plants in five states – Andhra Pradesh, Karnataka, Madhya Pradesh, Rajasthan and Maharashtra. It’s next phase of growth will see 15 GW of power projects across hydro, wind and solar, the company said.

The Adani Group’s renewables business, Adani Green Energy, with an installed capacity of about 2 GW, is trading at about Rs. 63 per share, up from Rs. 32 on June 17 when it listed. Its market capitalization is about US$1.25 billion.

ReNew Power, an independent power producer with a capacity of 5.8 GW, is backed by Goldman Sachs, Canada Pension Plan Investment Board (CPPIB), Abu Dhabi Investment Authority and Japan’s JERA Co. ReNew is planning a mega IPO of US$378 million. The company recently committed to investing Rs. 130 billion, with 1 GW of solar power and another 1 GW of wind over the next five years, in Andhra Pradesh.

Industry analyst Dave said: “After imposition of the duty one can expect about a 5-8% increase in overall project costs.” He expects a minimum tariff revision and a per unit price hike of about 12-18% per unit post imposition of the safeguard duty.

This price rise will nevertheless keep pricing attractive given the roughly Rs. 7-8 difference per KwH between solar and conventional thermal power. For India’s power ambitions, the sun and wind may be favorable, but only time will tell if its Icarus comes crashing down.