A $20 billion joint venture aimed at Indian renewable energy is the latest sign of fresh investment in the sector as Prime Minister Narendra Modi seeks to aggressively boost output.
SoftBank, Bharti Enterprises and Taiwan's Foxconn Technology recently announced the creation of a joint venture firm called SBG Cleantech to develop alternative energy plants across India.
The move comes after India's cabinet approved a drastic increase in capacity targets. By 2022, Modi wants solar capacity at 100 gigawatts (GW), a fivefold increase from the previous target of 20GW. That averages to around 14GW a year, more than the amount of solar power added in the U.S. and China last year.
While the government has yet to explain how it plans to achieve such ambitious targets, overseas investment is expected to play an essential role.
"The Indian government with Modi on board has taken aggressive steps to accelerate renewable energy investment from foreign companies, and we anticipate more going forward," said Holly Hu, senior analyst at IHS Technology.
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Indeed, the sector has witnessed a flurry of recent activity. Earlier this month, U.S. solar tech provider SunEdison said it planned to commit $15 billion to the country over the next seven years, as well as invest $2 billion in a joint venture with India's Adani Group to set up a factory. Meanwhile, Modi's recent visit to China last month yielded several memorandums of understandings (MOUs), setting the stage for an influx of mainland investment.
India permits 100 percent foreign direct investment in the renewables sector, but overseas companies still prefer to enter the market through joint ventures (JVs), explained Hu.
"For an emerging market like India, there's more risk and transparency issues involved so foreign investors want a partner. The government also prefers JVs so they can expand local presence."
Moreover, Indian interest rates are high relative to the rest of the world so companies would rather use foreign bank loans to get low rates, she added.
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