India faces growing pains for its solar market

India may be on its way to becoming a major solar market, but that path is far from obstacle-free. Already reports are emerging about tales of growing pains, including component shortages, dust storms that impair solar projects and policy changes that threaten the use of renewable energy credits to bolster more solar development.

A Bloomberg story, quoting an Indian government official, reported that roughly two-thirds of the planned 500 MW of solar thermal power projects will likely be delayed or shelved before they are due for completion in the first half of 2013.

The assessment is a sober reminder that solar energy power plants are big construction projects that could be stalled by one of the many pieces that must come together to make them work. Securing permits and financing is typically a huge challenge even in places with policies and subsidies in place to promote solar energy development. California, for example, has seen delays and the demise of many solar energy projects. Historically, 30-40 percent of the proposed renewable energy projects (which would include not just solar but wind and others) have failed to become reality.

India has become a magnet for solar equipment manufacturers and power plant developers from around the world. The country’s national and state governments have incentives in place to entice solar energy development, and India indeed has become a big destination for solar panels from companies such as First Solar(s FSLR), Suntech Power (s STP) and Trina Solar (s TSL) in the past two years.

India wants more renewable energy to help provide overall power — the country’s middle class, and accompanying GDP are growing rapidly, and power shortages are a common occurrence. About 25 percent of the country’s population, or 288.8 million people, have no access to electricity, according to the International Energy Agency. India also wants more clean power to help reduce its heavy carbon footprint.

Solar thermal power plants use mirrors to concentrate sunlight for producing steam, which then drives a turbine and generator to make electricity. India’s solar thermal developers are facing a shortage of the fluid that receives the sun’s heat to generate the steam because two major suppliers can’t produce it fast enough to meet demand, Bloomberg reported.

Heavy dust also is a problem for Indian solar thermal projects. Apparently developers are realizing that dust in the desert, where they are developing projects, can seriously disrupt the direct sunlight that maximizes the solar electricity production. That means their projects could end up generating far less profits than expected over time.

It should come as no surprise that dust can make a significant impact on the solar power plant performance and not just those that use solar thermal technology. Projects like First Solar’s solar panels in Abu Dhabi require regular washing to minimize the impact of dust, while First Solar’s other projects in the U.S. don’t need the hosedown.

Solar electricity accounts for a fraction of the world’s electricity supply, so solar power plant development is relatively new in the history of power generation. Better technology needs to come along to reduce the impact of dust on solar power generation or to create more accurate forecast and modeling of dust storms so that developers don’t end up spending money on projects before realizing that they have picked the wrong locations.

There also is trouble brewing in India’s effort to use renewable energy credits to boost solar energy development. Energy credits are associated with each project, and they are bought and sold by solar power plant owners to help finance future projects. Utilities could buy them to meet their government mandates for increasing the amount of clean power they must provide to their customers.

The Indian government is setting a range of prices for the current and future energy credits in an effort to provide assurances and some predictability for developers to map out their project finances into the future. But it recently announced policy changes that would lower the prices and likely cause investors and developers to rush to get their projects completed before the prices are set to fall, according to market research firm Bridge to India.