Renewable energy projects led by solar and wind projects have become the key focus of a country quite keen to scale up its power capability rapidly. Here is an analysis of the factors behind this trend in India and its ability to attract the $100bn investment required by 2022. The renewable energy sector is currently emerging as the only viable driver of the Indian energy industry, despite accounting for only 13.0 per cent (ex hydro) of the country's 298GW installed power capacity as of FY16. It is largely a result of thermal projects being in the doldrums due to low PLFs, delays in clearances, lack of PPA and fuel shortages. Although the wind sector has historically led capacity addition in the renewables space, solar has of late emerged as the clear favourite growing at a CAGR of 60 per cent over the last four years to reach an installed capacity of 6.7GW as of March 2016, from negligible solar capacity installation in March 2012. In FY16, the solar sector has emerged as the leading renewable energy resource in India, achieving 2.15x of its target in the year. India is already ranked third on the 'EY Renewable Energy Country Attractiveness Index' in terms of Solar PV and is underpinned by the huge resource availability the country has at its disposal (250-300 sunny days annually and one of the highest solar irradiation levels in the world). Despite the acceleration in capacity development, we are still at a nascent stage of the solar sector's potential (ranked 7th among top 10 countries by installed solar capacity). Going forward, driven by an active interest from the central government, the momentum is expected to continue. Though India currently lags behind traditional renewables leaders such as Germany and China, its ambitious solar targets can raise it to among the highest in the world over the next few years. In June 2015, the Indian government officially set the solar target for the country at 100GW by FY22 - a capacity uptick of 15x over the next six years. Of this 100GW, 40GW is to be achieved via solar rooftop installations while the remaining 60GW will be utility scale projects. Hence, the country is expected to add 15+ GW per year going forward. While the sector has outpaced the target of 1.4 GW in FY16, a massive task still lies ahead if the pace of capacity addition has to pick up by 4x next year (3.0 GW installed in FY16). Building out the ambitious solar targets would not only require continuous support of all stakeholders, the sector will also need to attract $100 billion of investment till FY22. Given this investment requirement, the success of the sector will depend on its ability to attract foreign capital. To attract foreign capital, the government has come up with the concept of transparent online reverse auctions and solar parks, in which land and transmission is made available by the state. The initial target for solar parks was 20GW, which is being revised upwards. Several foreign investors have entered the market in recent years attracted by India's significant plans and strong government support to the sector. While players such as Fortum, SunEdison and EDF Nouvelles have been present in the industry for some time, big overseas money has now started coming into the market with Japan's Softbank announcing its intention to pump in $20 billion toward developing 20GW of solar projects. Foreign developers have been outperforming domestic participants in competitive bidding; however, despite government support to the sector, setting up of capacity outside solar parks can still be a challenge for international players. Besides the risk of DISCOM credibility, instances of regulatory indecision and aggressive bidding by some developers still remain as issues. New investors in the country are looking to form partnerships with local players (a strategy utilised by Softbank, EDF in its partnership with ACME, or Abraaj Capital in its partnership with Aditya Birla Group), instead of bidding for Greenfield projects directly. In addition to developing utility scale capacity for meeting renewable targets, development of rooftop solar (in which India is targeting a huge capacity of 40GW) is a major issue. The regulatory framework needed for developing rooftop solar is still evolving, with restrictions on rooftop capacities, reduced prices for power back supplied into the grid (net metering) etc. Further, while in theory non-utility grade solar projects can be used to supply power in rural areas, in practice, there has been little development on the ground in this regard. A key issue with rural supply of solar power is that grid supply to rural consumers is highly subsidised or almost free. Hence, when grid supply networks are not in place (known as un-electrified rural areas), solar power works well. However, the moment grid supply reaches such un-electrified areas, there is a marked reluctance on the part of the rural consumers to continue to pay for solar power. The issue is compounded by the extreme poverty levels in rural areas, which implies that rural consumers are simply in no position to pay higher for a more reliable source of power. The access to low cost capital is another key requirement that is inhibiting the growth of the sector. While there are subsidies in place for setting up rooftop solar capacity, financing for balance project cost is required in rural areas. Innovations such as the Structured Lending programme - multilateral institutions lending to PSU's for onward lending in rural areas for rooftop solar - are expected to overcome the issues on access to low cost capital. The advent of Green Bonds too is expected to aid the search for avenues of low cost capital for developing projects (both rooftop & utility scale). Currently, India lags significantly in the issuance of Green Bond, which are expected by Moody's to globally reach $50 billion in 2016 (up from $42 billion in 2015). In India, it is mostly lenders such as Yes Bank and EXIM Bank who have tapped the global green bond market, whereas CLP India and Hero Group have tapped the domestic green bond market. With the Securities Exchange Board of India (SEBI) approving new norms for issuance and listing of Green Bonds in the stock market in January 2016, there should be some uptick in the issuance of these instruments that can see participation from several investor classes with a lower cost of capital than traditional lending costs available to solar project developers. However, for Green Bonds to be successful, an enabling regulatory framework will have to be put in place which makes it mandatory for domestic institutions to invest in Green Bonds. To sum up, while the achievement of the current solar target of 100GW by FY22 will propel India to within the top five countries in the world in terms of installed capacity, there is limited chance that the present approach will achieve the 15x growth that is still required. An adjustment of the sector dynamics is needed to sustainably attract low-cost foreign capital, which will be critical to maintain the pace of growth. The above steps will ensure that the Indian solar sector emerges as a world leader in the years to come.