There are few places in the world where the opportunity for solar power is more blindingly obvious than India. There are also few industries where the possibility of collaboration between India and the United States is more tantalizing.

But although India’s solar industry is finally taking off, enormous hurdles must be overcome before it can make a meaningful contribution to the country’s rapidly growing power needs, experts and business leaders say.

Two years ago, as part of its National Action Plan on Climate Change, India set out to boost the solar industry through subsidies, setting a generation target equivalent to about 3 percent of the country’s projected power needs by 2022.

The private sector has responded eagerly. With the price of solar energy dropping sharply, and with sun-drenched western states such as Gujarat and Rajas­than launching drives to subsidize solar power, many say the target will be more than met.

“India is a very important market for the solar industry, one of the top three markets worldwide,” said Jayesh Goyal of California-based Areva Solar, a provider of concentrated-solar-power technology. “The general view is that India will reach the 3 percent target before 2022.”

The logic for the Indian solar sector is compelling.

India enjoys more than 300 days of sunshine a year and is desperately short of electricity to power its fast-growing economy. Power cuts are frequent, and reliance on noisy, expensive and polluting diesel generators is widespread; about 400 million Indians are not even connected to the grid.

Last month, Gujarat opened Asia’s largest solar park in a stretch of desert near Pakistan, promising to outstrip its nearest rival, in Golmud in western China. Plans were also announced for a large solar plant in neighboring Rajasthan, a collaboration between India’s Reliance Power and Areva Solar.

But Rajendra Pachauri, who led the Nobel Peace Prize-winning Intergovernmental Panel on Climate Change, said India has taken only a small step in a much longer journey toward renewable energy.

“It can be a game changer, but you need a lot of enabling policies and private-sector investors who are prepared to take a few risks,” he said. “You need an extremely forward-looking R & D policy and infrastructure, and I am not so sure that is in play yet.”

‘Consolidation will happen’

India lacks the technological expertise and access to cheap capital that the solar industry relies on. That is where companies such as Azure Power come in.

The independent Indian power producer is looking to tap into American technology and capital to satisfy the growing demand at home. The U.S. government’s Export-Import Bank is among its main financiers.

“We are creating manufacturing jobs in the U.S. and service and installation jobs in India,” said Inderpreet Wadhwa, Azure’s chief executive.

In the past two years, the price of solar power has fallen sharply, thanks to a glut of solar panels in the market and falling silicon prices. Where the Indian government was initially prepared to pay up to 17 rupees (about 32 cents) per kilowatt hour (kWh) for solar energy, companies are now bidding for contracts to supply solar power for less than half that price.

Industry watchers say some of the winning bids look unsustainably low and express concern that the fast-growing Indian market has attracted “fly-by-night” operators more intent on making a quick buck than making a long-term commitment to the industry.

“As with any upcoming industry, people become infatuated, thinking they can generate IT-

industry levels of profitability,” said Vineet Mittal, managing director of Welspun Energy, a division of an Indian conglomerate manufacturing everything from steel pipes to bed linens that won the right to supply solar power from Rajasthan for 8 rupees/kWh.

“There will be good, bad and ugly experiences in the industry, some success stories, some failures, but eventually consolidation will happen,” Mittal said.

Nevertheless, companies such as Welspun, Azure and Areva are confident that India’s reputation for low-cost innovation and engineering will help drive down installation and operating costs over time.

Such is the optimism in the solar industry — or the bravado, perhaps — that companies predict the industry will soon be able to live without subsidies and compete with coal-fired power stations, which charge about 4 rupees/kWh.

“It might take two years, it might take four years, but it is not going to take 10 years,” said Deepak Kukreja, head of strategic planning at Moser Baer, a leading Indian CD, DVD and solar panel manufacturer. “That is the tipping point, when the sector will skyrocket.”

‘The only answer’

This being India, though, nothing is quite as simple as it sounds.

The government is also eager to promote domestic manufacturing in the solar industry and is wary of what some people see as the “dumping” of cheap Chinese solar panels on the Indian market. To qualify for the subsidies, some components of crystalline silicon panels have to be manufactured locally.

The restrictions frustrate many companies, which complain that the goals of promoting domestic manufacturing are not compatible with the goal of harnessing global innovation to produce solar energy as cheaply as possible.

John Smirnow, trade and competitiveness expert at the Solar Energy Industries Association in Washington, warned that India needed to be careful not to break World Trade Organization rules or do anything that would force the most innovative companies to invest elsewhere.

This year, most companies are focused on providing on-grid power, in which entry barriers to the market are low and margins are squeezed. Much greater opportunities and much more money, many argue, will be made in the second phase of India’s solar energy story, supplying small-scale solar products to power tens of millions of rural homes.

Industrialists say this could transform lives and the economy of rural India in the way that mobile phones did in the past decade. Azure’s Wadhwa calls it potentially “the most significant rural electrification effort ever.”

It is an attractive vision, but one that still appears some way out of reach, simply because India’s banks are unable or unwilling to provide the rural loans that this kind of effort requires.

Awareness of solar power’s true potential among the public, or even within the government, remains low, Pachauri said. The Power, Coal, and New and Renewable Energy ministries act like “empires in themselves and don’t come up with anything that makes integrated sense.”

Yet Pachauri and others say that if India does not soon embrace renewable energy more aggressively, it will face staggering bills for oil and coal imports. In a sense, it is that logic that gives many people the most hope.

“This is the only answer to address the rural energy needs,” said Aninda Moitra, president of the Indian subsidiary of California’s Applied Materials, another leading manufacturer of solar panels. “It’s not happening smoothly — but it will happen.”