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One executive in the Indian solar energy sector describes the mood as “over-exuberance”. Another calls it “suicidal”.

Months of highly aggressive bids for solar power projects, led by foreign developers including Finland’s Fortum Corp, Canada’s SkyPower and now-bankrupt SunEdison of the US, have started to shake the confidence of investors in one of the world’s fastest-growing renewable energy markets.

Boosted by the renewable energy ambitions of the Narendra Modi government, elected two years ago, India is on track to install about four gigawatts of photovoltaic panels this year — nearly double last year’s total and more than four times the capacity launched in 2014.

But the electricity prices contracted in recent reverse auctions are so low — sometimes half the levels in China and close to the cost of coal-generated power — that bankers are starting to get cold feet about the viability of some of the projects springing up from Tamil Nadu in the south to Rajasthan in the north.

In January, Fortum won a 70-megawatt, 25-year contract in Rajasthan from National Thermal Power Corp, the Indian utility, at a record-low price of Rs4.34 per kilowatt-hour.

SunEdison set a previous record in November when it won all 500MW in an auction in Andhra Pradesh with a bid of Rs4.63/kwh.

“It almost seems like they are doing too much too fast right now,” says Raj Prabhu, chief executive of Mercom Capital, a clean energy communications and consulting firm. “Anything below Rs5 is difficult to finance.”

A senior Indian executive in the solar industry, who asked not to be named, says lenders such as State Bank of India now typically insist on proof of business experience in the sector and robust debt service coverage ratios. “There are many people who are not getting finance,” he says. “Investors are very cautious.”

Bob Smith of Mytrah Energy, the Aim-listed Indian developer of wind and solar projects, says the company is not bidding for any more assets right now “because the prices are too low”. He blames the low bids on an “over-exuberance” in the solar sector that is not unique to India.

Others are more damning. Ajay Prakash Shrivastava, president of the Solar Energy Society of India, told the business newspaper Mint in an interview that Fortum’s record-low bid was “a suicidal tariff”. Mr Prabhu says auction prices have been falling faster than costs and that the spread of ultra-low bids is “like a contagion” across India, with different states demanding ever-lower bids regardless of the condition of infrastructure or the amount of sunlight on their home turf.

Consolidation in the sector now looks inevitable, developers and analysts say. Following a global debt-fuelled expansion binge, SunEdison is seeking buyers for its Indian projects, and on Thursday the group sought bankruptcy protection in the US. SkyPower is looking for partners in India.

Welspun Energy, a successful renewables company spun off from a family textiles group that is the largest operator of solar assets in India, is also seeking partners or buyers for its solar parks, although managing director Vineet Mittal declines to comment directly on a possible exit from the business.

“We always keep on exploring funding opportunities and we are in an industry that requires a lot of money,” he says. “We are not under pressure to do anything crazy.”

Some investors fear the industry’s reputation will suffer — making financing yet more difficult — if projects won at auction are not completed by developers as agreed.

In addition to the challenge of restricted future income because of the low bids, developers now face the likely rise of raw material costs, sometimes inadequate power grid infrastructure and persistent non-payment of bills by some state electricity distributors.

The solar executive says one reason Indian banks are cautious is that they are still hurting from bad loans made for road-building and thermal power projects during previous booms in those businesses.

“All of these concerns are going to make sure that 50 per cent of the projects will not come [through],” he says. “Right now India is at the cusp. If people continue to bid aggressively, a lot will not be able to deliver, a lot will go out of business. Almost every Tom, Dick and Harry who thinks he can flip the project is coming.”

Mr Prabhu agrees there is a “danger” that some developers will not deliver, but he adds: “It might take something like that to shake up the market and add some reality to it”.

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