Which country will emerge as the next best market for solar energy? Surprisingly, the answer is India, with its abundant sunlight, exploding demand, and gigantic, mostly off-grid population.

That’s according to a new report by a new report by Lux Research examining emerging markets for solar power.

The current global poster child for solar is Germany, which added 8 gigawatts (GW) of solar capacity in 2010 and accounted for half of the global solar market. At minimum demand, the entire German electricity grid consumes around 31 GW. However, Germany’s solar dominance may be starting to wane since its generous guaranteed rates for solar power are being reduced.

The other top markets globally in 2010 were Japan, China, and Italy. Italy has been booming with installations in 2010 rising to 1.9 gigawatts, up 100 percent from 2009, according to research firm iSuppli.

Overall though, the pace of installations in Europe is slowing. IHS Emerging Energy Research is projecting total new installations of 10 – 13 GW across Europe in 2010, declining to between 7 and 9 GW in 2011. The U.S.currently accounts for only 6.5% of global solar PV (photovoltaics – solar panel technology) demand, and most of that comes from California. A previous report from Lux Research predicted that China’s demand will grow strongly in the next few years as will North America’s.

Beyond those countries, Lux Research evaluated emerging markets based on the quality of the solar resource, current electricity demand and favorable regulatory environment. Countries with high levels of energy imports and low grid efficiency may also be more inclined to encourage solar installations. Based on these criteria, it identifies India as a top target for solar energy.

India has an enormous energy gap. Demand is expected to double by 2030, and 400 million people in the country have no access to electricity. 40 GW of this demand is estimated to be addressable by solar.

India also has the poorest grid infrastructure of the countries surveyed. 30 percent of all electricity is lost during distribution due to poor infrastructure and theft. This makes it suitable for smaller, distributed installations of solar, as well as utility-size projects, since they can be used to serve off-grid populations and reduce electricity losses.

India’s National Solar Mission has introduced cash grants and favorable electricity rates for solar installations. $1 billion of funding has been allocated up to 2013 to promote 1 GW of utility-scale plants, 100 MW of distributed PV installations and 200 MW of off-grid installations. Cash grants of 30 percent of install costs are available for off-grid installations less than 250 KW. India’s solar market has already started to heat up, with the country seeking 300 MW of solar bids this month alone.

Another high-potential market identified in the report is, believe it or not, the rain-soaked United Kingdom. Although the UK does not have a great solar resource, it has very attractive feed-in tariffs (premium prices for renewable energy) and a streamlined process to approval subsidies. Lux Research estimates that the UK could accommodate 20 GW at 5 percent market penetration.