Us4 Billion Support From Us For Renewable Energy In India

IN BRIEF

US President Barack Obama on 25 January offered to help finance the growing renewable energy (RE) sector in India. US federal agencies have committed a total of US4 billion for both projects and equipment sourcing. Supporting India's ambitious target of 100,000 MWe of solar energy by 2022, Obama said the US stands ready to speed this expansion with additional financing.

IN DEPTH

The US Trade and Development Agency has decided to provide a US2 billion loan to RE projects, while the US Overseas Private Investment Corporation will lend US1 billion to clean energy projects in India. Already, in September 2014, the US Export-Import Bank (EXIM) Bank signed an agreement to finance renewable projects over a period of 18 years. This includes US1 billion in funding to help developers in India sourcing equipment from the US.

To further mobilise private capital for the clean energy sector, the US Agency for International Development will install a field investment officer in India this summer, the White House Press Office said in a statement after the Obama-Modi summit. Obama reiterated his administration's support for India's clean energy effort during his address to CEOs from top US and India businesses in the evening on 25 January.

India needs US 200 billion of investment in renewables by 2022, half of this from imports, to raise its solar power capacity to 100 GWe and its wind power capacity to 60 GWe. Projects will range from ultramega solar parks in desert and arid regions to rooftop installations and wind power plants. This ambitious renewables programme will require huge finances, for which India has already sought support from various multilateral agencies, including the World Bank.

The Modi Government has also announced the launch of a series of 1000 MWe grid-connected solar PV power projects that carry a mandatory condition that all the PV cells and modules used will be produced under the government's 'Make in India' scheme.

First Solar and SunEdison are two US solar companies that already have a sizeable presence in the solar market in India, and together with domestic companies, are expected to invest US6 billion in India in the fiscal year to 31 March and US14 billion in the next fiscal year. SunEdison has announced setting up, along with Adani Enterprises, a US4 billion facility at Mundra in India, billed as the largest solar photovoltaic (PV) manufacturing plant in India. Currently, many Indian companies prefer to import low-cost PV panels from China or thin-film products from the US.

In addition to the US, Germany is keen on working with India in the solar and auto manufacturing sector. At a meeting on 19 January with the Confederation of Indian Industry (CII) in New Delhi, German Finance Minister Wolfgang Schauble expressed the German manufacturing industry's readiness to participate in the 'Make in India' policy. Germany is the world leader in solar energy generation, with the largest solar PV installed capacity.

The Ministry of New and Renewable Energy (MNRE) plans to set up 1600 MWe of rooftop solar power capacity across the country as part of the National Solar Mission. The ministry wants the German government to back a loan of about US1.3 billion sought from German bank KfW in order to promote rooftop solar systems. German bank KfW is keen on lending the amount for the solar rooftop project to India, although hedging the cost of the loan will make it expensive for borrowers and defeat the purpose of accessing funds from abroad, an MNRE official said. The Asian Development Bank (ADB) has also committed to provide US150 million to fund India's RE programme.

While the country aims to add around 4500 MWe of solar power capacity during this financial year to the current 2600 MWe, the manufacturing capacity in the country remains at only 1500 MWe. The government wants to push domestic manufacturing in the renewable sector under its 'Make in India' programme. Wind energy turbines in the country are mostly domestically sourced, but 70% of the country's solar energy installations are based on imported components, mostly from China and the US.

Clean energy requires huge finances. India will need more investments coming from diverse resources from within and without. In order to achieve its renewables goals, the government is determined to attract companies and make it easier for them to do business in the country. New Delhi already allows 100% foreign direct investment (FDI) in the renewable power sector, and encourages technology transfer.

US companies and the administration are keen to fund Indian projects in the clean energy sector. The US is looking for a 'government-to-government' meeting in addition to business meetings during the Energy Global Investors Meet & Expo (RE-INVEST) on 15-17 February in New Delhi. Major announcements involving American loans for renewable projects, green bonds, and venture capital and pension funds are likely, after President Obama and PM Modi pledged to collaborate in the area of clean energy and to combat climate change.

MNRE officials are hopeful of big-ticket deals being negotiated next month during the RE-INVEST meet - a gathering of industry leaders, bankers, investors and central bank officials from the US, India, Europe and other regions. A team of senior US officials and executives from funding agencies, ministries and companies will interact with Indian officials from the finance ministry, the Reserve Bank of India and other agencies to help India meet its ambitious target.

The MNRE is determined to ensure that new renewable capacity is built with innovative and sustainable financing models, not with subsidies and handouts. The traditional subsidy-based model has resulted in 30,000 MWe in renewable capacity over decades. The government now wants a significantly larger and faster capacity addition.

India, being the world's third-largest greenhouse gas (GHG) emitter, is facing pressure regarding climate change. Even though it is the voice of the world's developing countries in UN talks on climate change, India is reluctant to commit to emission targets on the grounds that this could impede its economic growth, which is vital to lifting millions of Indians out of poverty. Instead, Modi has made it a priority to expand India's clean energy capacity and reduce the reliance on polluting fossil fuels.

In that context, statements on climate by Obama and Modi to collaborate closely in the renewable sector will help not only achieve energy security but also help to fight climate change through clean energy projects, low gas emissions technologies and efficiency solutions, and thus help India in becoming a low-carbon economy, while fulfilling its developmental objectives.

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