USTDA to invest USD 2 billion in India for renewable energy projects

In a US-India joint statement released yesterday (26th January 2015), the US reiterated its intent to support India’s proposed targets on clean energy and climate change. The statement includes seven measures: expanding Partnership to Advance Clean Energy Research (PACE-R), expanding Partnership to Advance Clean Energy Deployment (PACE-D), accelerating clean energy finance, launching air quality cooperation, initiating climate resilience tool development, demonstrating clean energy and climate Initiatives on the ground and concluding MOU on energy security, clean energy and climate change (refer).

  •  Based on the recent announcements, projections for overseas funding commitments for Indian solar projects and green energy corridors has gone above USD 8 billion
  • The Indian government expects significant international support, especially from the US, in meeting the 100 GW of solar by 2022
  • The Indian government’s emphasis on simplifying rules and making it easier to conduct business in India is the correct policy path to pursue

On clean energy finance, the US President Barack Obama provided an additional investment commitment of USD 2 billion for renewable energy in India by US Trade and Development Agency (USTDA). This is over and above the USD 1 billion commitment made by US-Exim supporting made-in-US equipment supply to India. A MoU for the import credit commitment has already been signed between US-Exim and Indian Renewable Energy Development Agency (IREDA). It is not clear if the USTDA commitment involves a compulsory or preferential US import requirement. Financing by Overseas Private Investment Corporation (OPIC), US government’s developmental bank, did not give any special preference to US equipment while financing Indian solar projects by Azure and SunEdison in the early days of the market.

These new announcements take the proposed overseas funding commitments for Indian solar projects and green energy corridors to above USD 8 billion (refer) including other similar (mostly in-principle) commitments made by World Bank, IFC, kfW, ADB and US-Exim. To put this in perspective, India needs investments to the tune of USD 100 billion until 2022 for the ambitious 100 GW target.

India has been using the target of 100 GW solar by 2022 as a key bargaining chip in climate change negotiations. The Indian government expects significant international support, especially from the US, in meeting these commitments. The support pledged by the US falls way short of those expectations. But it needs to be appreciated that unlike countries like China and Russia where it is a centrally driven command economy, investments from USA are driven by the private sector. Rather than expecting the US government to make significant commitments, India needs to provide an attractive investment environment for the privately owned US companies and financial institutions (and from other countries).

The Indian government’s emphasis on simplifying rules and making it easier to conduct business in India is the correct policy path to pursue. Together with a stable regulatory regime and clean governance, that will drive investments not only in renewables but also in the wider economy.

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