Why should we support clean energy in India? India needs to more than double its current capacity to over 300 gigawatts (GW) by 2017. That could be dirty energy or clean.
To move it toward clean energy, the Overseas Private Investment Corporation (OPIC) just approved $250 million in loan guarantees to prod India’s premier infrastructure lender to expand its lending to building renewable energy infrastructure.
President Obama has raised the Bush era level of investment in renewable resources overseas through OPIC, by an order of magnitude—from a mere $10 million invested in 2008 to $1.1 billion in 2011.
The biggest jump in OPIC-funded renewable energy was a 10-fold increase between 2010 and 2011—from 71 megawatts (MW) installed in 2010 to 728 MW installed the following year.
But each country is allotted 10 percent, and India is close to its limit.
India, along with China, holds the future for a livable climate in their hands. As a planet, we need to build renewable energy fast in these fast developing countries. If China and India build renewable energy fast enough to keep up with their growth, then a sustainable future is possible. If not, we are all in big trouble. And India has a problem.
Unlike China, which has the political (including lending) structure that’s conducive to big, fast and effective investment in the renewable infrastructure it needs, India has lagged in renewable energy investment, because of a relatively stuffy and bureaucratic banking sector that’s accustomed to coal power financing and not yet comfortable enough with renewable energy to offer sufficient long-term financing.
The Indian government does have ambitious goals of getting 20 GW of solar power on the grid by 2020. But interest rates on the rupee are the highest in Asia. High interest rates do not favor renewable projects, because while these projects have no long-term fuel costs, nearly all of their expenses are upfront.
So, international banks have stepped up lending in the country. Aside from OPIC’s recent $250 million, the Export-Import Bank of the United States approved $103.2 million in financing for two solar deals in India at the end of last year, on top of four previous deals for $73.2 million in renewable energy.
Operating through the EU cap and trade scheme, there are more than 500 registered CDM projects in India, according to the National Renewable Energy Lab. (Europe’s Clean Development Mechanism allows cap and trade participants to offset emissions in Europe by building clean energy elsewhere)
OPIC was founded in the much more public spirited ’60s, and functions as a lender and loan guarantor to small U.S. companies that want to start a project in an underdeveloped country that might be too risky to invest in otherwise. But this administration has really amped up its renewable energy focus.
By providing financing at an early stage until more traditional lenders get comfortable with the risks of new technologies and businesses they’re unfamiliar with, OPIC is supposed to be catalytic for new industries, such as renewable technology. Its financing supports economic growth in emerging markets by leveraging private capital.
These loan guarantees go to developing nations. Just like those the Department of Energy provided to U.S. renewable energy projects, these loan guarantees generate the same or more in private investment, and are only called upon in the event of a bankruptcy, like Solyndra’s. But most government loan guarantees are never actually used, because usually the borrower is able to make the payments to the private lender.
Indian projects now account for 8.5 percent of OPIC’s total loan book. But there is an annual 10 percent limit for any one country, says Peter Ballinger, OPIC’s director of business development.
As of June 2010, India had over 17.5 GW of installed renewable energy capacity, or approximately 10 percent of its installed capacity. The government of India last year established the Jawaharlal Nehru National Solar Mission, under which it intends to commission 20 GW in grid-connected solar power by 2022.
There is no shortage of solar applicants to meet the proposals; over 2,500 MW worth of solar projects vied for the chance: seven times the allotment available for the first round of projects.
Local solar installations were negligible at just 15 MW as recently as 2010, so most of these are built by U.S. companies. Indeed, both OPIC funding and Export-Import bank funding benefits U.S. renewable companies like First Solar and SolarWorld.
So, given the facts about India’s immense needs for new energy generation, about climate change, about India’s likely contribution to that as it adds the energy it needs, and given India’s political will to add more renewables, and its banking problems—it makes sense that OPIC should increase the amount that it invests in India to help get it on a renewable energy trajectory. This is in everyone’s interest.
It is even in our financial interest. OPIC pays its own way, and it generates a profit from its loan guarantees.
Although it is fully self-sustaining from its own revenues, Congress annually sets OPICs administrative allowance, which determines the scope of its lending abilities. What’s left over goes to the Treasury. In 2010, for example, OPICs net contribution to the federal budget was $352 million, marking the 34th consecutive year of reducing the deficit.
Until now, the limit for OPIC investment has been no more than 10 percent in any one country. But the U.S. should consider making an exception for renewable energy investment in India.