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New Delhi: There are no takers for funds promised by the US to finance renewable energy projects due to the uncompetitive pricing of American equipment manufacturers compared with those from China and south-east Asia, Indian renewable energy firms say.

“Most of the sourcing for solar equipment, including photovoltaic cells and modules, is done from China and Malaysia due to the competitive pricing. Similarly, in the case of wind power, the domestic market is mature in terms of technology and manufacturing," said Sumant Sinha, chairman and chief executive officer, ReNew Power, a renewable energy generation utility. “The US exim line will have limited use in that context as it is meant to finance the export of US-made goods to India, of which we are likely to import very little, even with the so-called cheaper financing."

Interestingly, state-owned Indian Renewable Energy Development Agency (Ireda), which is supposed to facilitate US private sector investment in Indian clean energy projects, agrees with this.

This comes in the backdrop of US president Barack Obama on Monday committing $2 billion by US Trade and Development Agency (USTDA) for developing green energy projects in India. This commitment is in addition to a $1 billion medium- and long-term guaranteed loan from Export-Import Bank of the United States, which was inked in November last year.

“Though the US government provides long-term project financing for their equipment at low cost, but if we add the hedging costs, due-diligence costs and strict compliance scheme costs of US Exim, etc., which is 8-9%, the overall rate of interest is at par with what Indian institutions give," said Ketan Mehta, director, Rays Power Infra, which builds solar power plants. “Over and above this, there is a higher equipment cost without any significant increase in yield. Hence, it does not make economic sense."

India has substantially revised an earlier solar energy target of achieving 20,000 megawatts (MW) of capacity by 2022 to 100,000 MW. It plans to put in place 60,000 MW of wind power capacity by then. Both targets would require around 10 trillion of investment. The National Democratic Alliance (NDA) government plans to float five funds of $5 billion each targeted at promoting green energy sources.

“The idea is to create these funds so that they can lend to the clean energy projects at an interest rate of less than 10%," an Indian government official aware of the government’s strategy said, requesting anonymity.

In response to a question about whether there were no takers for the funds promised by the US for financing renewable energy projects due to uncompetitive pricing, an Ireda spokesperson in an emailed response said, “Yes, to a certain extent. Tier 1 Chinese manufacturers are aggressive in the market. However, for some specific technologies like thin-film technology, US suppliers have been able to capture a substantial share in market and the cost is also competitive."

The US embassy said: “While the details of the financing for clean energy projects announced during the President’s visit still have to be worked out, we are confident they will make world-class US technology attractive and competitive for the Indian market."

Queries emailed to the spokespersons of new and renewable energy ministry remained unanswered till press time.

“There has been a lukewarm response to the earlier announced funding scheme by the US in the solar space as the US equipment suppliers in general have not been able to compete with the Chinese players in terms of costs," said Abhishek Poddar, a partner at consulting firm AT Kearney Ltd. “Funding availability on its own cannot be a differentiating factor for the US as most of the Chinese players are also able to offer similar funds and loans for their supplies."

“Having said that, the level of engagement between both countries need to go beyond financing and loans. American equipment suppliers need to become competitive in terms of total delivered cost vis-à-vis Chinese manufacturers to see rapid uptake in the Indian market," said Poddar.

“With significant solar energy requirements driven by the government’s target of 100 GW of solar capacity addition and thus increased focus on improving share of renewable in the overall energy mix, funding commitment from the US is a positive development for the sector as it helps to partly meet such funding requirement in a cost effective manner," said Girish Kashiram Kadam, senior vice president, corporate sector, at rating agency Icra Ltd. “Nonetheless, cost-competitiveness of equipment to be sourced from the US remains critical in view of declining solar energy tariff due to competitive bidding route adopted in many cases for procurement of such energy by the state utilities."

There is growing interest from US firms to set up factories in India. US-based SunEdison Inc. announced this month that it plans to build a solar photovoltaic manufacturing facility in India in a joint venture with Adani Enterprises Ltd with an investment of around $4 billion.

Also, First Solar Inc., which builds large solar farms mainly for utilities, is exploring an opportunity to set up manufacturing operations in India.

While queries emailed to a SunEdison Inc. spokesperson remained unanswered, Sujoy Ghosh, country head, First Solar, India, in an emailed statement said, “Today, the ability of these lines of credit as announced by US Exim/USTDA, to access the real projects on the ground is more a function of the credit risk of the PPA (power purchase agreement) counter-party (discom) and the credentials of the promoter. Given that a lot of the recent programmes have been announced by the state utilities, and with no transparent credit rating system available, getting overseas financing on a pure non-recourse basis is a challenge to these projects."

“However, with a 20+% share of the market, First Solar (as a US company) has amply demonstrated its technology competitiveness in India. Compared to commodity Chinese poly-silicon modules, First Solar’s 5-8% higher energy yield in Indian climatic conditions and more stringent standards of reliability provide the developer the lowest cost option on a life cycle basis, which is how any power generating equipment is procured by most IPP’s," Ghosh added.

The joint statement issued by India and the US made specific references of support to India’s ambitious green energy programme during US President Barack Obama’s visit.

However, there are some who believe that the US funds will help India’s push for green energy.

“At a time when capital is likely to be a constraint for scaling up of solar power to 100 GW, the announcement from US President to support over $4 billion investments in clean energy projects is timely and welcome. US financial institutions have a history of investing in Indian solar sector. Overseas Private Investment Corporation, US Exim and USTDA have done several projects with us that have led to lowering life-cycle cost of solar power for consumers in India with industry leading technology," said Inderpreet Wadhwa, founder and chief executive officer, Azure Power, a solar power firm.

“The $2 billion investment into renewable energy sector is a welcome move. This is a significant development as this will facilitate easy financing towards achieving 100 GW by 2022 target," said Ratul Puri, chairman, Hindustan Powerprojects Pvt. Ltd, a generation utility. “I also see this investment building a further positive sentiment for the RE (renewable energy) sector and generally providing 24x7 power access."

India’s National Action Plan on Climate Change recommends that the country generate 10% of its power from solar, wind, hydropower and other renewable sources by 2015, and 15% by 2020.

ABOUT THE AUTHOR
Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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