USAID to share risks to make US financing more popular

New Delhi: The United States Agency for International Development (USAID) plans to share risks on US loans for India’s green energy push in a bid to increase their appeal, according to John A. Beed, USAID’s mission director for India.
So far, US financing for renewable energy projects in India using American equipment has found no takers, since many project developers opt for cheaper goods from China and South-East Asia.
In addition, even though interest costs of foreign loans are lower, project developers have to hedge their foreign currency exposure. The additional hedging costs of about 6-7% reduces their appeal.
The US Trade and Development Agency (USTDA) and the Export-Import Bank of the US have committed $2 billion and $1 billion, respectively, for developing green energy projects in India.
In response to a direct question about the unpopularity of US funds, Beed said in an interview: “That’s (hedging or currency risk) definitely a constraint, but I think there are things that can be done to access or unlock financing. One of the tools that we have at USAID is called the Development Credit Authority (DCA), where we are able to share a part of the risks on loans and we can apply it to different sectors of interest or different kinds of areas of investment. We can and have done this in the clean energy space before.”
The low-cost funds raised will potentially help cut the cost of clean power and make it easier for developers to sell power to distribution utilities, whose inability to effect necessary, but unpopular, tariff hikes has saddled them with losses and restricted their ability to buy costlier green power.
The government is aiming to provide green power at less than `4.50 a unit. The Reserve Bank of India last week notified renewables under priority sector lending.
The US offer comes in the backdrop of concerns beginning to be raised over India’s ambitious targets to crank up solar and wind energy production, thanks to the precarious finances of the primary customers—the state government-owned distribution utilities.
Companies planning solar and wind energy projects should consider the entire lifecycle value of the project and not just upfront costs while choosing equipment suppliers, the US Export-Import Bank suggested earlier this year, defending higher prices quoted by American equipment vendors.
“One of the areas that has been most beneficial, if I can say that, is the area of clean energy cooperation,” said Beed, adding, “And that is expanding because of the priority Prime Minister (Narendra) Modi’s government is putting. Very ambitious aims they have in terms of increasing the portion of their power generation coming from renewable energy and of course our own domestic priority that President (Barack) Obama places on clean energy and climate (change), secretary (John) Kerry places on cooperation with other countries overseas on clean energy. So, particularly in the clean energy area, we see a very exciting, expanding body of cooperation coming.”
The Narendra Modi government has pushed renewable energy to the top of its energy security agenda, seeking to minimize India’s dependence on coal-fuelled electricity. India needs as much as $200 billion to meet its target to install 100 gigawatts of solar power and 60,000 megawatts of wind power by 2022. The National Action Plan on Climate Change recommends that India generate 10% of its power from solar, wind, hydropower and other renewable sources by 2015, and 15% by 2020.
“We have mobilized in a very short period of time—maybe two years—over $2 billion in financing for clean energy deployment. And there are plans to do more with that,” Beed added.
The Partnership to Advance Clean Energy—Deployment Technical Assistance Program (PACE-D), a US-India bilateral initiative, is also being leveraged to create expertise to help India raise green funds. PACE-D is funded by USAID.
Source: Mint; 29 April 2015
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