Biden’s Big Renewable Energy Opportunity in India
A major question for the new Biden administration is how to accelerate global climate action and set a template for others to follow. Or as Joe Biden is fond of saying: “lead not just by the example of our power, but the power of our example.” So far, his climate team has hit the ground running at home, and is looking to do the same in the international sphere at the upcoming Earth Day Summit on April 22. One simple, golden rule for any incoming administration—but particularly one saddled with many urgent crises to resolve—is to go where there is opportunity and momentum. This should be the golden rule of climate action as well: build on what already exists, accelerate what is taking place, and partner with those making progress.
In few places is there more opportunity and momentum than renewable energy deployment in India. With clean energy technologies now cost-competitive, we can eliminate a quarter of all greenhouse gas (GhG) emissions through renewable energy deployment alone. India contributes just 7 percent of annual GhGs, but as the country’s population continues to swell and its economy develops, global climate progress will depend ever more on its ability to chart a low-carbon future.
Renewable Energy in India
India has historically emphasized its relatively small contribution to global warming in climate talks, invoking the principle of “common but differentiated responsibilities.” It is true that Indian emissions per person are just 10 percent that of the United States, and its cumulative stock of all emissions about the same share (see figure below). However, India’s annual flow of emissions is now half that of the United States and will likely surpass it within the decade. Of course, China remains the biggest roadblock to achieving global climate goals, but its emissions are at least likely to peak within the decade, whereas India’s are just taking off. Importantly, India is just the largest of dozens of developing countries whose emissions will accelerate exponentially unless their development trajectory can be decarbonized.
This is where renewable energy deployment becomes so important. Despite its past recalcitrance in climate talks, India has some of the most ambitious renewable energy goals among large developing countries and is one of the few outside Europe to announce targets at all (see table below). This is exactly because India increasingly sees these technologies as helping, rather than hindering their development plans. It has also emerged as a vocal global advocate for renewable energy, even leading its own multilateral effort, the International Solar Alliance. The Modi government has announced goals of 175 gigawatts (GW) of renewable energy capacity by 2022 and a 450GW goal by 2030, up from 90GW today.
In short, there is a lot of work to do, and India is going to need all the help it can get. Developing countries, including India, face two key constraints in deploying renewable energy: the first is designing and implementing the policies and regulations needed for effective electricity market design and distributed energy resources; the second is access to capital and risk mitigation instruments for investing in renewable energy projects. In other words, both how to manage all these new technologies, and how to pay for them. Biden’s climate team can support renewable energy deployment by addressing these specific problems at the multilateral, national, and subnational levels.
Problem #1: Cooperating on Effective Market Design and Distributed Resources
India is a diverse, ever-changing place and its electricity sector is no different. Increasingly due more to politics than economics, coal remains the dominant source of power across the country (see chart). India’s federal system further complicates the politics of renewable energy deployment, since the central government is unable to translate its targets into binding commitments by states, who ultimately control most of the relevant policy and regulatory levers. The political economy is slowly changing within the country, however, as local manufacturing gradually expands, renewable energy companies grow in size and influence, and Prime Minister Modi ties his reputation to local targets and international initiatives.
Meanwhile, India’s weak grid and utilities continue to hold back renewable energy deployment. The electricity distribution companies are in a particularly bad way, with their financial struggles often either delaying payments, or forcing them to renegotiate power purchase agreements (PPAs) or avoid signing new PPAs altogether. Renewable energy integration is also limited by the structure of Indian power markets, which generally lack any form of time-of-day pricing at the wholesale level. Further, India’s poor transmission capacity, relatively disconnected regional grids, and technical capacity constraints, such as data availability and demand prediction abilities, continue to slow down deployment. As a result, India remains in the middle of the pack in installing renewable energy (see chart).
The Biden administration’s ability to help overcome these challenges will be limited, of course, but there are several positive steps it could take. At the multilateral level, John Kerry and his team should do everything they can to reinvigorate the renewable energy agenda at the G20, including bolstering the reach and scope of the International Renewable Energy Agency’s (IRENA) technical knowledge-sharing and analysis functions. Biden’s team has already announced that they will reconvene the Major Economies Forum at the Earth Day Summit, of which India is one of 17 members, and leaders should use the opportunity to refocus the forum on tangible outcomes, especially renewable energy deployment.
Bilaterally, the Biden administration should push for passage of the Prioritizing Clean Energy and Climate Cooperation with India Act, introduced in 2020. The bill would establish the United States-India Clean Energy and Power Transmission Partnership (CEPTP), creating an official forum and funding mechanism for cooperation on clean energy technologies and transmission infrastructure. Both within the CEPTP forum and accompanying provisions, the bill promotes a range of partnerships between private companies, financial firms, research universities, and other stakeholders that could overcome many of the technical obstacles to accelerated deployment throughout the country.
Finally, Biden could complement the proposed bill and bolster existing features of the relationship by focusing on sub-national cooperation. Not only does much of the responsibility for renewable energy in India lie at the state level, but several U.S. states have become global leaders with critical lessons to share and insights to offer. Indian states have varied significantly in how successfully they’ve deployed renewable energy (see figure), and the United States should do all it can to help leaders lead, and followers catch up. Biden could take an important step in this direction by directing Congress to pass the City and State Diplomacy Act, which would establish an Office of Subnational Diplomacy within the Department of State. This office, and its ambassador-at-large for subnational diplomacy, would be empowered to strengthen the growing network of local government climate initiatives, such as the C40 Climate Leadership Group, Urban20, and the Global Compact of Mayors. Further, the office can help coordinate knowledge-sharing between states, creating an official channel where nongovernmental organizations, such as CSIS, had to step in under the Trump administration.
The CSIS Energy Security and Climate Change program and Wadhwani Chair on India Studies have been coordinating a state-to-state initiative called the U.S. / India Clean Energy Leadership Group, which could serve as a model for an empowered sub-national diplomatic corps. First, we found enthusiastic partners with the political willingness and mandate to accelerate clean energy deployment. Second, we surveyed both U.S. and Indian states to see where their priorities lay, and what key challenges they foresee. Third, we held both bilateral and multi-state forums targeted at challenges identified by the states themselves. Fourth, we brought in experienced experts to share their hard-won lessons and takeaways on issues like grid integration, data availability and optimal load dispatching. Finally, we have played an interlocutor role between states, research universities, private companies and experts, facilitating knowledge sharing, and policy advice. Adopting a similar approach, an Office of Subnational Diplomacy could lead a series of state-to-state “Leadership Groups,” creating partnerships on specific decarbonization problems around the globe.
Problem #2: Access to Capital
Knowledge sharing and capacity building are only going to get you so far. The Biden administration could well have its greatest impact on renewable energy deployment by marshaling the forces of global finance. While this starts at home, the addition of U.S. financial heft and diplomatic leadership could be crucial in reinvigorating international green finance effort. This means providing the access to capital and risk mitigation instruments needed by emerging markets like India, to deploy renewable energy and the pace and scale required to meet global climate targets.
Mobilizing private capital for renewable energy deployment is especially important in India, where the onus for renewable energy development, unlike conventional energy, lies almost entirely with the private sector. Investment flows have increased dramatically in recent years, to an average of $10 billion per year from 2013 to 2017, but this is still just a third of the estimated annual investment required to meet its Nationally Determined Contribution. In addition to the policy and regulatory challenges described above, private investment is hampered by both broader problems in the Indian financial sector—such as the heavy burden of non-performing assets on bank balance sheets—as well as financing constraints specific to renewable energy. The latter includes the relatively high cost of finance, the short tenor of most loans, and sector credit limits that crowd out renewable energy investment.
One area where a Biden administration could help mobilize both domestic and international sources of private capital is by focusing on green bonds. A category of bonds where the proceeds can only be used in specific “green” end uses, including renewable energy, green bonds can help address some of the funding constraints specific to Indian renewable energy deployment. This includes diversifying the sources of capital away from banks, introducing greater liquidity, and addressing the tenor mismatch problem. India is now the world’s twelfth largest issuer of green bonds and second-largest among emerging markets (see figure), primarily used for renewable energy refinancing, and investor demand has outstripped supply by two to three times each year. By potentially pooling different stage projects into a single green bond instrument and blending private with public finance to enhance credit ratings, an expanded Indian green bond market could also help attract large institutional investors that have typically been reticent to invest in developing markets.
Some of this work starts in the United States, where a Biden administration could help the industry overcome barriers to the widespread adoption of green bonds. Such efforts could include Indian counterparts via the CEPTP forum. Domestically, Biden should direct financial regulators to support the development and harmonization of guidelines and definitions of green bonds (working closely with European and Canadian efforts), provide market education and raise awareness of standards and disclosure requirements, develop green bond indices and stock exchange lists, provide “off-the-shelf” green bonds to increase accessibility, and set up project warehouses and data resources to enable aggregation and green securitization. These efforts could then be included as a standing item in the CEPTP forum, sharing knowledge on expanding the use of green bonds while connecting U.S. institutional investors to India’s emerging green bond market.
At the multilateral level, things become more difficult, but again there are ways Biden and Kerry could make a significant impact. This has to start with an increased commitment to the Green Climate Fund, both getting the remaining $2 billion out the door, and following the lead of France, Germany and the United Kingdom, doubling that commitment. Second, the United States should work alongside the United Kingdom in its COP26 efforts to mobilize private finance, potentially helping to negotiate a “Glasgow Private Finance Accord” at the November 2021 summit. The United States can also help develop a pipeline of investment-ready renewable energy projects in developing markets, including India, perhaps through the Trump administration’s “Blue Dot Network,” or another approach, such as IRENA’s Sustainable Energy Marketplace. Finally, the United States should bring its leadership and convening power to existing multilateral forums and initiatives, such as the International Platform on Sustainable Finance and the G20’s Financial Stability Board (FSB).
If all this sounds like a complicated laundry list of items, that is by design. Deep decarbonization is a complicated laundry list of economic sectors, new technologies, policy frameworks, economic opportunities, and political obstacles. India is itself a complex mix of climate progress, economic growth, changing technologies, and social upheaval. But by reframing the climate discussion away from mitigating pollution and toward specific problems in transitioning to clean technologies, progress can be made. India faces both universal and unique challenges in deploying renewable energy, and a Biden administration should tailor its approach to reflect that. By establishing the CEPTP forum, those unique challenges can be addressed one by one, and in creating an Office of Subnational Diplomacy, many of India’s state-level constraints will have a dedicated diplomatic corps to work with. Finally, the United States contains the largest pool of available capital anywhere in the world, and India is one of its most needy destinations. With the right financial instruments and regulatory incentives, there is no reason the sophistication and heft of the United States’ financial sector can’t be prodded into accelerating deployment and ushering in a low-carbon future.
Lachlan Carey is an associate fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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