Roundtable with U.S. Asst Secretary Charles Rivkin on clean technology

Brookings India hosted Assistant U.S. Secretary of State, Charles Rivkin for a by-invite-only roundtable on Clean Energy/Clean Technology in India. The discussions were under Chatham House Rules (non-attribution). Joining from the U.S. in addition to Secy. Rivkin and his team were industry leaders through the U.S.-India Business Council, as well as Indian government, industry and scholarly leaders in both clean technology and the financial/banking sectors.  The discussion was moderated by Rahul Tongia, Fellow at Brookings India, and chaired by Rakesh Mohan, Distinguished Fellow with Brookings India.

India has ambitious targets for renewable energy (to reach 175 GW of capacity by 2022), which were announced unilaterally and well before any commitments made for Paris COP21, through the INDCs (Intended Nationally Determined Contributions), for mitigating GreenHouse Gas (GHG) emissions. For such a large growth, from about 40 GW of capacity today, one of the key needs is for finance – the overwhelming investment in clean technology has come from the private sector, and is likely to remain so.

The U.S. and India already have significant engagements on  clean-technology, ranging from RD&D (Research, Development, and Deployment), joint programmes to the Clean Energy Finance Forum (CEFF), to the government level Task Force for the same. One of the discussions at the roundtable was to synergise CEFF’s efforts with the Task Force to help India scale up its ambitious renewable energy (RE) plans.

In addition to discussions on programmes and institutions, the following four points were highlighted:

• Simplification, standardisation, etc., including model PPAs. While standardisation of bidding documents for RE projects is underway, Power Purchase Agreements (PPAs) themselves have enormous variance, making project due diligence and closure more time-consuming and expensive. Discussions asked if there could be a model PPA for the various states and utilities to follow.
• Increase the money velocity to harness increased money. Different stakeholders have different risk appetites and requirements for returns. The earliest investors face the highest risk, while the largest pots of money come from retirement or pension funds. India needs to enable such turnovers of funding to hasten the flow of large, stable, debt. One suggestion was to pilot such a process. Another observation was the need to reduce the interest rate spread between India and global capital. Relying on a hedging market hasn’t worked as the hedging costs consume the entire spread (as of now).
• States and counter-party risk. While many developers are seeking to “bypass” the states, including going via NTPC Ltd (previously known as National Thermal Power Corporation Limited), this may not scale beyond a point, as ultimately, the ultimate buyers are either the states/distribution companies, or large users whose RE-driven reduced demand from the state itself hits the finances of distribution companies. There needs to be greater analysis and options to reduce such risks.
• Big picture analysis. While costs have been falling for RE dramatically, it was not clear how much this was a function of explicit subsidies (still in play in the U.S.), implicit subsidies (freebies on transmission, cross-subsidy charges, etc.), and externalities of RE not priced in (grid balancing issues). This is before considering aggressive bidding by suppliers. Given that interest rates in India are higher, it would likely remain the case that in India RE would be more expensive than, say, the U.S.  More clarity on such issues was suggested as a worthwhile exercise.

Mr Charles H. Rivkin began serving as Assistant Secretary of State for Economic and Business Affairs on February 13, 2014. He leads a bureau at the U.S. State Department that is responsible for managing trade negotiations, investment treaties, economic sanctions, transportation affairs, telecommunications policy, international finance and development related issues, as well as intellectual property right protection. Prior to his appointment, Mr Rivkin served for more than four years as the U.S. Ambassador to France and Monaco. He is part of a team of business leaders at the State Department who were brought in to support Secretary Kerry’s mandate that ‘economic policy is foreign policy.’

Like other products of the Brookings Institution India Center, this report is intended to contribute to discussion and stimulate debate on important issues. Brookings India does not hold any institutional views.