By Vineeth Murthy
In recent years, a rapidly expanding Indian middle class and increased industrial activity have resulted in a sharp rise in demand for power. The gap between the supply and demand has increased due to the inadequate supply of coal, gas and other conventional sources. In 2003, President Abdul Kalam explained the country’s energy policy in an address to the parliament, saying “Maximum self-reliance is the cornerstone of our energy security strategy.”
In order to diversify its energy supply to achieve greater self-reliance and meet growing energy demands, the government has embarked on a concerted effort to explore potential sources of domestic renewable energy. Jawaharlal National Solar Mission (the national solar mission) is one of several initiatives under the National Action Plan on Climate Change. The mission envisions a gradual shift from dependence on conventional sources of energy to renewable ones.
In its bid to bolster its energy security, India has created a trade concern. In mid-February, the United States Trade Representative (USTR) Michael Froman announced year that the US will approach the World Trade Organization (WTO) over a requirement in the national solar mission that mandates that domestic content for solar Photovoltaic cells. As the dispute settlement process continues, it is important to understand the larger institutional framework of India’s national solar mission and its solar energy policy.
Despite the dispute noted above, the United States and India are uniquely positioned to collaborate in the solar power sector, given their burgeoning strategic partnership, converging energy interests, technological prowess and myriad bilateral dialogue mechanisms that allow for close consultation and policy coordination.
India allows up to 100 percent Foreign Direct Investment (FDI) in renewable energy generation and distribution. It also has favorable geographic conditions for solar power, annually averaging 300 to 330 sunny days. Nearly 40 percent of India’s first 1,000 MW of installed solar power capacity was financed by a partnership between the Overseas Private Investment Corporation (OPIC), Export-Import Bank of the United States, U.S. Agency for International Development (USAID), U.S. Department of Commerce, and U.S. Trade and Development Agency.
In 2009, the two countries agreed on a comprehensive MoU to enhance cooperation on energy security, energy efficiency, clean energy, and climate change. Both countries have launched joint efforts in renewable energy research. Under the U.S-India Partnership to Advance Clean Energy (PACE) research, the two countries established a $125 million Joint Clean Energy Research and Development Center, which supports innovation in solar energy and building efficiency by convening a public-private consortium. Some notable achievements of PACE include reduced CO2 per kilowatt hour of electricity generated by coal through efficient coal conversion and establishment of India’s first Energy Conservation Building Code.
American private and public sector investments have an opportunity to expand their foothold in India in solar energy. The national solar mission provides various subsidies to promote investment in India’s solar energy. Close to 65% of projects that were awarded subsidies provided by the first phase of national solar mission were of American origin. The structures put in place by the Indian government to promote solar energy provide not only an investment opportunity, but perhaps more importantly, it is also a measurable, concrete and practical way to advance the bilateral strategic partnership.
Mr. Vineeth Vasudeva Murthy is a research scholar with the Wadhwani Chair in US-India Policy Studies at CSIS. His report “India’s Solar Energy Future: Policy and Institutions” can be found on our website here.