India Shining: Even the Sun Has a Price

Solar projects have grown in number over the past decade but could stall if India does not consider new areas of opportunity. Innovative financing mechanisms that would enable the market to expand are being widely discussed. Public-private partnerships could be the answer, based on the US model. Different tools are under consideration such as the Power Purchase Agreement (PPA) and the use of agency funding to finance solar programs.

The Power Purchase Agreement (PPA) for financing solar energy projects appeals to India. Through a PPA, a third-party investor assumes all financing, installation and maintenance costs, and the district or government agrees to buy the power back, at a fixed reduced rate. This international financing tool provides immediate cost-savings and environmental benefits, while third-party investors (mainly financial institutions) bear all any financial risks incurred by the system.

Agencies could provide another way of financing solar projects as they shave budget earmarked for the purchase of solar energy systems. The government owns the system, its energy production and all the environmental attributes, such as renewable solar energy credits and clean energy credits. If the agency has properly kept budgeted funding, purchasing a system could be a worthwhile option because of lower in-house transaction costs and lower overall costs to the taxpayer.

Such innovative financing mechanisms are of great interest for India that has some of the world’s highest solar resources. However, they involved the further deregulation of private investment. The resources could be obtained through public-private partnerships within and without India. Some companies are pushing India to remove its restrictions on solar technology imports. They are seen as threats cutting American and international businesses out of a promising market. Limiting access to high-quality solar equipment that is available outside India is likely to impede India's solar power production and prevent other investors from developing solar projects in India. India is at a crossroads: will it resolutely take the road to international innovative finance, or it will remain alone with its huge amount of solar resources.