The Obama administration and a group of US foundations join forces to help India boost its solar capacity

Indian Prime Minister Narendra Modi and US President Barack Obama recently announced a public and private financing package to leverage $1 billion for solar power development in India.

The deal was announced when Indian Prime Minister Narendra Modi visited Washington in June and marks a milestone in cooperation between the world’s second- and fourth-biggest emitters of climate-changing gases.

While the US-India relationship has been under a bit of strain lately, the two countries found they could agree on the transition from a carbon-based economy to a low-carbon economy, says Carl Pope, former executive director of the Sierra Club and now an advisor at Inside Straight Strategies. 

“What was most striking was that their joint clean energy agenda rose to the very top of the US-India relationship,” Pope says. “India asked the United States to prioritize its support for India's clean energy and to help with India's greatest energy scandal, which is that there are roughly 200 to 400 million Indians who don't have access to electricity.”

The barrier to clean energy isn’t that it’s expensive to run, Pope explains; it’s that it must have upfront financing. “When you put up a solar panel, you're buying 20 years of electricity at once,” Pope notes. “After that, it's free.”

Finding upfront financing is the problem in India; interest rights are high and it has a limited capital market. The United States, on the other hand, currently has an abundance of capital and low interest rates.

The financing initiatives agreed to by Modi and Obama will “take the risk out of the equation,” Pope says. “A US bank or a US pension fund can loan money to India for solar power in an off-grid village, without having to worry about the future price of the rupee or whether India might default on its loans, because the loans would be guaranteed by the US government and the projects would be prepared and vetted by US philanthropy-funded NGOs, creating the first-ever partnership between American NGO capital, the Indian government and the US government.”

Pope estimates the project will bring electricity to 100 million people.

“It's a huge deal,” he says, “and once we do that, the market will then have developed, the supply chains will be built out, and we think the rest of the job will get done. I think we actually can say with these initiatives that India is well on the path to universal electrification, something it's been seeking for 40 years.”

Pope predicts that, as renewables become less and less expensive, India and most other countries will soon find that they can deploy wind and solar more cheaply than building new coal-fired power plants.

“Fairly shortly, it's going to be true in many of those countries that new solar and wind will [even] be cheaper than already constructed coal and nuclear,” he adds.

In fact, just after the Modi-Obama meeting, the government of India canceled four of its largest coal-fired power projects, Pope points out. “They canceled construction on new coal-fired power plants for the next three years,” he says. “They said, ‘We can have a pause on building coal until we see what we really need.’ My guess is that this pause may effectively be close to permanent. Going forward, they will only build new coal plants to replace old ones they need to shut down. I think we may have seen peak generation from coal-fired power in India.”

The solar financing deal spurred an additional agreement, which Pope believes is even a bigger deal for the global climate: India agreed to a rapid phase out of so-called "F-gases," fluorinated gases with a global warming effect up to 23,000 times more powerful than carbon dioxide.

“That by itself is worth a half-degree, in terms of the amount of warming we will experience over the course of this century,” he explains. “And because HFC's last so long, that's actually a half-degree 200 years from now. It's a really big deal. … The US showing the government of India that we were willing to respond to India's solar financing needs was a key ingredient in getting India to agree to a rapid phase out of HFCs.”

Meanwhile, the price of solar panels continues to drop.

“I saw an article yesterday saying it's probably going to plummet another 50 percent,” Pope says. “Let me put that in context: Last month in Dubai, a solar project — unsubsidized — was contracted at three cents a kilowatt-hour. If that price drops fifty percent in the next five years, that means that by 2020 solar will cost one and a half cents a kilowatt-hour. That is the cheapest electricity in world history. Not just the cheapest electricity today. The cheapest electricity anybody has ever had.”

This article is based on an interview that aired on PRI’s Living on Earth with Steve Curwood.