VZCZCXRO4453
PP RUEHAST RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHBI #0415/01 3030919
ZNR UUUUU ZZH
P 300919Z OCT 09
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 7522
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 8743
RUEHCI/AMCONSUL KOLKATA PRIORITY 1929
RUEHCG/AMCONSUL CHENNAI PRIORITY 2141
RUEHBI/AMCONSUL MUMBAI PRIORITY 2752
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEGGTN/DEPT OF ENERGY GERMANTOWN MD
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 04 MUMBAI 000415 
 
SIPDIS 
 
STATE PLEASE PASS TO DOE 
 
E.O. 12958: N/A 
TAGS: EAID ECON EFIN EIND EINV ENRG EPET ETRD ETTC IN
SUBJECT: ARE CLEAN ENERGY TECHNOLOGY PARTNERSHIPS WITH THE U.S. IN 
INDIA'S FUTURE? 
 
MUMBAI 00000415  001.2 OF 004 
 
 
¶1. Summary:  As efforts to introduce clean and renewable energy 
in India grow, energy entrepreneurs hope that a mix of 
government policies, international technology transfers, and 
better access to financing will spur the development of a 
competitive clean energy industry.  Many Indian companies have 
ambitious plans to boost India's renewable energy component - 
now at about eight percent of total electricity capacity, most 
of which is wind or small hydro - but are dependent on 
government subsidies and other preferential policies that aim to 
make the first wave of projects feasible.  These companies also 
hope to obtain access to international clean power production 
technology, mostly from the U.S., that they argue could be 
cheaply manufactured in India and deployed not only within the 
country but also to other parts of the world.  These 
co-production and development partnerships, Indian companies 
propose, could bring down the overall cost of renewable energy 
projects, prove the sustainability of clean technology business 
models, and help wean India away from a dependence on coal. 
Nevertheless, there are serious challenges ahead.  Indian 
companies so far have little experience in developing solar or 
other renewable energy production facilities, and current costs 
are still high.  The power grid infrastructure is disjointed, 
and woefully inefficient.  Government policies towards renewable 
energy are still unclear, but are likely to emerge in the coming 
months.  Nonetheless, overall, many Indian companies and 
entrepreneurs are committed to introducing renewable energy in 
India, and look to the U.S. for leadership.   End Summary. 
 
 
 
VISION OF THE FUTURE: 35 PERCENT RENEWABLE ENERGY BY 2030? 
 
 
 
¶2. In a series of recent discussions with alternative and 
renewable energy entrepreneurs, financiers and companies in 
Mumbai, interlocutors were confident that an increasingly larger 
proportion of India's energy needs would be supplied by 
renewable energy sources, particularly through solar and nuclear 
energy.  Most agreed that wind power generation has reached or 
is close to reaching a saturation point.  Many saw greenfield 
power production development projects as the next major 
development, as companies strove to overcome power deficits 
throughout the country.  All saw India, with its growing 
appetite for energy as having a tremendous investment 
opportunity to "leapfrog" into clean energy technologies on a 
relatively large scale to emerge as a highly energy efficient 
and energy conserving economy.  (Note:  Coal-based power 
accounts for 53 percent of India's total installed capacity. 
Renewable energy sources -- mainly wind, biomass and small hydro 
-- constitute a mere eight percent of the total energy mix. 
Analysts estimate that alternative energy sources could meet 35 
percent of India's energy demand by 2030. End Note.) 
 
 
 
¶3.  Interlocutors note that the cost of coal-fired power is as 
low as 3-4 cents per kwH, while solar power can cost as much as 
35 cents per kwH.  Power tariffs are regulated by state 
electricity regulators, and industrial and commercial users pay 
higher tariffs to subsidize farmers and residential consumers. 
The end-user pays the average cost of all power purchased by the 
power utility.  Therefore, the high cost of renewable power 
raises overall costs, and acts as a disincentive for the growth 
of clean energy in India.  However, our interlocutors noted that 
the federal government is committed to increasing renewable 
purchase obligations (RPOs), which mandate utilities to buy a 
proportion of renewable energy in the total energy mix.  This, 
coupled with the central electricity regulator's recent move to 
set guidelines for renewable energy tariffs, signals acceptance 
and recognition for the need for renewable energy in India. 
 
 
 
GOI SUPPORT FOR CLEAN ENERGY TECHNOLOGIES 
 
 
 
¶4.  Indian renewable energy companies pointed to the yet-to-be 
officially announced National Solar Mission from India's 
 
MUMBAI 00000415  002.2 OF 004 
 
 
Ministry of New and Renewable Energy as symbolic of the federal 
government's commitment to promote renewable energy.  The new 
policy, sources say, aims at creating an enabling policy 
framework and environment to generate 20 GW of solar power by 
¶2020.  Currently, only 3 MW of grid-connected solar power has 
been installed in India.  Our interlocutors conceded that even 
Germany, which is considered the leader in the deployment of 
solar power, has just 6 GW of solar power generating capacity. 
Nevertheless, Aparna Doshi of Astonfield Renewable Energy, a 
company focusing on developing new large-scale renewable energy 
projects in solar, bio-gas, and bio-mass, contends that this new 
policy demonstrates a commitment by the Indian government to 
move beyond coal for India's future energy needs.  Doshi noted 
that, per this draft plan, the government is willing to put 
"serious money" behind their stated desire to generate up to 20 
gigawatts (GW) of solar power over the next 10 years, including 
the use of government subsidies. 
 
 
 
¶5.  The reaction of the various Indian states to the federal 
government's policy efforts has been mixed.  Doshi applauded the 
states of Rajasthan, West Bengal, and Gujarat for introducing 
significant incentives to promote clean power development in 
their states.  Rajasthan and Gujarat have both drafted policies 
to support programs that go over and above the announced federal 
government subsidy for up to 10 megawatts of solar power 
generation in each state in India.  Other interlocutors, 
however, claimed that some federal and state government clean 
energy policies may run contrary to their intent, and, in fact, 
be detrimental.  They cited a series of cumbersome processes 
from land acquisition, to setting power purchase agreements with 
existing utilities, to navigating myriad clearances for energy 
generation.  This, along with the requirement to coordinate 
state and federal imperatives, is keeping many would-be 
developers from entering the renewable energy sector. 
 
 
 
EXISTING EFFORTS OUTSIDE OF GOVERNMENT 
 
 
 
¶6.  Indian energy entrepreneurs point proudly to research and 
development activities already underway.  Shashank Inamdar of 
Praj Industries, a leading manufacturer of machinery to produce 
biofuels, noted that a great deal of work is being done in India 
on next-generation technologies, both by companies and 
universities and research institutions.  Banmali Agrawala, of 
electricity giant Tata Power, highlighted the efforts of 
business groups such as the Confederation of Indian Industry to 
promote sustainability by example, both in power production and 
in green buildings and construction.  Wind power generation has 
already established a firm foothold in certain parts of India, 
and costs much less per unit of power generated than most other 
clean technologies.  However, one interlocutor admitted that 
wind power has a low plant load factor and can at best 
supplement, rather than replace, traditional power generation. 
Wind turbines and energy storage technology have to improve for 
wind power to expand significantly beyond existing installations 
in the country. 
 
 
 
CURRENT DISTRIBUTION INFRASTRUCTURE A PROBLEM 
 
 
 
¶7.  Interlocutors identified India's existing electricity grid 
as a significant stumbling-block for entering the power 
production and distribution market.  The current grid system 
suffers from extensive transmission and distribution losses - 
about 30-32 percent - through power theft and poorly maintained 
infrastructure.  Additionally, several individuals pointed out 
that the existing system is not a "smart grid," so encouraging 
people or businesses to install small-scale solar or wind power 
generation units would be more difficult than in some developed 
countries; excess power returned to the grid could not be 
tracked, eliminating the possibility of monetary incentive to 
offset the cost of purchasing the technology. 
 
MUMBAI 00000415  003.2 OF 004 
 
 
 
 
 
FINANCING CHALLENGES 
 
 
 
¶8.  In all discussions, interlocutors explained that challenges 
in financing the purchase and implementation of technology and 
controlling the cost of power for the consumer was inhibiting 
the growth of the clean energy in India.  While the technology 
exists to fulfill much of India's energy demand through 
renewable sources, affordability is a problem for both the 
entrepreneur and the end consumer.  According to Avinash Bapat, 
the Chief Financial Officer of IL&FS Energy Development 
Corporation, a major Indian infrastructure development company, 
the size and scale of clean energy projects is restricted by the 
high component of equity required for energy projects 
(debt-equity ratio of 70:30), the dearth of mezzanine funding, 
and the absence of structured financial products to hedge 
development and operating risk.  He explained that financing a 
5-10 MW project is easy, but lenders are wary about lending to a 
500 MW project; lenders are not satisfied with projections of 
future cash flow and are worried about default risk.  Bapat also 
observed that there was an "overdose" of financial incentives in 
the early stages of renewable energy development in India, and 
most of the early developers of renewable energy projects 
(principally wind power) were motivated by the financial 
incentives rather than by an actual desire to generate power. 
Lenders had to write off many bad loans caused by the "dead" 
assets created by these "non-serious players," he explained. 
Kishore Kumar, Head - Investment Banking, of HDFC Bank, the 
second largest private sector bank in India, noted that smaller, 
more distributed models may have an easier time securing funding 
than larger, grid-based models, as the former may even take 
advantage of non-traditional solutions, such as microfinance. 
 
 
 
¶9. Separately, Darius Pandole of New Silk Route and Sandeep 
Singhal of Nexus Capital, two private equity financiers, 
admitted that the rate of return on all energy projects, 
including renewable energy projects, is too low to stimulate 
serious investment.  They noted that private equity and venture 
capital investors in India are interested in returns of over 25 
percent, while the average return of power projects is around 18 
percent.   Praj's Inamdar said venture capitalists have to wait 
10-12 years to get "reasonable" returns for clean energy 
projects and rarely have the "patience" for such a long-term 
horizon.  Amulya Charan of Tata Power Trading Company pointed 
out that traditional power projects are profitable in three to 
five years, whereas most clean energy technology projects 
break-even only after eight to ten years.  Because of the 
difficulty in securing funding through traditional sources, many 
interlocutors involved in the clean energy sector highlighted 
opportunities for financing through the Clean Development 
Mechanism (CDM) of the Kyoto Protocol.  However, they worried 
that this carbon credits system might become a thing of the past 
unless the U.S. signs onto the Kyoto Protocol. 
 
 
 
INDIAN COMPANIES CALL FOR PARTNERSHIPS WITH THE U.S. 
 
 
 
¶10.  All interlocutors stressed that technology transfer and 
co-production partnerships with foreign companies - especially 
from the U.S. - were essential to the development of renewable 
energy in India.  With India's growing power deficits and 
potential for growth in mind, Indian companies would like to 
identify U.S. technologies that could be manufactured and 
deployed cheaper in India.  They proposed that India could serve 
as a base for U.S. companies seeking research and development 
opportunities, citing the much lower cost of setting up 
full-scale demonstration or testing facilities in India as 
compared to the U.S., in addition to the availability of large 
tracts of land for such testing facilities.  Others touted 
India's low-cost manufacturing advantage and maintained that 
U.S. technology providers should consider establishing 
 
MUMBAI 00000415  004.2 OF 004 
 
 
manufacturing facilities in India for the local and global 
supply of clean energy technology and equipment.  They believed 
that the Indian market could provide the volumes needed for U.S. 
technology manufacturers to scale up, which, coupled with the 
indigenous manufacturing process, could greatly reduce costs. 
However, despite these proposed advantages, Indian companies 
lamented that they were not taken seriously by U.S. companies so 
far. One interlocutor said that the perception of weak 
intellectual property rights (IPR) enforcement also posed a 
problem as U. S. manufacturers feared that their products would 
be copied in the country. 
 
 
 
HOW THE U.S. GOVERNMENT CAN HELP 
 
 
 
¶11.  Many interlocutors believe that the USG can be instrumental 
in efforts to encourage clean energy technologies in India. 
Principally, they insisted that the U.S. becoming a signatory to 
the Kyoto Protocol would be a significant move, both in terms of 
symbolism and in ensuring that the carbon credits system will 
continue to be reliable.  Additionally, interlocutors were 
united in their wish for greater access to U.S. technology. 
They stressed that the USG could facilitate this by encouraging 
the Indian government to become more protective of intellectual 
property rights, thus overcoming the reluctance of U.S. 
companies to share their technology.  Some mentioned India's 
goal of producing 25 percent of its power through nuclear plants 
by the middle of this century, and stressed that USG support 
(and U.S. capital investment) is needed to make this a reality. 
Many interlocutors also wanted to see the USG encourage the 
Indian government to streamline the process of bringing capital 
into India for investment in clean energy projects, as well as 
to simplify the review and approval process of GOI subsidy 
applications for these types of projects. 
 
 
 
THE INDIAN CLEAN ENERGY PARTNERSHIP MODEL: RIGHT FOR THE U.S.? 
 
 
 
¶12.  Comment:  Indian companies, large and small, are 
increasingly interested in developing India's clean and 
renewable energy power production capacity, though these efforts 
are at a very nascent stage.  This motivation comes from the 
oft-admired Indian entrepreneurial instinct, but also from the 
widely held belief that India has the potential to become a 
leader in the development and deployment of clean energy 
technologies, for all the right reasons.  Nevertheless, with 
little proven clean energy capacity in place, and unclear 
government policies, it is not surprising that U.S. companies 
have not entered this market in a significant way.  There is 
much talk about U.S.-India "collaborations" and "partnerships" 
in the development of clean energy technology, and it is clear 
what Indian companies have in mind:  the establishment of 
co-production and research plants in India, with USG 
encouragement.  This model will facilitate the creation of jobs 
in India, help develop its technological research and 
manufacturing base, and, in the long run, aid the shift away 
from CO2-producing coal plants which India would have likely 
built instead.  This model may also suit the business models of 
some American companies, as they expand their operations and 
establish a global presence, and spur the research and 
development of low-cost clean energy technologies that can be 
deployed throughout the world.  However, this model also seeks 
to draw research and development and manufacturing jobs out of 
the U.S. to India, which has its own political and economic 
pitfalls.  Moving forward, it would be wise to ensure that these 
clean energy partnerships have clear benefits for both 
economies.  End Comment. 
TYLER