Wholesale power markets may be the linchpin of India-US cooperation on climate change and renewable energy integration
In February 2021, Prime Minister Modi’s first communique with American President Joe Biden has unsurprisingly catapulted climate change cooperation to the forefront of India-U.S. relations. The United States is looking to lead from the front on the issue, and hoping to regain credibility through partnerships with emerging economies like India to achieve the ambitious goals laid out in the Paris Climate Agreement.
At the same time, India is looking for both financial resources and market design knowledge to decarbonize and sustainably develop its economy. These newly aligned incentives have created space for rich bilateral cooperation and for a free exchange of economic resources, ideas and information between the two countries.
The major constraints that most developing countries face in accelerating renewable energy deployment are well documented. The first is access to low-cost capital, which can be provided through risk-mitigation financial instruments to “crowd-in” private investments. The second is effectively designed regulation, which is critical to achieve a well-functioning electricity market as intermittent, zero marginal cost and distributed renewable energy resources become increasingly prevalent.
Thus far, these constraints have manifested in India through a number of interrelated problems. Firstly, the financial health of state-owned distribution companies (discoms) has remained stubbornly poor despite bailouts and refinancing efforts.
