India Deals with the Need to Install More Electricity Generation Capacity

Here’s a good article that discusses the pressures India faces to install more electricity generation capacity.  In many respects, the issues are altogether different than those in the U.S.  In particular, India is a nation in which supply doesn’t generally meet demand, resulting in things like the world’s largest blackout, in which the lights recently went out on 600 million people, almost 10% of the world’s total population.  Friends tell me that in the course of an average day the power goes out at least once, even in the most cosmopolitan sections of the country. Though coal is perceived to be the lowest cost answer, fortunately, it’s not nearly as abundant there as it is in the U.S.   

Yet many of the circumstances that India faces are remarkably similar.  In particular, the declining cost of solar has created an incredible buzz among business people who see that electricity from solar PV is already within striking distance of grid-parity.  Another parallel:  the way banks deal with the financing of solar projects put it at a distinct disadvantage to fossil fuels.  They are extremely conservative with the way they treat debt service coverage, and they insist that debt service reserve allowances  be funded up front with equity, rather than project cash flows; this is unorthodox compared to other power project funding.

U.S. developers face a parallel challenge, in that the most attractive tools for capital formation for oil and gas exploration, i.e., master limited partnerships (MLPs), are famously illegal for solar and wind, putting the latter at a distinct and unfair advantage.  This is working its way through the U.S. court system – while the arctic ice cap continues to disappear.