India is the third largest electricity consumer in Asia, after the People’s Republic of China and Japan, and demand has grown at an average of 8% a year since 1995. However, supply falls well below demand, leading to regular blackouts and chronic shortages which are undermining the country’s economic and social development. Moreover, much of the electricity is generated from increasingly uncertain domestic sources of coal or from ever-more-costly imported coal.

“The new joint venture company will help India achieve its goal of reducing the country’s dependence on fossil fuels, will cut greenhouse gas emissions and improve its energy security,” said Michael Barrow, Director in ADB’s Private Sector Operations Department (PSOD), who signed the agreement in New Delhi. “We hope this company will also provide an example to other foreign investors looking at India’s renewable energy sector.”

Under its National Action Plan on Climate Change, the government has set a target of generating 15% of its total power from renewable sources by 2020. Currently, renewable energy accounts for 10% of total power capacity in India while 65% comes from thermal power plants – mostly coal-fired – which generate the majority of the country’s carbon emissions. The remainder of India’s power comes from hydropower and nuclear power.

“India now has the capacity to generate just over 11,000MW of wind power, but, with the right investment, that could increase to almost 48,000MW. At the same time, small hydropower has the potential to generate about 15,000MW of power and, what’s more, is often the best way of providing electricity to low-income households in remote areas,” said Don Purka, Senior Investment Specialist with ADB’s PSOD.

NTPC, the largest power generating company in India with a 33% market share, is majority owned by the Government of India but operates on a commercial basis as an independent company. It currently has a generating capacity of 32,694MW but is working to increase that to 75,000MW by 2017.

Kyushu Electric Power is an integrated private sector generation, transmission and distribution company. The company owns and operates about 20,024MW of power generation capacity including hydroelectric, wind, solar and geothermal projects on Japan’s southwesthern Kyushu Island.

Under the joint venture agreement, ADB will invest up to $40M for a 25% stake in the company. The move is part of ADB’s goal of investing $2B a year in renewable energy and energy efficiency projects in Asia and the Pacific to help put the region on a sustainable development path. NTPC will have a 50% holding in the company with Kyushu Electric Power owning the remaining 25%.