Mobilizing finance to meet India’s renewable energy ambition – Difficult but not impossible

SEforALL

India electricity capacity

Current and future expected electricity capacity in India by various power sources

Current and future expected electricity capacity in India by various power sources

VIENNA, Austria, March 04, 2022 (GLOBE NEWSWIRE) — A new report produced by Sustainable Energy for All (SEforALL) and Climate Policy Initiative analyses India’s power sector investments to assess progress against the country’s climate and energy goals.

Paris Alignment of Power Sector Finance Flows in India: Challenges, Opportunities and Innovative Solutions finds that India has made significant progress in achieving its Nationally Determined Contributions under the Paris Agreement and is expected to meet the targets set before 2030, including increasing the share of non-fossil fuel based installed capacity to 40 percent by 2030.

However, the report highlights how fossil fuels, especially coal, continue to be the mainstay of India’s electricity generation mix. Despite renewable sources representing 38 percent of the power system generating capacity in 2020-2021, coal still accounts for 74 percent of India’s electricity generation.

Most finance commitments have gone towards grid-connected renewables in recent years, but investment in coal-fired power plants continues in India. Tracked power sector commitments for India stood at USD 17.5 billion in 2019, of which at least USD 2.8 billion funded coal-fired power plant development, and this is a lower-bound estimate.

This ongoing support for coal-fired power projects may keep India’s carbon intensity well above what is required to align with a global mean temperature rise of less than 1.8° Celsius (a level consistent with the Paris Agreement-aligned International Energy Agency’s Sustainable Development Scenario). It will also undermine the country’s recently announced target from COP26 of reducing the carbon intensity of its economy by more than 45 percent by 2030.

“Scaling deployment of renewable energy is key for countries to be compatible with the Paris Agreement and avoid the immense human and economic costs of climate change,” said Barbara Buchner, Global Managing Director at Climate Policy Initiative. “Both government and the private sector need to show increased commitment by investing in the clean energy transition.”

Continued operation of carbon-intensive power plants, along with the commissioning of new coal capacity, is likely to expose investors to the financial risk of closures and potentially stranded assets. The Indian banking sector is estimated to be burdened with USD 40–60 billion in non-performing or stranded assets from the thermal generation sector, according to the Institute for Energy Economics and Financial Analysis.

The report highlights how risky coal investments would be better directed towards energy system upgrades to support reliable access and the integration of renewables. To achieve universal access to reliable electricity, the International Energy Agency estimates that USD 35 billion needs to be spent annually between 2021 and 2030 on construction and refurbishment of transmission and distribution infrastructure.

“India has made great strides in providing electricity access to its extensive population,” said Tamojit Chatterjee, Energy Specialist at SEforALL. “The country now needs to invest in decarbonizing its power system and improving reliability so that electricity can spur green growth. There is real opportunity for commercial finance institutions to aggressively expand their renewable energy portfolio along with investments targeting innovation in sectors such as storage and distributed energy systems.”

Recognizing the need to catalyse investments that will increase the share of renewables in India’s electricity mix, the report outlines a series of recommendations for financial institutions:

  • Phase down coal financing and refinancing including upstream activities like coal mining and transport that use coal-fired power generation.

  • Support initiatives that accelerate decommissioning of coal-fired power plants.

  • Continue investments in renewables whilst scaling lending in inter-state and inter-region transmission infrastructures, energy storage, deployment of smart grids, etc.

  • Allocate a certain portion of investment portfolios towards low-carbon technologies and new business models (like green hydrogen) through innovative financial mechanisms, blended financing, guarantees and credit enhancement.

  • Accelerate investments to various customer segments to finance energy-efficient technologies in new buildings and retrofits etc.

  • Integrate climate risk into credit assessments; climate stress testing of own investment portfolio; measurable and transparent decarbonization targets; and report progress to regulators and investors.

  • Advise clients on strategies to build a climate-resilient portfolio and facilitate a transition to low-carbon activities.

The report is available for download here.

Notes to editors

Contact

For further details on the reports or any interview requests, please contact: Sherry Kennedy, Sustainable Energy for All: [email protected] / [email protected] or +43 676 846 727 237.

About Sustainable Energy for All

Sustainable Energy for All (SEforALL) is an international organization that works in partnership with the United Nations and leaders in government, the private sector, financial institutions, civil society and philanthropies to drive faster action towards the achievement of Sustainable Development Goal 7 (SDG7) – access to affordable, reliable, sustainable and modern energy for all by 2030 – in line with the Paris Agreement on climate. SEforALL works to ensure a clean energy transition that leaves no one behind and brings new opportunities for everyone to fulfill their potential.

SEforALL is led by Damilola Ogunbiyi, CEO and Special Representative of the UN Secretary-General for Sustainable Energy for All and Co-Chair of UN-Energy. Follow her on Twitter @DamilolaSDG7. For more information, follow @SEforALLorg.

A chart accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/803571d1-e124-4db5-9d97-e25178cfce50

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