The report, jointly conducted by the Centre for Financial Accountability (CFA) and Climate Trends, assessed project finance loans across various renewable energy projects.
In a notable shift in India‘s energy financing landscape, no coal power plants received project finance lending for the second consecutive year. According to a recent analysis, 100% of the project finance loans in India, amounting to Rs 18,577 crore ($2.36 billion), were allocated to renewable energy projects in 2022. However, this total represents a 45% decrease from the funding levels recorded in 2021.
The report, jointly conducted by the Centre for Financial Accountability (CFA) and Climate Trends, assessed project finance loans across various renewable energy projects. It highlighted a significant pivot towards renewable energy, with solar and wind projects being the primary beneficiaries. Despite the overall decrease in financing, the focus on renewables remained strong.
The 2023 Coal vs Renewables Investment Report assessed 68 project finance loans across 11 coal and renewable energy projects in India that reached financial closure between 1 January 2022 and 31 December 2022. While renewable energy projects are defined as hydroelectric, geothermal, wave, wind, or solar power projects, this report looked at wind and solar project finance loans only.
“Total project finance loans amounted to Rs 18,577 crore (USD 2.36 billion), of which 100% flowed into renewable energy projects. However, the total amount is a 45% decrease from 2021 levels. This could be a result of several external factors such as project delays due to the pandemic, supply line disruptions, increase in costs of finance due to higher interest rates as well as increased costs due to domestic policies,” the report said.
“Like last year, solar power was the dominant renewable energy, accounting for six out of eleven deals, or 40% of financing. However, solar lending in 2022 dropped by over 64% to Rs 7,361 crore ($935 million), financing 1,849 megawatts (MW) of solar projects. Wind power comprised only 4% of total renewable energy lending in 2022, financing two projects equalling 144 MW of wind energy. This represents a more than 80% decrease compared to 2021,” it added.
Aarti Khosla, Director of Climate Trends, commented on the findings, stating, “There has been curiosity around India not signing the global pledge to triple renewable energy and double energy efficiency at the COP28 despite it championing the idea during its G20 presidency. Since the pledge on renewables was framed in recognition of reducing investments in coal, most likely India did so to ensure it defends its use of coal for energy security in the foreseeable future. However, this analysis shows project finance investments towards solar and wind in 2022 reflect India’s commitment to its NDC 2030 target of 500 gigawatts of electricity generation from non-fossil fuel sources. Making finance more accessible and affordable for renewable energy will not only help India outperform its own commitments but also strengthen its position as a climate leader of the global south.”
The majority of the loans for these renewable energy projects came from commercial banks, with significant contributions from major financial institutions. The trend in lending reflects a growing consensus on the viability and necessity of renewable energy sources in the wake of global climate change concerns.
Joe Athialy, Executive Director of the Centre for Financial Accountability, highlighted the changing economics of energy production. “Cost of renewable energy with storage is now comparable and cheaper than new coal plant construction, irrespective of the location. Besides losing out to renewable energy on per unit cost of electricity, coal power plants will have to be retired within a decade from now. Financial institutions are reluctant to fund coal projects, be it power plant construction or coal mining, knowing fully well that the global outlook on coal remains heavily in the negative,” he said.
Like in 2021, Rajasthan was the biggest beneficiary of renewable energy lending compared to other Indian states, with over Rs 7,579 crore ($963 million).
India has already installed close to 132 GW of renewable energy from its earlier target of 175 GW and yet is determined to make additional power demand be met by renewables where possible. The World Energy Outlook 2023 pegs that India will meet its 2030 target to have half of its electricity capacity be non-fossil well before the end of the decade. As financial institutions reduce their investments in coal projects, policy and regulations must also ensure more funds flow towards renewable energy projects.
This article was originally published in The Economic Times and can be read here.
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