A new assessment- the Coal vs Renewables 2018 report, confirms that India’s energy sector is currently going through a rapid transition towards renewables. The report, an annual analysis of energy investment trend in India prepared by Delhi-based Centre for Financial Accountability (CFA), reveals an astonishing shrinkage of 90% in lending for coal-based power projects in 2018 compared to 2017- a slump that has translated to a 63% fall in total lending across coal and renewable projects.
The analysis covering project finance lending to 54 coal, solar and wind energy projects found that investments in coal-fired power plants had fallen from ₹60,767 crore (US$9.35 billion) for 12 projects with a combined capacity of 17GW in 2017 to just ₹6,081 crore (US$850 million) for five projects with a combined capacity of 3.8 GW. Further, only one of these five- the 1.98GW Ghatampur Tehsil Coal-Fired Power Plants, is new and accounts for ₹1,207 crore (US$190 million) or just 20% of the total finance for coal-based power. The remainder, ₹4,875 crore (US$661 million), was used to refinance existing projects according to CFA. More than 75% of this went towards West Bengal’s 600MW Haldia Thermal Power Plant which is slated for a 350MW expansion.
Unsurprisingly, CFA found that 14 majority government-owned financial institutions accounted for ₹3,938 crore (US$559 million) or two-thirds of the total lending for coal-based power in 2018. The analysis is yet another clear indication of the slump that has been growing in the Indian thermal power sector over the past four years. A March 2018 Parliamentary panel report listed 34 electricity projects with a combined capacity of 40GW that had become stressed and were carrying an outstanding debt of ₹1.74 lakh crore ($24 billion). A month later, a Bank of America-Merrill Lynch report examined thermal power projects totalling 71GW and found that a whopping ₹3.5 lakh crores (US$53 billion) was under stress of which ₹2.5 lakh crores (US$38 billion) had already turned bad. While the slump in thermal power has persuaded major power companies to pull the plug on coal, banks have also decided on major cuts in lending to thermal power.
With prices of solar and wind energy falling to levels comparable with coal, the negative effects of coal on environment and health have started to become magnified, especially when securing finance for projects with long lives potentially stretching several decades. “Solar and wind generation costs are comparable to coal. This in addition with clean energy co-benefits such as health, better air quality, less land degradation and also reduction in emissions, making renewable energy a more attractive investment compared to coal. We are seeing this trend globally, and even more so in India,” says Vibhuti Garg, energy economist at the Institute for Energy Economics and Financial Analysis (IEEFA).
In contrast to coal, investments in solar and wind projects saw a modest increase in 2018 compared to 2017. According to CFA’s analysis, renewables attracted ₹24,442 crore (US$3.55 billion) in financing for 4.66GW of power from 29 lenders compared to ₹22,913 crore (US$3.08 billion) in 2017. The report notes that the 7% growth in lending was achieved despite the decline in growth of grid connected capacity. The reluctance of commercial banks to lend to coal-based power projects did not extend to renewables in 2018 as commercial banks accounted for three-quarters of all project finance for renewables (₹18,263 crore/US$2.64 billion). In a complete inversion of the trend seen in coal power, financing for renewables are primarily forward-looking as 80% of the total lending was for new projects. The report however notes that growth of renewables has been concentrated in a few states with just 10 out of 29 states receiving any project financing, compared to 12 the year before. Just five-Karnataka, Madhya Pradesh, Gujarat, Rajasthan and Andhra Pradesh received 75% of the total.
“Our analysis shows that investments in coal power is reducing at a significant pace, this trend consistent with global market forces. However, it is important to note that private banks are the ones leading the transition to clean energy in India and not the Government owned financial institutions or public banks. Government needs to get the public banks and financial institutions to start backing renewable energy more than coal,” says Joe Athialy – executive director of the Centre for Financial Accountability.
The stress signals from India’s power sector have been growing stronger for some time now. The Indian government, for its part, has taken some cognisance of the situation and has attempted to ease the stress on thermal power. Not only has it looked to boost coal production through significant budgetary allocations, the government has also sought to ease imports of coal and has mandated the Letters of Credits from discoms as a payment security mechanism for Power Purchase Agreements (PPAs). In a controversial move, the government has also pushed back the deadline for tighter emission norms in thermal power plants, implementation of which is estimated to cost ₹73,000 crore. Recent reports suggest that further dilutions are currently being floated. But while the centre has been busy fighting one fire, another one seems to be getting out of control.
Even as the debt from thermal power projects continues to balloon, increasing debt from the renewable sector is also drawing concern. The Central Electricity Authority (CEA) just revealed that distribution companies across the country owe dues totalling ₹3012 crores (US$420 million) to renewable energy projects aggregating 5,982 MW with some states suspending tendering for any new projects. While the increased proportion of financing towards renewables is indeed a positive development for the government’s target of installing 175GW renewable capacity by 2022, the optimism must be tethered by caution. Ongoing uncertainty regarding PPAs signed with renewable energy generators in Andhra Pradesh has reportedly put another Rs.21,000 crores of investments at risk. If investor confidence is not restored and the current situation persists until the end of the year, a similar drop of lending for renewable projects may be on the cards.
This article, first published in Carbon Copy, can be accessed here.