Coal project finance in the year 2019 stood at just INR 1100 crore (US$190 million), compared to renewable energy lending aggregating to INR 22,971 crore (US$3220 million)
A new report by the Centre for Financial Accountability (CFA) and Climate Trends finds that coal funding in India (both from state-owned and private investors combined) dropped 82% year-on-year in 2019 following a 90% decrease in 2018.
State-owned funding stood at just INR 150 crore of the total INR 1100-crore coal project finance—and that too from India’s EXIM bank. Thus, according to report authors, no state-owned commercial banks and financial institutes such as PFC or REC provided project finance loans to coal in 2019.
By contrast, 41 renewable energy projects aggregating to 5.15GW capacity received a cumulative of INR 22,971 crore (US$3220 million)—accounting for 95% of the total lending to energy projects in the year 2019, despite seeing a 6% decline year-on-year.
Solar projects continued to dominate renewable energy lending. Lending to solar projects increased by 10% compared to 2018, while wind energy lending dropped 30%.
The report stated that investment in the renewable energy sector was impacted due to the financial stress in Indian power distribution companies (Discoms). Discoms owe power producers an amount of INR 116,340 crore (US$16 billion), of which US$1.1 billion is owed to the renewable energy generators.
“While India is on track to achieve its Paris climate commitments, its ambitious domestic target of 450GW by 2030 might suffer if the financial condition of its discoms doesn’t improve. Phasing out old, inefficient, and expensive coal power plants and replacing them with renewable energy might be a way to reduce the financial stress within the sector,” said Climate Trends director Aarti Khosla.
The report stated 2019 saw two coal projects (totaling 3.06 GW capacity) receiving INR 1100 crore (US$190 million) in project finance. In 2018, five coal-fired projects with a combined capacity of 3.8 GW received INR 6081 crore (US$850 million). By contrast, INR 60,767 crore (US$9.35 billion) was lent to 17 GW of coal projects in 2017.
“A significant drop in project finance to coal means that financial institutes are beginning to realize the associated financial and reputational risk in investing in coal” said Joe Athialy, Executive Director at CFA.
“Our policymakers need to read the writing on the wall. Pushing healthy commercial banks into financing unviable coal projects in India and abroad will only lead to more stress in the financial sector,” Athialy added.
The report, third annual Coal vs Renewable Financial Analysis 2019, looked at 50 project finance loans across 43 coal-fired and renewable energy projects in India. Only projects that reached financial close between January 1, 2019 and December 31, 2019 were included in the analysis.
The article published in PV-magazine can be accessed here.