India’s renewable energy sector soars as coal financing dwindles

In the wake of the COP28 climate summit in Dubai, a pivotal shift in India’s energy financing landscape has emerged. A comprehensive analysis by the Center for Financial Accountability (CFA) and Climate Trends reveals that for the second year running, coal power projects in India have not secured project financing in 2022. This trend underscores a growing preference among lenders for renewable energy investments over fossil fuels.

Renewable investments surged, coal declined

The 2023 Coal vs. Renewable Investment Report, which scrutinized 68 loans allocated to 11 energy projects, found that all financial closures in 2022 were exclusive to renewable energy ventures. The total project finance debt amounted to Rs 18,577 crore (US$2.36 billion), marking a 45% decrease from the previous year. This reduction can be attributed to various factors, including COVID-19 related project delays, supply chain disruptions, rising finance costs due to increased interest rates, and the impact of domestic policies.

Solar power has taken the lead in the renewable sector, securing 40% of the financing through six deals. Despite this, the solar sector experienced a significant 64% drop in loans, with Rs 7,361 crore (US$935 million) funded for 1,849 MW of solar projects. Wind energy, representing a mere 4% of the total renewable loans, supported two projects with a combined capacity of 144 MW, reflecting an over 80% decrease from 2021.

Aarti Khosla, Director of Climate Trends, commented on India’s position at COP28, suggesting that India’s reluctance to sign the global fossil fuel phaseout pledge may stem from its commitment to coal for energy security. However, she also pointed out that the 2022 data reflects India’s dedication to achieving its NDC 2030 target of generating 500 GW of electricity from non-fossil fuel sources. Khosla emphasized the importance of accessible and affordable finance for renewable energy to reinforce India’s commitment and its standing as a climate leader.

Banks led, renewables loans declined

Commercial banks were the primary source of loans, accounting for five deals and 68% of the total funding. The renewable sector saw a 51% decline in commercial loans from 2021. Cooperative Rabobank UA emerged as the top lender, providing a loan of Rs 7,749 crore (US$985 million), surpassing L&T Finance’s largest renewable loan of 2021, which was Rs 4,214 crore (US$565 million).

Joe Athiyali, Executive Director of the Center for Financial Accountability, highlighted that the cost of renewable energy with storage is now competitive with, and often cheaper than, new coal plants. The negative global sentiment towards coal has made financial institutions wary of funding coal projects.

Rajasthan continued to be the prime recipient of renewable energy loans for the second consecutive year, receiving over Rs 7,579 crore (US$963 million). With approximately 132 GW of renewable energy already installed, India is committed to meeting additional power demands through renewable sources. The World Energy Outlook 2023 projects that India will surpass its 2030 goal of deriving half of its electricity capacity from non-fossil fuels before the decade’s end.

As financial institutions shift their focus away from coal, the report emphasizes the need for policy and regulatory alignment to facilitate increased investment in renewable energy projects. This transition not only aligns with global climate goals but also positions India as a leader in the renewable energy revolution, setting a precedent for sustainable development and energy security.

The findings of the report serve as a testament to the changing dynamics of energy financing in India. The move away from coal and towards renewables is a clear indication of the country’s commitment to a cleaner, greener future. As the world grapples with the challenges of climate change, India’s proactive approach to renewable energy financing offers hope and a blueprint for other nations to follow.

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