Funding avenues for a clean energy roadmap in India
Blog invited by Poonam Sandhu and John Dulac
Climate finance will be one of the four major themes of the next United Nations Conference of the Parties (COP26). Emerging economies and countries most vulnerable to climate change are in particular need of financial support from developed economies to achieve their Nationally Determined Contributions (NDCs) under the Paris Agreement. The Indian government estimates that the country needs investments of $ 250 billion between 2023 and 2030, or about $ 35 billion per year, to meet its target of 450 gigawatts (GW) of renewable energy. However, current clean energy funding is around $ 14 billion per year, just a fraction of that required amount. In addition, many clean energy sub-segments in India even have difficulty accessing finance.
While more established clean energy segments, such as large-scale solar and wind power, have proven successful in India and have had access to traditional financing over the past decade, other energy solutions clean still have a hard time. For example, small bioenergy and energy efficiency projects often do not have the scale or proven business model to attract private investment. Enabling these opportunities and a sustainable post-COVID-19 recovery fundamentally requires shifting current investments and business capital from “brown” projects to “green” projects. This transition requires a more targeted application of public finances and additional support mechanisms to increase the portfolio of bankable clean energy projects, increase opportunities for investors and attract more financing from the private sector.
India needs a roadmap for financing and investing in clean energy
Concerted efforts to support the growth of sustainable finance are imperative given the huge funding gap available for India’s clean energy transition. The NRDC and the Clean Energy Finance and Investment Mobilization (CEFIM) program of the Organization for Economic Co-operation and Development (OECD) have partnered to develop solutions for clean energy segments that require tailor-made support to unlock investments. A Roadmap for financing and investing in clean energy for India, which will be developed in the coming year, will be led by an inter-ministerial group comprising the Ministry of New and Renewable Energies, the Ministry of Energy and the Ministry of Finance. At the operational level, representatives of organizations reporting to these ministries, such as the Indian Renewable Energy Development Agency and the Office of Energy Efficiency, will make regular contributions.
The Roadmap for financing and investing in clean energy will:
- identify clean energy segments that need additional support,
- identify and assess the main obstacles affecting access to finance,
- work with stakeholders to develop financial tools and business models adapted to market needs,
- recommend supportive policies to overcome barriers, and
- assess the need for additional investment vehicles to increase domestic and international investment.
The project will strive to maximize stakeholder participation in developing strategies and building consensus for successful implementation of the proposed solutions. In line with this approach, CEFIM and NRDC have already organized extensive consultations with stakeholders that have identified critical market segments requiring financial support, such as distributed renewables and energy efficiency in small and medium-sized enterprises, among others. From the list of identified critical segments, two to three segments where the roadmap process can make the most important contributions will be pre-selected with the steering committee for an in-depth analysis of the project. Segment screening criteria will include Indian stakeholder priorities, scalability, impact on greenhouse gas emissions, and impact on socio-economic issues such as poverty reduction and equity. CEFIM and NRDC will then organize workshops with experts and key stakeholders to identify obstacles, develop solutions and propose action plans to address challenges in the preselected clean energy segments. These feasible solutions will help propel the lagging clean energy segments and improve their access to finance, while greening the economy and creating jobs.
The Roadmap emphasizes stakeholder participation in developing solutions and building consensus for successful implementation. CEFIM and NRDC will facilitate international dialogues with investors with the aim of obtaining investor feedback on stakeholder-based solutions. The comments will be incorporated into the policy recommendations for the government.
Economic growth must face up to the climate crisis
The world is rushing towards a 1.5 oC temperature increase by 2040, 60 years earlier than previous estimates. Aligning India’s economic recovery from COVID-19 with the clean energy transition is key to boosting green economic growth. This is not only beneficial for the environment, but it is also an economic multiplier through the development of clean energy infrastructure and job creation. For example, clean energy jobs can quickly get people back to work while highlighting India’s sustainability. As a country extremely vulnerable to the effects of climate change, India can simultaneously meet climate and economic ambitions by aligning green investments with economic recovery.
Poonam Sandhu is a clean energy and finance expert working as a consultant to the NRDC
John Dulac is a financial analyst for clean energy at the CEFIM program, OECD