Financing the Clean Energy and Energy Transition in India

8/9/2019 Financing the Clean Energy and Energy Transition in India

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Financing the Energy Transition and Sustainable Development 2015

Manoj Rawat, [email protected] Page 1

Energy Transition and Climate Change – On a conservative estimateits offers more than $1 trillion opportunity in India

Tackling climate change and ensuring Sustainable Development has to be made an inclusive,

multi-stakeholder process and the active participation of the corporate sector, banks, financial

institutions is essential. The issue of sustainable development cannot be addressed byvoluntary individual responses rather we need to think about mainstreamingsustainability and therefore substantially new way of putting in place an implementable

framework, which could be adopted by people on mass scale. The central problem for

sustainable development is how to balance the resource use and environmental impacts

of economic production with the benefits of that production to society.

The biggest impact banks and financial institutions have on the environment and

climate, and on the world, is through the lending decisions they make. The banks may

play an active role in low-carbon energy transition in developing countries to increase

the scale, and thereby the impact, of the transition.

A large part of mainstreaming of sustainable energy could be driven through Financial

Institutions in a sustainable manner as they have one of the largest outreach as also

“Going Green” represents a major opportunity.

1. Green Lending will become strategic to financial institutions

Clean energy systems, i.e., renewable energy and energy efficiency systems, will play a

key role in decarbonizing the energy sector, reducing greenhouse gas emissions and

address the climate change issue. However we need to address various factors which

include increased investment costs, appropriate technology transfer, technology

management and augmenting the capacity of developing countries to integrateinnovative technologies.


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The banks and financial institutions need to consider that addressing environmental

issues is a matter of strategy and can be evaluated based the actions being taken, and

the benefits realized. This could lead to a deeper understanding of the opportunities

inherent in financing a greener business, adopting new approaches to risk management,

and cost-saving benefits of cutting environmental footprints both inside and outside a

bank’s walls.

An environmental strategy for a Financial Institution would broadly outline

a. Green Lending and Clean energy program

b. Energy efficiency program

c.

Natural Resource Management ( Water, soil and energy) program

d. Environment Underwriting Criteria

e. Environmental monitoring framework

2. For banks in India there two focus areas which could be integrated with the

National Program to achieve sustainable development

A. Developing India as one of largest solar power markets

India’s plan to become of the largest solar power markets in the world has received a

massive boost as the latest estimates of its solar power potential. The National Institute

of Solar Energy in India has determined the country’s solar power potential at about

750 GW. The solar power potential has been estimated using the wasteland availability

data in every state and jurisdiction of India. The estimate is based on the assumption

that only 3% of the total wasteland available in a state is used for development of solar

power projects. Besides other renewable energy sources have a potential for 120 GW.

This means that India as country has more than 850 GW renewable energy potential.Out of this we have achieved less than 0.5%.

The potential would on a conservative basis translate into more than USD 1.2trillion capital investment or USD 800 Billion finance opportunity, for banks.

Besides this a country like India has 27 million agriculture pump-sets which canbe replaced over a period of 20 years by Solar Powered Pump sets which itselfwould need USD 100 billion capital investment.

B.

Giving a major push to micro-irrigation program especially dripirrigation program

Given the water scarcity, over exploitation of water resources and growing need for

food increasing production, micro-irrigation needs to be given a major push as it may

help solve three of the most important issues- water scarcity, rising pumping (energy)

costs and depressed farm profits

Advantages of drip irrigation are it saves of irrigation water (20-60%) , ensures Crop yieldenhancement (20-50%) , increases fertilizer use efficiency and saving of fertilizer up to 25%,

saves electric power in pumping (30-40%) and reduces CO2e emiisoon.


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Drip Method of Irrigation increases the water use efficiency in irrigation which

subsequently reduces energy and CO2e. Drip system is a much more efficient process

as the water is supplied straight to the crop root zone which substantially reduces the

evaporation, conveyance and distribution of losses of water. This reduces the working

hours of pump sets through water saving and therefore, it not only reduces the

consumption of electricity and CO2e per hectare but also increases the efficiency of

electricity use (electricity consumed per unit of output) to a great extent.

There is direct relationship that has been observed between groundwater irrigation

development and electricity use in Indian agriculture. Macro level data clearly suggests

that the electricity consumption in agriculture has been increasing along with the

increase in groundwater irrigated area. Available studies show that electricity is not

used efficiently in agriculture due to pre-dominant use of conventional flood method of

irrigation (FMI), where conveyance and distribution losses of water is substantial.

Estimates indicate that water use efficiency under flood method of irrigation is only

about 35 to 40 %

The on-farm irrigation efficiency of properly designed and managed drip irrigation

system is estimated to be about 90 %, which is substantially higher than the efficiency

realised through flood method of irrigation which is anticipated to be between 30-40%.

Though drip irrigation technology is introduced primarily to increase the water use

efficiency, it also delivers many other economic and social benefits to the society.

Drip Irrigation increases the crop productivity, saves substantial amounts of water andenergy, but it requires relatively large fixed investment to install the system in the field.

Based on demand and potential for micro-irrigation system the investment

demand for is estimated at USD 160 billion.

3. Accelerating Green Finance

a. Creation of Green Capital Pool: There is imminent need to create largeGreen Capital pool to finance/refinance clean energy, energy efficiency,

natural resource conservation, energy efficient logistics, less-polluting

and buildings and other green assets.b. Categorise Green lending as Priority Sector lending: In country likeIndia the banks can accelerate the development of renewable energy and

energy efficiency technologies to support sustainable development and

poverty alleviation. The Regulator can make all these loans qualify under

Priority Sector

c. Creation of Credit Guarantee fund for renewable energy schemes.d. Dovetail various schemes for solar energy and irrigation systeme. Microfinance can play a major enabling role in developing markets for

small low-carbon energy systems and devices

f. There is a business case for sustainable energy but still public policy

needs to regulate and provide incentive for private action to move it from


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the realm of social responsibility & philanthropy into mainstream

business

g. Innovative financing approaches and new business models can tackle

barriers from the grass-roots level.

To concludeWhile meeting the sustainability objectives will require standardising the present

environmental framework, enacting strong legislation and introduction of new enabling

policies, there is need for adopting a holistic and integrated approach to water, energy

policy and planning.

The steps taken by Indian Government in promoting Renewable energy especially solar

and incentivising the micro-irrigation system implementation has created traction and

awareness with farmers and people. However this transformation of energy system

would require substantial investments and increased cash flows through financial

institutions.

The low carbon and clean energy asset finance offer multibillion dollar business

opportunity to Indian financial institutions and banks for lending to a “preferred future”and mainstreaming sustainable development.

Manoj RawatThe Rural Banker

Mobile : +91 9987500731

[email protected]

Twitter : TheManojRawat

Facebook: https://www.facebook.com/TheManojRawat

--------------------------------------------------------------------------------The views expressed are purely personal.
mailto:[email protected]:[email protected]:[email protected]

Financing the Clean Energy and Energy Transition in India

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