OPINION: India’s fight against climate change hangs in balance! Here’s how the country could finance a sustainable future

The year 2015 is a landmark in our pursuit of sustainability! The United Nations adopted Agenda 2030 for Sustainable Development in 2015, including 17 Sustainable Development Goals (SDGs) to end poverty, protect the environment, and ensure prosperity for all, laying a roadmap to ensure sustainable social, environmental, and economic progress worldwide.

In the same year, India and 195 other member nations adopted the Paris Agreement—the most ambitious effort so far to strengthen the global response to the threat of climate change. The Agreement aims to limit the rise in the 21st century’s mean global temperature to within 1.5°C of pre-industrial levels and saw a slight shift from the Kyoto Protocol Principles of Common but Differentiated Responsibilities.

Paris Agreement called for all countries to submit a plan, known as a Nationally Determined Contribution (NDC), that detailed their contributions to achieving the agreement’s objectives. All parties must revise NDCs every five years to aim for even faster progress towards net-zero emissions and should regularly report on their emissions and their implementation efforts.

India’s commitment to climate action

Recognising that technology and finance will be key enablers, India’s NDC detailed its two-pronged approach, comprising the promotion of clean energy technology and enhancing energy efficiency. In addition, our country identified other mitigation strategies like developing climate-resilient urban centres and setting up a green transportation network for safe, smart, and sustainable emissions reduction.

In line with the spirit of the Agreement, Prime Minister Narendra Modi announced India’s upgraded Panchamrit strategy at the 26th Conference of Parties (COP-26) last year, comprising five immediate goals to achieve net-zero emissions by 2070. Chief amongst them is reaching a non-fossil fuel energy capacity of 500 GW by 2030, with at least 50% of all energy requirements being met by renewable energy sources.

Furthermore, outlining the country’s strong climate ambition for the current decade, India has called upon the investor community to invest in research and development, manufacturing, and deployment of green technologies, also known as green infrastructure finance. On its part, the Government of India (GoI) has already launched a Climate Finance Leadership Initiative (CFLI) in partnership with the UK government to mobilise private capital in support of green energy projects in India.

Towards clean energy

Even before the formation of CFLI India, the country had already more than doubled the share of renewable energy in the total energy mix from 11.8% in March 2015 to 25.2% in July 2021. Additionally, about 63 GW of renewable energy capacity is under various construction phases and will add to the current non-fossil fuel-based installed capacity of 157.32GW.

With India’s power requirements estimated to reach 817 GW by 2030 as per the Central Electricity Authority, the country will need to tackle cost headwinds for solar power projects caused by a nearly 35% increase in the average price of imported solar PV modules over the past year. The Indian chapter of the CFLI will thus aim to accelerate financing for renewable energy infrastructure, with a particular focus on solar and wind power-based projects. This initiative will go a long way in supporting the achievement of India’s target of 450 GW of renewable energy by 2030 and can potentially take installed power capacity from non-fossil fuels to 66% of the total energy capacity in the country.

According to climate and energy research firm CEEW Centre for Energy Finance (CEEW-CEF), India will need close to US$10 trillion or roughly ₹750 lakh crore to meet its goals of net-zero carbon emissions by 2070. This will involve taking India’s total installed solar power capacity to over 5,600 GW by 2070, dropping the usage of coal for power generation by 99% before 2060 and developing Green hydrogen infrastructure to contribute 19% of the total industrial sector’s energy needs by 2070.

India has also signalled that the future of mobility is Electric! This is also evident from the continuous decline in Battery pack pricing, decreasing from around Rs 75,000/kWh in 2010 to Rs 11,000/kWh in 2021, bringing the EV sector to the forefront as the country’s next sunshine sector. Technology cost, customer preference, and infrastructure rollout remain the critical impediments to the faster adoption of Electric vehicles. India’s retail vehicle finance industry is estimated at Rs 4.50 lakh crore as per Niti Ayog, and only recently specialised EV loans have been taken up by the Banks/FIs.

Financing a sustainable future

A NITI Aayog report estimates that the energy sector would need US$4.5 trillion by 2030 to address the current infrastructure gaps and increase the renewable energy sector’s share to 50% of the total energy produced.

With the country relying on domestic finance so far, the onus is now clearly on local and foreign entities to step-up green infrastructure financing initiatives. It will be a critical enabler for the world’s fastest-growing major economy to achieve its ambitious targets set for 2030. Foreign funds are now available to meet this demand, but they come with perils. The overall financing cost of such foreign funds can also be a non-starter for many domestic players as it would appear that this cheap financing is available at 2 to 4%, but hedge fund cost makes it too steep.

The Government can step in by establishing a Hedge Fund, which can bring in the necessary respite. This Government hedge fund can be created to fund risks on account of currency fluctuation up to a certain range, thereby bringing down the overall cost for developers seeking the Foreign funds. Debt funds can also be tapped to offer cheaper financing when projects are implemented in India.

In the past, the Government had also provided additional Income tax incentives under Section 80CCF under Infrastructure Bonds. Evidently, the growth of infrastructure projects, especially renewables, accelerated during that period. Currently, the Agriculture Infrastructure and Development Cess and the Road and Infrastructure Cess are levied on the sale of petrol and diesel. Similarly, a cess can be earmarked for financing Green Infrastructure projects.

We have also witnessed a surge in the Energy exchange prices late, with the thermal merchant power plants being the biggest beneficiaries in the Day-Ahead Markets. Although the Central Regulator has stepped in and put a forbearance price for such sale of power, however, a mechanism should be in place to introduce sharing of such windfall gains by contributing a certain percentage of the profits towards Green Infrastructure development.

Shri Sitesh Sinha is the Head, Credit, and Senior Vice President at PTC India Financial Services Limited.

Disclaimer: The opinions expressed are of the author/interviewee and do not necessarily reflect the views of Business Insider India. The article has been partly edited for length and clarity.

This column is part of June 2022’s month-long awareness campaign on the theme “Only One Earth: Sustaining People, Planet and Prosperity” by Business Insider India’s Sustainability Insider.