Investments Should Now Become ‘Climate-Smart’

The discussion, held during WSDS 2020, revolved around safeguarding the private sector investors and de-risking renewable projects


Coal is a necessary evil for most of the countries in the world. Though many emerging markets, including India, are transitioning towards sustainable energy, coal is far from being replaced entirely with cleaner sources of energy like solar.

While coal remains the dominant form of energy, there have been rapid changes in the way we consume electricity, and the share of renewable energy in India has been rising consistently over recent years. Renewable energy (including large hydro) accounted for almost 36% of India’s total power capacity mix at the end of the calendar year (CY) 2019, according to data from the Central Electricity Authority (CEA), and the Ministry of New and Renewable Energy (MNRE).

During a plenary discussion ‘Transformative Actions to Revive Green Climate Finance’ held during the World Sustainable Development Summit (WSDS), the panel discussed the intricacies of financial arrangements that are driving the renewable industry forward. The three-day event was organized by TERI. The discussion revolved around leveraging opportunities in climate finance and how the private sector can have a more robust role in supporting sustainable projects.

India stands at a critical juncture today as the country prepares for a sprint to meet its 2022 renewable energy target of 175 GW. As aspirations soar, access to finance remains one of the major concerns for the industry, thwarting its optimum potential. While the investment community has become a lot more comfortable with renewable energy over the past few years, there have been far too many speed breakers along the way, especially for developers with limited capital and resources.

Talking about the conventional model of the power industry, Deepak Bagla, Managing Director & CEO, Invest India, said that coal-based power projects have historically been financed by the state. However, renewable projects have witnessed a disruption in the pattern with private equity finance coming to their rescue.

“One of the things the International Solar Alliance has done is form a joint venture with Invest India where we are coming up with a platform where we bring together all the solar projects being developed across the globe. This gives the investors a host of choices to invest in and also helps us see how these de-risked models of finance are being adopted in other countries and how they can be replicated. If you de-risk a project, the expectation of reward also comes down,” Bagla added.

The panel also discussed the need for the government to provide an enabling environment for private sector investors. Given the widening gap between available finances and the rising demand, it has become increasingly important for markets like India to mobilize private sector finance.

Talking on the need to accelerate the pace of such funding, Kelly Sims Gallagher, Director, Climate Policy Lab and Co-Director CIERP, The Fletcher School, Tufts University, said that more than 80% of the climate finances are raised in the same country in which they are spent.

“Still today, our investments in fossil fuels are twice the size of what is spent on renewables,” she added.

It is crucial to distinguish among the policies on some broad parameters – which ones are most economically efficient, which ones can mobilize most amount of investment, which policies are the most equitable.

Climate-related policies can serve a two-fold purpose – to create demand (think of carbon pricing) and to increase the supply side (for instance, green bonds). It is imperative to bring these two aspects together to meet our short as well as long-term targets.

Further elaborating on ways to encourage private sector investments, Gallagher added that loan guarantees offer a great way to reduce the risk for private players.

“Climate change policies are highly skewed towards litigation, and that’s something that must be corrected, particularly in countries like India,” she added.

In a market like India, the scope for the development of renewable projects is immense, and the country has just begun to take this seriously. When we talk about the financing of these projects, we have to see whether it is commensurate with the scale of that opportunity, John Roome, Senior Director – Climate Change, World Bank, said.

“It’s not just about finding climate finance. It’s about making regular finance climate-smart,” Roome underlined.

“People don’t invest in climate. The government invests in agriculture, road, and water. The private sector invests in energies and motor vehicles. So, the question is to make these investments more climate-smart,” he added.

Talking about financing for solar projects, Roome said that there are already big private investors investing in rooftop solar. “If there is a market, the finance will come. There’s not a shortage of finance,” he said.

The problem, according to Roome, lies in the lower rate of returns. We need to balance the rate of returns so that the money can move into these opportunities. The main issue is to create the right market avenues. The question now is, how do we, in the short term, balance the risks and rewards. How we use it to release the opportunities and drive down the costs of technologies like rooftop and concentrated solar is of importance now. How these financial deals are structured is also crucial.

In Madhya Pradesh, the World Bank has tried to achieve this goal by improving the perceived risks, for instance, by improving the power purchase agreements, putting certain guarantees in place, and driving down the cost in parity with coal.

“We need to look at adaption. And this includes shaping public money and making them climate-smart,” he added. This implies ensuring that our developmental process is redefined so that the developmental investment now also includes future climate-related investments. Roome also emphasized on the need to utilize the money raised through carbon pricing intelligently.

India, the third-largest solar market in the world, has historically been extremely price sensitive. This, in turn, has led to slower adoption of technologies and expansion. For a market like India, these expert recommendations assume greater significance as they enunciate on ways to catalyze capital into markets while reducing the risks for all the stakeholders involved.


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