Follow the Money, As Funding Shifts Completely to Renewables Over Coal in 2021

A study titled “Financiers Prefer Wind And Solar Over Coal” has been released by CFA (Center For Financial Accountability). According to the Coal vs. Renewables Financial Analysis 2022, L&T Finance overtook SBI as the largest financier of renewable energy project financing in 2021.

The annual energy finance conference co-hosted by CFA and IIT Madras saw the publication of the fifth edition of Coal vs Renewable Financial Analysis, written by Climate Trends and CFA.
For the first time since tracking started, there was no new project finance for coal power projects in the year 2021, despite the total funding for new energy projects being 60% lower in 2021 compared to 2017 levels. Rajasthan followed by Gujarat were the top beneficiaries of renewable energy lending, with INR 22,187 crore and 4,025 crores being poured into the states respectively. Collectively they accounted for 77% of all renewable energy loans.

“The writing is on the wall. Lending institutions are increasingly moving away from coal lending given the risks. After Federal Bank, the first commercial bank to have announced a coal exit policy, Sarvodaya Small Finance Bank has also announced an end to financing coal projects,” said Joe Athially, Executive Director, Centre for Financial Accountability indicating how more and more financial institutions are likely to follow.

Highlights of The Report

  • For the first time, 100% of the value of the project finance loans identified in 2021 went to renewable energy projectsThis is a considerable increase compared to 2020, where renewable energy loans accounted for 74%.
  • Total funding for new energy projects in 2021 is 60% lower compared to 2017 levels. Moreover, when inflation is taken into account, the real value of the amount lended for new energy projects in 2021 even shows a decrease compared to 2020 levels.
  • A coal loan which was signed in 2021 was already counted in the last report and is therefore not included in this analysis. Including it would mean that 20% of the total value went to coal power plants, whereas 80% to renewable projects.
  • Interestingly, however, in mid-September 2022, the Union power ministry moved a proposal to grant PFC and REC the status of a development financial institution (DFI) for energy transition. If this comes to pass, both the government-owned financial institutions could become the nodal agencies for financing the energy transition in the country. By some estimates, India would need 10 trillion dollars to transition to net zero by 2070 and a nodal agency would play a big part in facilitating the necessary finance.
  • The Reserve Bank of India also recently shared a discussion paper on Climate Risk and Sustainable Finance that has suggested strongly that banks follow the Task Force on Climate-Related Financial Disclosures (TCFD) and shared suggestions on how private banks can deal with climate change risk and scale up green finance. Despite the geopolitics and depression in the markets over the last few years, some of these measures could potentially amp up the finance necessary for RE projects to scale up at the necessary pace.