Financing India's Climate Tech Ecosystem

India finds itself on the precipice of a transformational shift. With the long-held dependence on traditional ICE vehicles no longer viable, the country is rapidly proceeding towards sustainable mobility and renewable energy. India plans to achieve net-zero emissions by 2070, and a critical challenge emerges: How do we bridge the massive financing gap that threatens to derail our climate ambitions?

The numbers are staggering. India requires USD 467 billion in financing towards increasing its renewable energy capacity by 2030 to decarbonise its power, steel, cement, and transport sectors. Yet, this daunting challenge also presents an unprecedented opportunity for the emergence of innovative financing solutions that can democratize access to clean technology while managing risk prudently.

The risk-return paradox in climate tech financing

The renewable energy sectors present a unique conundrum for traditional financial institutions. Organized players remain apprehensive about entering these spaces due to the novelty of the asset classes. Unlike conventional MSMEs, automotive or infrastructure financing, climate tech assets come with unknown variables like untested asset life cycles, unknown asset performance over as sustained period, degradation patterns, and evolving technology risks that make traditional risk assessment models inadequate in this space.

This uncertainty has created a conservative lending environment where financial institutions either avoid the sector entirely or price risk so high that it becomes prohibitive for end consumers. The result is a catch-22 situation where, without adequate financing, clean technology adoption remains limited, but without sufficient adoption data, lenders cannot build confidence in the asset class.

Leveraging data and technology for risk mitigation

The solution lies in embracing technology-driven risk assessment mechanisms. Original Equipment Manufacturers (OEMs) are now providing rich streams of IoT data and telematics information that offer unprecedented insights into asset performance, usage patterns, and asset performance curves. This real-time data is revolutionizing how financial institutions assess and price risk in the climate tech space.

At Ecofy, we have implemented several approaches to harness this data and draw insights from them. For solar financing, instead of relying on traditional income documentation, we determine customer eligibility through electricity bill analysis drawing comfort from the likely savings that a consumer is expected to drive – a method that not only streamlines the process for new-to-credit customers but also provides accurate insights into their energy consumption patterns and repayment capacity.

The solar financing opportunity has grown exponentially. From FY 2022-24, the highest growth across segments was observed in residential rooftop solar, at a CAGR of 41%. This accounts for 37% of all new installations in 2024, an increase of 10% from the previous year.

Similarly, for electric vehicle financing, telematics data allows us to monitor vehicle health, usage patterns, and performance metrics in real-time. This data-driven approach enables vehicle monitoring, dynamic risk pricing and early intervention mechanisms that protect both lender and borrower interests.

Government as a Catalyst for Climate Tech

Government backing has proven instrumental in de-risking climate tech investments. The 2025 budget allocated INR 1.5 billion to solar power grid projects. INR 2.6 billion was also allocated for PM KUSUM, a scheme that provides subsidized solar pumps to farmers, while solarizing existing grid-connected pumps to curb diesel dependence. This represents a considerable increase from the previous year, signalling strong policy commitment.

The PM E-DRIVE Scheme has already demonstrated remarkable impact, supporting the sale of over 10.27 lakh EVs and leading to a reduction of 2.3 lakh tonnes of CO2 emissions. More importantly, the scheme's focus on charging infrastructure addresses a critical bottleneck that has long hindered mass adoption.

Default guarantees from Development Financial Institutions (DFIs) such as the World Bank and SIDBI have also been crucial in encouraging financer participation. These mechanisms provide the necessary confidence for lenders to enter new asset classes while maintaining prudent risk management practices.

Innovative product design

The key to bridging the funding gap lies in innovative product design that aligns with customer cash flows and risk profiles. Traditional lending models that rely heavily on formal credit history and salaried profiles still exclude 33% of India's workforce, particularly in Tier-2, Tier-3 and beyond cities where climate tech adoption has the maximum potential.

The financing penetration varies significantly across vehicle segments too, with passenger vehicles at 85%, two-wheelers at 60%, three-wheelers at 95%, light commercial vehicles at 95%, and buses at 100%. This indicates substantial room for growth, particularly in the two-wheeler segment which witnessed strong penetration within the scooter segment.

Battery-as-a-Service (BaaS) models have emerged as game-changers in the electric vehicle space. By separating the battery cost from the vehicle purchase, these models reduce upfront costs while eliminating concerns about battery degradation. This approach has proven particularly effective for commercial vehicle operators and delivery partners who view vehicles as income-generating assets rather than lifestyle purchases.

Similarly, flexible ownership models such as daily EMIs, pay-per-kilometre pricing, and subscription-based access have gained traction among fleet operators and gig economy workers. These models align financing with actual cash flow patterns, making adoption more viable for users with irregular income streams.

Addressing the resale market challenge

One of the significant barriers to climate tech financing has been the underdeveloped resale market for electric vehicles and solar installations. Traditional lenders rely heavily on asset recovery potential for risk mitigation, but the absence of established secondary markets has made this challenging.

Ecofy has been at the forefront of addressing this challenge. Our redeployment platform through Ecofy’s wholly owned subsidiary, Autovert, and D2C marketplace Ecozaar, is creating organized secondary markets for electric vehicles and renewable energy assets. These platforms not only provide options for consumers but also generate valuable data on asset usage patterns, asset degradation, etc which feeds back into our risk assessment models.

The path forward

The future of climate finance lies in embedded finance solutions that integrate credit evaluation tools with innovative product solutions around the use of IOT data, prediction of the asset's useful life, assessment of the asset's second life. This would need a collaborative effort across multiple stakeholders, including manufacturers, technology providers, insurers (for extended warranty), government agencies, financiers, and DFIs that serve as loss absorbers.

Building trust through Financial Inclusion

Trust remains a critical factor in driving climate tech adoption, particularly in smaller cities where customers may be less familiar with new technologies. Financial institutions must focus on building trust through transparent pricing, vernacular communication, and localized support systems.

Alternative credit scoring mechanisms that leverage UPI transaction history, mobile recharge patterns, and utility bill payments are proving effective in assessing creditworthiness for underbanked customers. These approaches recognize that financial behaviour extends beyond traditional credit bureau data and can provide more nuanced insights into repayment capacity.

Conclusion

Bridging India's climate tech funding gap requires a collaborative ecosystem approach that brings together policymakers, financial institutions, technology providers, and end customers. The challenge is not just about mobilizing capital but about doing so in a way that manages risk prudently while ensuring equitable access to clean technology.

As we look towards achieving our climate targets, the role of innovative financing will be paramount. The global electric two-wheeler market is projected to grow from $44.5 billion in 2024 to $114.3 billion by 2033 while growing at a CAGR of 11.0%, and India is positioned to capture a significant share of this growth.

Success will depend on our ability to continue innovating in product design, leveraging technology for risk assessment, and building supportive policy frameworks that encourage private sector participation. The funding gap, while substantial, is possible to bridge, with the right combination of innovation, collaboration, and commitment.

The climate tech revolution in India is not just an environmental imperative but an economic opportunity of unprecedented scale. By securing a comprehensive and equitable financing ecosystem, we can ensure that this transition is both sustainable and inclusive, creating value for all stakeholders while securing a cleaner future for generations to come.