The third annual Coal vs Renewable Financial Analysis 2019 marks a second consecutive year-on-year decline in coal funding in India following a 90 per cent decrease in 2018. The report, made public on Tuesday, finds a 126 per cent drop in funding from the commercial banks to coal compared to 2018. There has also been a significant drop in the state-owned financing of coal projects. Lending to renewable energy projects saw a minor contraction of six per cent year on year although it received 95 per cent of the total lending to energy projects.
The report, prepared by the Centre for Financial Accountability (CFA) and Climate Trends, looked at 50 project finance loans across 43 coal-fired and renewable energy projects in India. Only projects that reached financial close between January 1, 2019, and December 31, 2019, were included in the analysis.
“A significant drop in project finance to coal means that financial institutes are beginning to realise the associated financial and reputational risk in investing in coal,” said CFA Executive Director Joe Athialy. “Our policy makers need to read the writing on the wall. Pushing healthy commercial banks into financing unviable coal projects in India and abroad will only lead to more stress in the financial sector,” Athialy added.
2019 saw two coal projects (total capacity of 3.06GW) receiving Rs 1,100 crore ($190mn) in project finance. In 2018, five coal-fired projects with a combined capacity of 3.8GW received Rs 6,081 crore ($850mn). By contrast, Rs 60,767 crore ($9.35bn) was lent to 17GW of coal projects in 2017. Of the total lending to coal in 2019, Rs 700 crore went towards refinancing of JSW Energy’s Barmer power plant in Rajasthan. This project was also refinanced in 2018.
Refinancing of projects almost always happens to change term conditions such as interest rates or maturity date. JSW Energy is among the progressive private power generation companies that announced a moratorium on construction of new coal power plants and focussed on expanding their renewable energy portfolio.
The remaining Rs 400 crore ($91mn) went towards financing NTPC’s new coal project in Barh in Bihar. The project’s engineering, procurement and construction responsibilities have been awarded to Doosan Heavy Industries.
NTPC, India’s largest coal power operator, recently announced a moratorium on construction of new greenfield coal power plants.
“In addition to private and publicly owned coal power companies, heavily industrialised states like Gujarat and Maharashtra have also announced a no new coal policy. These policies are being announced due to the coal overcapacity problem as well as plummeting cost of renewables. And it is clearly in the interest of India’s economic stability and developmental needs,” added Delhi-based Climate Trends Director Aarti Khosla.
Forty-one renewable energy projects with a total capacity of 5.15GW received a cumulative of Rs 22,971 crore ($3220mn). Lending to wind energy dropped 30 per cent, while lending to solar increased by 10 per cent compared to 2018.
Solar dominated project finance loans to renewable energy in 2017, 2018, and 2019. However, due to the financial stress in India’s power distribution companies, investment in the renewable energy sector has been impacted. They owe generation companies Rs 1,16,340 crore ($16bn) of which $1.1bn is owed to the renewable energy generators.
“While India is on track to achieve its Paris climate commitments, its ambitious domestic target of 450GW by 2030 might suffer if the financial condition of its discoms doesn’t improve. Phasing out old, inefficient, and expensive coal power plants and replacing them with renewable energy might be a way to reduce the financial stress within the sector,” Khosla added.