Five Years of the Paris Agreement: India’s Green Investment

In the five years since nearly 200 nations signed the historic Paris Climate Agreement, the world has made major progress in transitioning to clean energy. India, the world’s fourth largest renewable energy market, has been one of the leaders in this transition. India has grown its renewables capacity by 250% in just the last five years and plans to expand it by another 500% to reach 450 gigawatts by 2030. However, to meet India’s ambitious climate goals a huge increase in investment is required.  

Today at the Climate Ambition Summit, as countries around the world once again gather to commit to stronger climate action, all ayes are on India. The world’s third largest greenhouse gas emitter, India is also one of the most vulnerable countries when it comes to the adverse impacts of climate change. Investing in a green economy can accelerate recovery from the public health crisis, reduce air pollution, and help avert climate disasters such as draughts, extreme heat waves, and coastal flooding already taking a toll on life and health in the country.

While the government response and investment in a green recovery is crucial, public funds are not going to be enough. As India’s Prime Minister Modi reiterated at the recently concluded RE-Invest conference, the country needs at least double the current investment to achieve its renewable energy goals. India needs the right ecosystem to significantly increase private investment in clean energy and low-carbon infrastructure.

Fortunately, India has already laid a strong foundation for developing an ecosystem for clean energy finance in the country. Both public and private institutions have developed and tested a series of financing solutions to address risk perceptions and investment barriers, and to grow India’s renewables market.

A new issue brief by NRDC and CEEW, Investing in a Green Future: India’s Initiatives in Clean Energy Finance, reviews financial innovations that nurtured the nascent clean energy market and helped it thrive in the last five years. Two dedicated green finance institutions, the Indian Renewable Energy Development Agency (IREDA) and Tata Cleantech Capital Limited (TCCL) have been at the forefront of green financing in the country.

IREDA launched several initiatives including, Credit Enhancement Scheme; Credit Guarantee Scheme; Payment Security Mechanism; risk mitigation instruments and has announced plans to set up India’s first Green Window to grow under-served market segments with the cumulative potential to raise over ₹210 billion ($3 billion) in clean energy investment.

TCCL, a member of the global Green Bank Network,  expanded the pool of cleantech investors with financial solutions such as subordinate debt structuring; concessional line of credit from the Green Climate Fund (GCF) for solar rooftop projects; and ₹5.3 billion ($75 million) Tata Cleantech Sustainable Infrastructure On-Lending Facility with the Asian Infrastructure Investment Bank (AIIB).

Several domestic and international financial institutions deployed a suite of innovative financing mechanisms including: Solar Energy Corporation of India’s (SECI) Payment Security Mechanism; India Infrastructure Finance Company Ltd (IIFCL) and Asian Development Bank’s Credit Enhancement Mechanism; and Small Industries Development Bank of India’s Partial Risk Sharing Facility for Energy Efficiency. Additionally, even though the bond market in India is still relatively small, green bond issuances have been steadily growing to reach a total issuance of ₹784 billion ($11.2 billion) by 2020—making India the second largest market among emerging economies.

Poonam Sandhu, finance expert and NRDC India Program consultant, explains the need for catalytic finance here.

India is essential to the global response to the climate crisis and has done well on its climate response so far. However, a lot more is needed to keep global warming to manageable levels. As the new UNEP Emissions Gap Report warns, despite the global economic slowdown this year, we are still on course for 3ºC of global warming, far above the Paris Agreement goals of limiting warming to “well below 2ºC, and pursuing 1.5ºC.” The need to act now is dire and with far-reaching consequences. 

India's renewable energy expansion has helped bring down the costs of renewable energy worldwide. The country needs much more of the catalytic financial innovations for attracting private investment at required scale. Increasing clean energy investment in India is essential to achieve, and go beyond, its Paris Agreement goals and help the world stay on course to limiting warming to the levels where we still have a future.