Clean Energy Transition – A USD$1 trillion Opportunity in India

Sustainable Agriculture, MSME & Green Value Chain Finance | Priority Sector Finance | Manoj Rawat, ValueFin India

Clean Energy Transition – A USD$1 trillion Opportunity in India

Energy Transition and Climate Change – On a conservative estimate it offers more than USD $1 trillion clean energy opportunity in India

Tackling climate change and ensuring Sustainable Development has to be made an inclusive, multi-stakeholder process and the active participation of the corporate sector, banks, financial institutions is essential. The issue of sustainable development cannot be addressed by voluntary individual responses rather we need to think about main streaming sustainability and therefore substantially new way of putting in place an implementable framework, which could be adopted by people on mass scale. The central problem for sustainable development is how to balance the resource use and environmental impacts of economic production with the benefits of that production to society.

  1. Green Lending and Clean energy program
  2. Energy efficiency program
  3. Natural Resource Management (Water, soil and energy) program
  4. Environment Underwriting Criteria
  5. Environmental monitoring framework

The biggest impact banks and financial institutions have on the environment and climate, and on the world, is through the lending decisions they make. The banks may play an active role in low-carbon energy transition in developing countries to increase the scale, and thereby the impact, of the transition.

A large part of main streaming of sustainable energy could be driven through Financial Institutions in a sustainable manner as they have one of the largest outreach as also “Going Green” represents a major opportunity.

1. Green Lending will become strategic to financial institutions

Clean energy systems, i.e., renewable energy and energy efficiency systems, will play a key role in de-carbonizing the energy sector, reducing greenhouse gas emissions and address the climate change issue. However we need to address various factors which include increased investment costs, appropriate technology transfer, technology management and augmenting the capacity of developing countries to integrate innovative technologies.

The banks and financial institutions need to consider that addressing environmental issues is a matter of strategy and can be evaluated based the actions being taken, and the benefits realized. This could lead to a deeper understanding of the opportunities inherent in financing a greener business, adopting new approaches to risk management, and cost-saving benefits of cutting environmental footprints both inside and outside a bank’s walls.

An environmental strategy for a Financial Institution would broadly outline

For banks in India there two focus areas which could be integrated with the National Program to achieve sustainable development

Accelerating Green Finance

  1. Creation of Green Capital Pool: There is imminent need to create large Green Capital pool to finance/refinance clean energy, energy efficiency, natural resource conservation, energy efficient logistics, less-polluting and buildings and other green assets.
  2. Categorize Green lending as Priority Sector lending: In country like India the banks can accelerate the development of renewable energy and energy efficiency technologies to support sustainable development and poverty alleviation. The Regulator can make all these loans qualify under Priority Sector
  3. Creation of Credit Guarantee fund for renewable energy schemes.
  4. Dovetail various schemes for solar energy and irrigation system
  5. Micro finance can play a major enabling role in developing markets for small low-carbon energy systems and devices
  6. There is a business case for sustainable energy but still public policy needs to regulate and provide incentive for private action to move it from the realm of social responsibility & philanthropy into mainstream business
  1. Innovative financing approaches and new business models can tackle barriers from the grass-roots level.


Developing India as one of largest solar power markets

India’s plan to become of the largest solar power markets in the world has received a massive boost as the latest estimates of its solar power potential. The National Institute of Solar Energy in India has determined the country’s solar power potential at about 750 GW. The solar power potential has been estimated using the wasteland availability data in every state and jurisdiction of India. The estimate is based on the assumption that only 3% of the total wasteland available in a state is used for development of solar power projects. Besides other renewable energy sources have a potential for 120 GW. This means that India as country has more than 850 GW renewable energy potential. Out of this we have achieved less than 0.5%.

The potential would on a conservative basis translate into more than USD 1.2 trillion capital investment or USD 800 Billion finance opportunity, for banks.

Besides this a country like India has 27 million agriculture pump-sets which can be replaced over a period of 20 years by Solar Powered Pump sets which itself would need USD 100 billion capital investment.

Giving a major push to micro-irrigation program especially drip irrigation program

Given the water scarcity, over exploitation of water resources and growing need for food increasing production, micro-irrigation needs to be given a major push as it may help solve three of the most important issues- water scarcity, rising pumping (energy) costs and depressed farm profits. Advantages of drip irrigation are it saves of irrigation water (20-60%) , ensures Crop yield enhancement (20-50%) , increases fertilizer use efficiency and saving of fertilizer up to 25%, saves electric power in pumping (30-40%) and reduces CO2e emiisoon.

Drip Method of Irrigation increases the water use efficiency in irrigation which subsequently reduces energy and CO2e.  Drip system is a much more efficient process as the water is supplied straight to the crop root zone which substantially reduces the evaporation, conveyance and distribution of losses of water. This reduces the working hours of pump sets through water saving and therefore, it not only reduces the consumption of electricity and CO2e per hectare but also increases the efficiency of electricity use (electricity consumed per unit of output) to a great extent.

There is direct relationship that has been observed between groundwater irrigation development and electricity use in Indian agriculture.  Macro level data clearly suggests that the electricity consumption in agriculture has been increasing along with the increase in groundwater irrigated area. Available studies show that electricity is not used efficiently in agriculture due to pre-dominant use of conventional flood method of irrigation (FMI), where conveyance and distribution losses of water is substantial.  Estimates indicate that water use efficiency under flood method of irrigation is only about 35 to 40 %

The on-farm irrigation efficiency of properly designed and managed drip irrigation system is estimated to be about 90 %, which is substantially higher than the efficiency realised through flood method of irrigation which is anticipated to be between 30-40%. Though drip irrigation technology is introduced primarily to increase the water use efficiency, it also delivers many other economic and social benefits to the society.

Drip Irrigation increases the crop productivity, saves substantial amounts of water and energy, but it requires relatively large fixed investment to install the system in the field.  Based on demand and potential for micro-irrigation system the investment demand for is estimated at USD 160 billion.

To conclude

While meeting the sustainability objectives will require standardising the present environmental framework, enacting strong legislation and introduction of new enabling policies, there is need for adopting a holistic and integrated approach to water, energy policy and planning.

The steps taken by Indian Government in promoting Renewable energy especially solar and incentivising the micro-irrigation system implementation has created traction and awareness with farmers and people.  However this transformation of energy system would require substantial investments and increased cash flows through financial institutions.

The low carbon and clean energy asset finance offer multi-billion dollar business opportunity to Indian financial institutions and banks for lending to a “preferred future” and mainstreaming sustainable development.

For a preferred future!

Manoj Rawat
Twitter : TheManojRawat
The views expressed are purely personal.

4 Responses

  1. Aruna Vamsi says:

    Replacing the pumpsets with solar pump-sets is a great idea but the investment required is too high which the Govt can only help the farmers.

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