Even as the Narendra Modi government pushes for renewable energy, Indian financiers are backing coal-based power projects.
Around 73% of all funding in 2017 went towards coal-based plants, according to a study of 72 renewable and thermal power projects conducted by the Centre for Financial Accountability (CFA), a New Delhi-based non-profit.
This is despite renewable energy prices in India having crashed over the last year, becoming even cheaper than thermal power. So coal-based projects no longer seem viable and no new ones were being planned in the country. In fact, last year, India added more production capacity from renewable energy than from conventional sources.
Still, around $9.35 billion out of a total $12.8 billion funding was given to 12 coal-based power plants with a total capacity of 17 gigawatts (GW, or 1,000 megawatts), the analysis showed. Over 70% of the funding went towards project refinancing, which refers to renewing existing debt for projects already built or under construction.
Around $4.5 billion came from state-owned banks and financial institutions such as the Rural Electrification Corporation and the State Bank of India. Most state-owned banks are reeling under losses due to non-performing assets (NPAs), many of which are loans given to coal-based power projects.
“Banks are more comfortable with coal-based power projects where fuel-availability is there, PPAs (power purchase agreements) are signed, and cash-flow visibility is there,” said Rupesh Sankhe, senior analyst at brokerage firm Reliance Securities. While privately-owned thermal power projects may find it difficult to secure funding, state-owned projects don’t always have to struggle because they will have PPAs in place, he added.
Meanwhile, funding support from banks for renewable energy projects last year remained muted.
Only around $3.5 billion went to clean energy, the CFA analysis found. This amount was poured into 60 plants of cumulative 4.5 GW capacity—over a third was used to fund new projects rather than refinance existing ones.
Most of the funding for green projects came from commercial financiers such as L&T Finance Holdings and the Infrastructure Development Finance Company, and not state-owned banks. Again, this is because Indian banks prefer projects that have PPAs in place.
“Private equity funding has gone up but banks normally look for cash-flow visibility,” Sankhe added, “and because of low tariffs and a lack of aggressive buying from the state distribution companies, there was a lack of visibility.”