Paris Alignment of Power Sector Finance Flows in India

This report describes India’s remarkable success in achieving universal electricity access, but also finds that providing such a large supply of energy has required the continuous use of fossil fuels. This undermines the persistent challenge for India’s power industry as it transitions towards providing reliable, and more importantly sustainable, electricity to all households nationwide. Despite this fact, the transition is still well underway. In 2019 the Indian government announced a range of ambitious renewable energy targets, which included achieving 40 per cent installed capacity from non-fossil fuel energy sources by 2030. Meeting these targets will require the mobilisation of as much as USD500 billion in investments over the coming decade.

This report provides an overview of the power industry’s financial landscape, with deep-dives into its main drivers of capital, primary financing instruments and the range of relevant beneficiaries. It outlines the industry’s progress in aligning with India’s nationally determined contributions (NDCs) toward reducing carbon emissions and how it has adapted to the impact of climate change under the Paris Agreement. Financial institutions need to make capital available as well as provide products that will support the transition of the power industry. Various case studies are included in this report to demonstrate the successes to date in India – covering green bonds and green hedge frameworks as well as joint ventures between public enterprises. This has signalled the emerging trends that will prove key to the country’s transition to renewable energy.

This report concludes with a number of concrete recommendations for financial institutions to consider going forward, including the restriction of financing for fossil fuel projects, consistent reporting of climate-related risks and more transparent disclosures. Finally, the support for businesses (especially SMEs) undertaking renewable energy and low-carbon technology projects will be key for decarbonisation. Financial institutions can give momentum to such innovation through green financing products and creating an incentive for the power industry to pursue sustainable growth.

India has the capacity to achieve its renewable energy targets by 2030. This research report, supported by HSBC, provides the context and recommendations for decision-makers to accelerate the transition to net-zero.