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IEEFA: How finance can propel India’s net-zero transition

March 22, 2022
Vibhuti Garg

We could call 2021 the year of net zero. About 140 countries covering 90% of global emissions; 410 publicly-traded companies and 450 financial institutions representing US$130 trillion in assets have announced net-zero targets.

At COP26, Prime Minister Narendra Modi ratcheted up India’s clean energy targets, pledging to cut emissions to net zero by 2070; in addition to increasing non-fossil capacity to 500 gigawatts (GW), meeting 50% of energy requirements from renewable sources, reducing emissions by 1 billion tonnes, and reducing the emissions intensity of the economy by 45% from 2005 levels by 2030.

Slow to join the race to net zero, Indian companies are getting their act together: 14 have committed to net-zero targets, 29 have announced science-based targets and 69 have committed to taking climate action.

Slow to join the race to net zero, Indian companies are getting their act together

Some of India’s biggest companies, such as Tata, Reliance, Mahindra, ITC, Adani and Dalmia Cement have made net-zero announcements. Government corporations such as Indian Railways and Chhattisgarh Health Department also have committed to achieve net-zero carbon emissions by 2030 and 2050 respectively.

Finance will play a key role in helping countries achieve their net-zero targets. As per McKinsey, global capital spending on physical assets for energy and land-use in the net-zero transition between 2021 and 2050 would amount to about US$275 trillion, or US$9.2 trillion per year on average – an annual increase of as much as $3.5 trillion from today. An extra US$1 trillion, in addition to today’s annual spend, would need to be reallocated from high-emissions to low-emissions assets.

The report also highlighted that exposed geographies including in sub-Saharan Africa and India would need to invest 1.5 times more than advanced economies as a share of GDP today to support economic development and build low-carbon infrastructure. In a Net Zero 2050 scenario, India’s capital requirements would be 11% of GDP, compared to the global average of about 7.5% of GDP.

A detailed sectoral study on India’s net-zero emissions is yet to be done. The IEA India Energy Outlook 2021 presented various scenarios, including the Sustainable Development Scenario (SDS), in which India will witness an early peak and rapid subsequent decline in emissions, consistent with a longer‐term drive to net zero. This scenario illustrates the net-zero roadmap for India but the IEA has shifted the global goal posts from 2070 to 2050. This implies that transition to renewable energy and firming capacity will have to accelerate relative to that mapped out in the SDS scenario.

If we look at the short-term target of 2030 in the SDS for India, the expected annual investment for deployment of renewable energy, battery storage, electric vehicles and network expansion and modernisation of the grid is US$110 billion. This means India would need investment of US$1.1 trillion between 2021-2030. This is about three times the current annual investment (US$40 billion) in these sectors. However, to achieve the net-zero emissions roadmap, the corresponding investment requirement will be much higher than the SDS.

Big-ticket renewable energy investments by large companies in 2021

Reliance US$80 billion Committed over 10-15 years; 100GW solar + giga factories for modules, fuel cells and storage
Adani US$50 billion Investment committed for renewables by 2030
ReNew US$9 billion New solar + wind projects by 2025
Eversource US$1 billion+ Investment through solar platforms: Radiance, Ayana
Virescent US$270 million KKR-backed InViT for solar investments

Source: Climake, Unitus Capital

India needs to exploit the rapidly growing pool of global capital: from sovereign wealth funds, global pension, private equity and infrastructure funds; global utilities; and oil and gas majors pivoting to clean energy but struggling to find infrastructure projects at scale.

To achieve ambitious climate targets, there will be key roles for private capital, institutional investors, economic, social and governance (ESG) financing, green bonds, sustainability linked bonds, infrastructure investment funds etc.

India needs to exploit the rapidly growing pool of global capital

Finance Minister Nirmala Sitharaman in her Budget 2022 speech announced that the government will issue sovereign green bonds for projects that will help reduce the carbon intensity of the economy, enabling access to large pools of money for the energy transition.

Voluntary carbon markets, which hit a record US$1 billion in traded volumes in 2021, are also gaining momentum and have potential to be a good platform for Indian companies to trade their carbon credits. Carbon prices are booming, rising 900% during 2021 as per Platts CEC.

The roadmap to net zero would involve huge investment, requiring decarbonisation of not only the power sector but also industries, buildings, transport, agriculture, forestry and other land use. The road ahead is long, the task daunting, but the increasing cost-competitiveness of clean energy solutions such as battery storage, green hydrogen and off-shore wind will reward the effort.

This article first appeared in ETN Magazine

By Vibhuti Garg, Energy Economist and Lead India, Institute for Energy Economics and Financial Analysis (IEEFA)

Related articles:

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IEEFA/JMK: Government incentives brighten outlook for Indian solar manufacturing

IEEFA India: With green bonds announced in Budget 2022, the sun continues to shine for renewable energy financing

Vibhuti Garg

Vibhuti Garg is Director, South Asia with the Institute for Energy Economics and Financial Analysis. Vibhuti’s focus is on promoting sustainable development through influencing policy intervention on energy pricing, adoption of new technologies, subsidy reforms, enhancing clean energy access, access to capital and private participation in various areas of the energy sector. 

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