BackLending to thermal power projects falls for second straight year: Study
The report found a 126% drop in funding from commercial banks to coal compared to 2019, following a 90% decrease in 2018 over the previous year. Lending to renewable energy projects saw a minor contraction of 6% year-on-year
PremiumMumbai: Commercial banks are increasingly wary of lending to thermal power projects, with a recent study finding a significant drop in state-owned financing of coal projects.
The third annual Coal vs Renewable Financial Analysis 2019 found that public funding for coal power projects in India had declined for a second consecutive year.
The report found a 126% drop in funding from commercial banks to coal compared to 2019, following a 90% decrease in 2018 over the previous year. Lending to renewable energy projects saw a minor contraction of 6% year-on-year, and received 95% of the total lending to energy projects.
The report, prepared by Centre for Financial Accountability (CFA) and Climate Trends, looked at 50 project finance loans across 43 coal-fired and renewable energy projects in India. Only projects that reached financial closure between 1 January 2019 and 31 December 2019 were included in the analysis.
“A significant drop in project finance to coal means that financial institutes are beginning to realise the associated financial and reputational risk in investing in coal" said Joe Athialy, Executive Director at CFA. “Our policy makers need to read the writing on the wall. Pushing healthy commercial banks into financing unviable coal projects in India and abroad will only lead to more stress in the financial sector."
In 2019, two coal projects (total capacity of 3.06 GW) received ₹1100 crore ($190 million) in project finance. In 2018, five coal-fired projects with a combined capacity of 3.8GW received ₹6081crore ($850 million). By contrast, ₹60,767 crore ($9.35 billion) was lent to 17GW of coal projects in 2017.
Of the total lending to coal in 2019, ₹700 crore went towards refinancing of JSW Energy’s Barmer power plant in Rajasthan. The Barmer project was also refinanced in 2018. The remaining ₹400 crore ($91 million) went towards financing NTPC’s new coal project in Barh, Bihar. The project’s engineering, procurement and construction responsibilities have been awarded to Doosan Heavy Industries. NTPC, India’s largest coal power operator, recently announced a moratorium on construction new greenfield coal power plants.
“In addition to private and publicly owned coal power companies, heavily industrialised states like Gujarat and Maharashtra have also announced a no new coal policy. These policies are being announced due to the coal overcapacity problem as well as plummeting cost of renewables. And it is clearly in the interest of India’s economic stability and developmental needs," Aarti Khosla, director, Climate Trends, said.
At the same time, 41 renewable energy projects (total capacity of 5.15 GW) received a cumulative of ₹22,971 crore. Lending to wind energy dropped 30%, while lending to solar increased by 10% compared to 2018. Solar dominated project finance loans to renewable energy in 2017, 2018, and 2019. However, the financial stress in India’s power distribution companies, which collectively owe about $1.1 billion to green power generators, has impacted investment in the renewable energy space this year.
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