Analysis: India sees an encouraging rise of green finance

By Sapna Gopal

A growing and persistent need to reduce carbon emissions have led to an increase in funding for innovative green projects in India.

A wastewater treatment plant in Chennai. A local firm that has developed microbial fuel cells to more effectively treat toxic waste has recently received funding to scale up (Photo by Flickr)

A wastewater treatment plant in Chennai. A local firm that has developed microbial fuel cells to more effectively treat toxic waste has recently received funding to scale up. Photo via Flickr.

In times when there’s a constant emphasis on sustainable practices and a conscious need for adopting cleaner energy, the role of finance has grown significantly over the past few years.

With about 1.2 billion more people expected to live in Asian cities in 35 years, the cities have the potential to attract more than USD 20 trillion in climate-related investments in six key sectors by 2030, according to a recent report by International Finance Corporation.

“With its plans, policies, and projects, the Asia Pacific region has the highest climate-smart investment potential of any region in the world, with by far the biggest opportunity in green buildings, estimated at a $17.8 trillion opportunity by 2030,” the report said.

In the Asia Pacific region, the investment potential in green buildings is USD 17.8 trillion; in waste USD 104 billion; public transport USD 352 billion; renewable energy USD 407 billion; climate-smart water USD 571 billion and electric vehicles USD 783 billion, the report estimates.

Furthermore, funding is also an issue that has come up for deliberations at global climate summits. This was evident at the 24th Conference of Parties (CoP) on climate change held at Katowice in Poland recently. What garnered attention was the fact that India stressed the need for “international public finance flows from developed to developing countries critical for urgent action on climate change.”

In a discussion paper titled 3 Essential ‘S’ of Climate Finance – Scope, Scale and Speed: A Reflection, released on the sidelines of the conference, the Indian Ministry of Finance called for “more credible, accurate and verifiable numbers on the exact size of climate finance flows from developed to developing countries.”

Chavi Meattle, one of the authors of the Global Climate Finance report released by the Climate Policy Initiative, admits that governments across the world are focusing on ways to most effectively financing the implementation of their agreed upon nationally determined contributions (NDCs) and India is no exception. “In fact, India should move to an even more ambitious plan, and move beyond the NDCs (nationally determined contributions) for greater climate action,” she said. “This needs buy-in from everyone, so not just limited to companies and start-ups, or public and private actors.”

Indian scenario

Having set an ambitious target of 175 GW through renewable energy by 2022, India is ensuring the country moves towards the desired figure it has set out to achieve.

Corroborating its encouraging growth are recent studies. For instance, according to a report by Bloomberg New Energy Finance (BNEF), India secured second place in the global ranking driven by its policy thrust towards renewables and increasing investments in the clean energy sector. It is also the second largest renewable energy investment market among all Climatescope countries, attracting USD 9.4 billion in new investments in 2017. Additionally, India’s renewable auctions market is the largest in the world. Over 11 GW of projects were awarded through auctions in 2017 resulting in the best year for solar capacity as installations jumped by 90% over the year.

Concurring, Pratap Raju, founding partner, Climate Collective, adds that India has done a good job of mobilising significant climate finance, especially in the renewable energy field and this is likely to continue. In sustainable transport, India will also be relatively successful in mobilizing the required funding, especially for manufacturing or infrastructure projects.

Where India is in dire need of funding though is in seeding technologies and innovation, which often are more difficult for both government and private sources. For instance, it is much more straightforward to raise money for a new solar plant to “green” the power grid but difficult to raise money on behavior-changing technologies to modify or reduce our actual energy need. The latter is perhaps much more powerful, and often times has a much, much higher return on investment as well.

However, due to the nature of early-stage innovation, metrics are not sufficiently clear to help funding agencies support the right start-ups. What’s more, the risk appetite of public funds does not match the risk appetite needed to support innovation. Although renewable energy and electric vehicles (EVs) are important sectors for project fund, the need of the hour is to accelerate funding for innovation, he told me.

Meattle feels India is a good example of how clearly articulated government policy combined with ambitious renewable energy investment goals results in increasing amounts of private finance supporting renewable energy solutions.

Private investment grows

The Global Finance Report details on how private investment continues to account for the major share of climate investments. “At 54% annually for 2015/2016, private finance actors, such as project developers, corporations, and commercial banks account for most climate finance flows. Integration of EV investment estimates results in an additional $11 billion sourced from the household sector in the form of retail purchases of battery-operated electric vehicles.”

Chavi attributes an increase in global private investments to increased investments from private finance actors, such as project developers, corporations, and commercial banks. “Integration of EV investments resulted in an additional $11 billion sourced from the household sector in the form of retail purchases of battery-operated electric vehicles,” she added.

In the years to come, there is enough evidence to prove that the overall climate finance increase will continue. “Our preliminary estimates for global climate finance flows in 2017 range from approximately USD 510 billion to USD 530 billion, based on early data showing steady renewable energy investment, rising electric vehicle investment, and rising investment from development banks,” said Meattle.

Scope for green business ideas

Global warming cautions Raju, is a serious issue that needs to be addressed with greater urgency than perhaps we are witnessing now. It is complex, dealing with issues of politics, equity, but green businesses, especially technology-based green start-ups, will play a significant role in this transition to a more sustainable world.

Cleantech start-ups, he said, can solve problems today by designing and delivering products to customers that solve the latter’s needs profitably while still reducing the negative impact on our environment. Energy efficiency solutions can reduce a client’s energy needs and bill, which reduces the environmental impact of setting up more power plants. “The world requires climate entrepreneurs to experiment, build, and take risks to build the sustainable world that we all need.”

Meanwhile, the start-up story has taken off in India in the last decade, with thousands of new start-ups launched, USD 10 billion of capital per year invested and tremendous government support for the sector. However, cleantech start-ups have lagged behind. Given that India has invested significant funds in developing R&D solutions in agriculture, water, and energy and we have significant environmental problems in every part of our country, it is strange that we have not capitalised on these two factors to develop a healthy, vibrant clean tech start-up program, laments Raju.

What is different about clean tech is that, unlike other start-up segments, product development periods and time to market are much longer than in other start-up segments. What’s more, it requires specialised knowledge to truly support start-ups, be it during product development, market access, or fund-raising, so investors have shied away.

Early-stage ecosystem

This is why ClimateLaunchpad was launched in India — to help build up this early-stage ecosystem. Essentially, it is a business plan-focused accelerator that helps entrepreneurs build a business model around their finished, or near-finished, product and test it directly with the market. The key outcomes are that either the business plan is validated and upon which the start-up can begin to build his business; or the business plan is not validated by customers, and the entrepreneur can either shelve the start-up or revise the product to suit the market better.

By providing this bridge between technical product development and the market, the entrepreneur is able to understand how to approach the market, develop a language that the client comprehends and now has planning documents with which investors are comfortable to evaluate funding.

Raju explained that 2017-18 were their pilot years and the outcome has been quite successful. The accelerator program was launched in 5 states — Maharashtra, Telangana, Andhra Pradesh, Tamil Nadu, and Karnataka — along with Sri Lanka, supporting 53 climate and start-ups.

In Scotland in November this year, more than 130 finalists from around the world (roughly three finalists from each participating country) competed to join the European Union’s ClimateKIC accelerator. Four teams were sent from India and in the final round of 16 on Day 2, three teams from India made the cut (more than any other country), while the majority of countries were not able to send even one.

Encouragingly, JSP, a wastewater treatment start-up from Chennai, won the second place overall and a spot in the EU ClimateKIC accelerator. Also, Evlogia, a biodegradable straw start-up from Bangalore, won one of two social start-up prizes available.

Plans are now on to run the accelerator (in 2019) across 13 states in India — Maharashtra, Goa, Gujarat, Tamil Nadu, Telangana, Andhra Pradesh, Karnataka, Kerala, Pondicherry, National Capital Region, Punjab, Uttar Pradesh, Rajasthan — along with five countries in South Asia (Sri Lanka, Mauritius, the Maldives, Pakistan, Nepal), to support nearly 200 climate and start-ups.

“In 2020, we aim to reach out to more of east India along with Bangladesh and Bhutan, to support nearly 300 start-ups. This would be perhaps the largest early-stage climate and start-up program in the world, outside of the combined European Union programme,” said Raju.

First published in India Climate Dialogue.

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3 responses to “Analysis: India sees an encouraging rise of green finance

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