Energy Transition and Climate Change – On a conservative estimate its offers more than $1 trillion opportunity in India. The low carbon and clean energy asset finance offer multibillion dollar business opportunity to Indian financial institutions and banks for lending to a “preferred future” and mainstreaming sustainable development.

1. Financing the Energy Transition and Sustainable Development 2015
Manoj Rawat, mkrawat@gmail.com Page 1
Energy Transition and Climate Change – On a conservative estimate
its offers more than $1 trillion opportunity in India
Tackling climate change and ensuring Sustainable Development has to be made an inclusive,
multi-stakeholder process and the active participation of the corporate sector, banks, financial
institutions is essential. The issue of sustainable development cannot be addressed by
voluntary individual responses rather we need to think about mainstreaming
sustainability and therefore substantially new way of putting in place an implementable
framework, which could be adopted by people on mass scale. The central problem for
sustainable development is how to balance the resource use and environmental impacts
of economic production with the benefits of that production to society.
The biggest impact banks and financial institutions have on the environment and
climate, and on the world, is through the lending decisions they make. The banks may
play an active role in low-carbon energy transition in developing countries to increase
the scale, and thereby the impact, of the transition.
A large part of mainstreaming of sustainable energy could be driven through Financial
Institutions in a sustainable manner as they have one of the largest outreach as also
“Going Green” represents a major opportunity.
1. Green Lending will become strategic to financial institutions
Clean energy systems, i.e., renewable energy and energy efficiency systems, will play a
key role in decarbonizing the energy sector, reducing greenhouse gas emissions and
address the climate change issue. However we need to address various factors which
include increased investment costs, appropriate technology transfer, technology
management and augmenting the capacity of developing countries to integrate
innovative technologies.

2. Financing the Energy Transition and Sustainable Development 2015
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The banks and financial institutions need to consider that addressing environmental
issues is a matter of strategy and can be evaluated based the actions being taken, and
the benefits realized. This could lead to a deeper understanding of the opportunities
inherent in financing a greener business, adopting new approaches to risk management,
and cost-saving benefits of cutting environmental footprints both inside and outside a
bank’s walls.
An environmental strategy for a Financial Institution would broadly outline
a. Green Lending and Clean energy program
b. Energy efficiency program
c. Natural Resource Management ( Water, soil and energy) program
d. Environment Underwriting Criteria
e. Environmental monitoring framework
2. For banks in India there two focus areas which could be integrated with the
National Program to achieve sustainable development
A. Developing India as one of largest solar power markets
India’s plan to become of the largest solar power markets in the world has received a
massive boost as the latest estimates of its solar power potential. The National Institute
of Solar Energy in India has determined the country’s solar power potential at about
750 GW. The solar power potential has been estimated using the wasteland availability
data in every state and jurisdiction of India. The estimate is based on the assumption
that only 3% of the total wasteland available in a state is used for development of solar
power projects. Besides other renewable energy sources have a potential for 120 GW.
This means that India as country has more than 850 GW renewable energy potential.
Out of this we have achieved less than 0.5%.
The potential would on a conservative basis translate into more than USD 1.2
trillion capital investment or USD 800 Billion finance opportunity, for banks.
Besides this a country like India has 27 million agriculture pump-sets which can
be replaced over a period of 20 years by Solar Powered Pump sets which itself
would need USD 100 billion capital investment.
B. Giving a major push to micro-irrigation program especially drip
irrigation program
Given the water scarcity, over exploitation of water resources and growing need for
food increasing production, micro-irrigation needs to be given a major push as it may
help solve three of the most important issues- water scarcity, rising pumping (energy)
costs and depressed farm profits
Advantages of drip irrigation are it saves of irrigation water (20-60%) , ensures Crop yield
enhancement (20-50%) , increases fertilizer use efficiency and saving of fertilizer up to 25%,
saves electric power in pumping (30-40%) and reduces CO2e emiisoon.

3. Financing the Energy Transition and Sustainable Development 2015
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Drip Method of Irrigation increases the water use efficiency in irrigation which
subsequently reduces energy and CO2e. Drip system is a much more efficient process
as the water is supplied straight to the crop root zone which substantially reduces the
evaporation, conveyance and distribution of losses of water. This reduces the working
hours of pump sets through water saving and therefore, it not only reduces the
consumption of electricity and CO2e per hectare but also increases the efficiency of
electricity use (electricity consumed per unit of output) to a great extent.
There is direct relationship that has been observed between groundwater irrigation
development and electricity use in Indian agriculture. Macro level data clearly suggests
that the electricity consumption in agriculture has been increasing along with the
increase in groundwater irrigated area. Available studies show that electricity is not
used efficiently in agriculture due to pre-dominant use of conventional flood method of
irrigation (FMI), where conveyance and distribution losses of water is substantial.
Estimates indicate that water use efficiency under flood method of irrigation is only
about 35 to 40 %
The on-farm irrigation efficiency of properly designed and managed drip irrigation
system is estimated to be about 90 %, which is substantially higher than the efficiency
realised through flood method of irrigation which is anticipated to be between 30-40%.
Though drip irrigation technology is introduced primarily to increase the water use
efficiency, it also delivers many other economic and social benefits to the society.
Drip Irrigation increases the crop productivity, saves substantial amounts of water and
energy, but it requires relatively large fixed investment to install the system in the field.
Based on demand and potential for micro-irrigation system the investment
demand for is estimated at USD 160 billion.
3. Accelerating Green Finance
a. Creation of Green Capital Pool: There is imminent need to create large
Green Capital pool to finance/refinance clean energy, energy efficiency,
natural resource conservation, energy efficient logistics, less-polluting
and buildings and other green assets.
b. Categorise Green lending as Priority Sector lending: In country like
India the banks can accelerate the development of renewable energy and
energy efficiency technologies to support sustainable development and
poverty alleviation. The Regulator can make all these loans qualify under
Priority Sector
c. Creation of Credit Guarantee fund for renewable energy schemes.
d. Dovetail various schemes for solar energy and irrigation system
e. Microfinance can play a major enabling role in developing markets for
small low-carbon energy systems and devices
f. There is a business case for sustainable energy but still public policy
needs to regulate and provide incentive for private action to move it from

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the realm of social responsibility & philanthropy into mainstream
business
g. Innovative financing approaches and new business models can tackle
barriers from the grass-roots level.
To conclude
While meeting the sustainability objectives will require standardising the present
environmental framework, enacting strong legislation and introduction of new enabling
policies, there is need for adopting a holistic and integrated approach to water, energy
policy and planning.
The steps taken by Indian Government in promoting Renewable energy especially solar
and incentivising the micro-irrigation system implementation has created traction and
awareness with farmers and people. However this transformation of energy system
would require substantial investments and increased cash flows through financial
institutions.
The low carbon and clean energy asset finance offer multibillion dollar business
opportunity to Indian financial institutions and banks for lending to a “preferred future”
and mainstreaming sustainable development.
Manoj Rawat
The Rural Banker
Mobile : +91 9987500731
mkrawat@gmail.com
Twitter : TheManojRawat
Facebook: https://www.facebook.com/TheManojRawat
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The views expressed are purely personal.