The Board of Executive Directors of the World Bank has approved $1.5 billion in funding to accelerate India’s development of low-carbon energy. This financing will assist India in scaling up renewable energy, advancing green hydrogen technologies, and stimulating climate finance for low-carbon energy investments.
India, as one of the world’s fastest-growing large economies, has a relatively low energy consumption per capita but is expected to experience rapid growth in energy demand as its economy expands. In line with India’s goal of achieving net-zero emissions by 2070, it is crucial to reduce reliance on fossil fuels. The industrial sector, which will be the main driver of future energy demand and emissions, can benefit from green hydrogen as a means to decarbonize hard-to-abate industries such as fertilizers and refineries, followed by heavy industries like iron and steel. India has made significant progress in renewable energy capacity and cost reduction. Scaling up renewable energy production will accelerate the transition to low-carbon electricity and support the growth of the green hydrogen sector.
The First Low-Carbon Energy Programmatic Development Policy Operation, the first in a series of two planned operations, will support India’s efforts in developing green hydrogen. This low-carbon energy is produced by electrolyzing water using renewable energy sources. The financing required for India’s energy transition cannot be solely met by public sector funding, so this operation aims to stimulate private financing and other support. It will address funding gaps, reduce risks for off-takers, enhance grid integration of renewables, and boost demand for renewable energy to attract private sector investments.
Auguste Tano Kouame, the World Bank Country Director for India, stated that the program will support the implementation of the National Green Hydrogen Mission, which aims to attract $100 billion in private-sector investment by 2030. The World Bank is committed to assisting India’s low-carbon transition by complementing public financing and facilitating private-sector investments.
The program’s goals include scaling up renewable energy supply to reduce costs and improve grid integration, enabling India to achieve its target of 500 GW of renewable energy capacity by 2030. The government plans to issue bids for 50 GW of renewable energy annually from FY23-24 to FY27-28, resulting in a reduction of 40 million tons of carbon emissions per year by 2026.
Establishing a national carbon market is crucial to create a level playing field between low-carbon energy and fossil fuels. This program will support the implementation of policies for a national carbon credit trading scheme and the launch of a national carbon market. In January 2023, India issued its first sovereign green bond, and the program will support actions to issue $6 billion in sovereign green bonds by 2026.
The World Bank’s support for India’s energy transition goes beyond this operation and aligns with the Government of India’s energy security strategy. It is also consistent with the Bank’s Hydrogen for Development Partnership launched at CoP27.
The $1.44 billion loan comes from the International Bank for Reconstruction and Development (IBRD) and is backed by a $1 billion commitment from the United Kingdom to enhance the World Bank’s climate change financing for India. Additionally, there is a $56.57 million credit from the International Development Association (IDA) as a recommitment of cancelled IDA credit balances.