World Bank approves $1.5 billion for India’s green energy transition, with focus on hydrogen

The World Bank, the global financial institution dedicated to reducing poverty and promoting sustainable development, has approved $1.5 billion in financing for a second operation to accelerate the development of low-carbon energy in India, the world’s third-largest emitter of greenhouse gases.

This operation is part of a broader strategy to combat climate change and promote sustainable development in rapidly developing economies. It comes at a crucial time as countries around the world seek to meet their commitments under the Paris Agreement and transition to cleaner energy sources.

The funding will focus on three key areas:

1. Promoting the development of a vibrant market for green hydrogen, a clean fuel produced using renewable energy.
2. Further increase the use of renewable energy sources, such as solar and wind energy.
3. Stimulating financing for low-carbon energy investments to attract private sector participation.

This second low-carbon energy programmatic development policy operation is the second in a series of two operations of similar size. It builds on the foundations laid by the first operation and aims to support reforms that will increase the production of green hydrogen and electrolysers, which are the key technologies needed to produce green hydrogen.

The operation also supports reforms to increase the share of renewable energy in India’s power grid. This includes encouraging battery energy storage solutions, which are key to managing the intermittent nature of renewable energy sources, and amending the Indian Power Grid Code to improve the integration of renewable energy into the grid.

For context, in June 2023, the World Bank approved the first low-carbon energy program development policy operation worth $1.5 billion. This initial operation supported several key initiatives:

1. Eliminating transmission fees for renewable energy in green hydrogen projects, making them more economically viable.
2. Issuing a clear path to launch 50 GW per year renewable energy tenders, ensuring a stable base of renewable energy projects.
3. Creating a legal framework for a national carbon credit market that can encourage emission reductions across sectors.

Auguste Tano Kouame, World Bank Country Director for India, highlighted the importance of this support, stating: “The World Bank is pleased to continue supporting India’s low-emission development strategy, which will help achieve the country’s net-zero emissions target while creating clean energy jobs in the private sector.” He also highlighted that both operations have a strong focus on scaling up private investment in green hydrogen and renewable energy, recognizing the key role of the private sector in driving this transformation.

The reforms supported by this operation are expected to produce significant results:

1. Production of at least 450,000 metric tons of green hydrogen per year, starting in FY25/26.
2. Installation of electrolyzers with a capacity of 1,500 MW per year from FY25/26.
3. Significant increase in the capacity of renewable energy sources.
4. Support for emission reductions of 50 million tonnes per year.

In addition, this operation will support efforts to further develop a domestic carbon credit market that can provide economic incentives to reduce emissions across various sectors of the Indian economy.

Operations team leaders Aurélien Kruse, Xiaodong Wang and Surbhi Goyal highlighted India’s bold moves to develop a domestic green hydrogen market, supported by rapidly expanding renewable energy capacity. They noted that the first tenders under the National Green Hydrogen Mission incentive scheme have shown significant private sector interest, indicating the potential for rapid growth in this sector.

This operation is in line with the Indian government’s energy security goals and the World Bank’s Hydrogen for Development (H4D) Partnership, a global initiative to support the development of low-carbon hydrogen technologies in emerging economies.

The financing package for this operation includes a $1.46 billion loan from the International Bank for Reconstruction and Development (IBRD), the World Bank’s lending authority for middle-income countries, and a $31.5 million loan from the International Development Association (IDA), which provides preferential financing for the world’s poorest countries.

This significant investment by the World Bank underscores the global importance of India’s transition to a low-carbon economy and highlights the potential for green hydrogen and renewable energy to play a key role in mitigating climate change while supporting economic growth.