World Bank to fund Indian coal plant

WASHINGTON (Reuters) - The World Bank on Tuesday approved financing for a $4.2 billion coal-fired power plant in India despite calls by environmental groups to delay the decision until further analysis of costs and environmental impact were done.

The World Bank board approved $450 million in loans by the International Finance Corp. (IFC) for the Tata Mundra project, a 4,000 megawatt coal plant, which will expand access to electricity in five states in western and northern India.

IFC said the plant would use "super-critical" technology, making it India's most efficient coal-fired plant. The plant's volume of carbon emissions is expected to be 40 percent less than the average carbon intensity of existing coal-fired plants in India.

The first of the power plant's 800-megawatt units is expected to be commissioned in mid-2011, with other units launching at intervals of four months each.

"This is an important project because we believe it will encourage other developing countries to make responsible choices, using best available technologies and applying higher environmental and social standards," Rashad Kaldany, IFC director for infrastructure, said.

In a letter to the United States representative at the World Bank, Whitney Debevoise, environmental groups argued that the global institution could not effectively fight climate change while also funding big coal polluters.

IFC said its funding was responding to India's enormous need for more and affordable electricity, while also backing proven technology that reduced emissions.

"The key is access to power and there are many poor people who still don't have access to power in India and it is getting them power as inexpensively as possible by using responsible technology," Kaldany told Reuters.

The environmental groups argue that the Mundra region where the plant will be located has huge solar potential, while coal for the project would need to be imported from Indonesia and other countries at rapidly rising costs.

They added that coal's previous cost advantages have largely vanished with rising prices, while fuel and construction costs for "super-critical" coal-fired power plants have escalated.

The groups include the Environmental Defense Fund, Friends of the Earth US, National Wildlife Federation, Bretton Woods Project and the International Accountability Project.

Kaldany said IFC had conducted a thorough evaluation of the project and concluded that a coal plant was by far the least expensive option at this stage to meet India's 160,000 MW power needs over the next decade.

ALTERNATIVE SOLUTIONS

He said IFC analysis also looked at alternatives to coal including wind technology, which would have meant an investment of about $24 billion.

"This is by far the least expensive and to try to do something like either wind or solar would cost huge amounts in terms of subsidies. The question is where would these subsidies come from?" Kaldany said.

"Our analysis shows that unless you have huge subsidies -- several billions of dollars -- you cannot do alternative technology," he added.

Kaldany said where it could, IFC would support renewable energy sources where it was commercially viable.

"There are opportunities for alternative types of technologies -- wind and solar -- but at the scale it is required, it is just not available to deploy it," he said.

Kaldany acknowledged carbon emissions from the Tata Mundra coal plant would still be large at 23 million tons per year of Co2 but less than 27 million tons emitted by current plants.

Carbon capture and storage technology, which absorbs plant heating carbon dioxide and stores it safely underground, was not yet available for power plants, he said.

"No such technology is proven for us to require it, so it's a Catch 22," he said, adding that carbon capture was only used on a commercial basis by the oil and gas industry.

"Emerging markets and developed markets are facing this conundrum -- the technology is not ready or is hugely expensive, which begs the question: who is going to pay?

"It is fine for developed country to impose additional costs on itself but for the poor country it is not obvious to impose that additional cost on them," Kaldany added.

(Editing by Ramthan Hussain in Singapore; Editing by Gary Hill)