World Bank approves funds for Indian coal-fired plant

(Adds quotes, details on research)

By Lesley Wroughton

WASHINGTON, April 8 (Reuters) - The World Bank approved financing for a $4.2 billion coal-fired power plant in India on Tuesday despite calls by environmental groups to wait for further analysis of the costs and environmental impact.

The World Bank board approved $450 million in loans by the International Finance Corp. (IFC), its private sector lending arm, 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.

The 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 that from existing coal-fired plants in India.

"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 polluters.

"The IFC has not demonstrated that this project is an appropriate and cost-effective solution that merits the investment of scarce international funds," the groups said.

The IFC said its funding was responding to India's enormous need for more and affordable electricity, while also supporting new 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.

He said the IFC had conducted a thorough evaluation of the project.

"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.

RISING COSTS

But the environmental groups said coal's previous cost advantages had largely vanished with rising prices, while fuel and construction costs for "super-critical" coal-fired power plants had escalated.

They said research showed there were economically feasible alternatives to coal, including solar thermal power, which would fit the region surrounding the Tata Mundra project.

Citing research by the Washington-based Center for Global Development, the group said Tata Mundra could qualify for $445 million a year in payments under the Kyoto Protocol's Clean Development Mechanism (CDM) to recover the cost differences between solar thermal and supercritical coal.

Kaldany said that, where it could, the IFC would support renewable energy sources where 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 said carbon capture and storage technology was not yet available for power plants.

"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?" (Editing Gary Hill and Alan Raybould)