# How do lenders account for financed emissions on a solar project loan, and can they subtract avoided emissions?

Canonical: https://senseible.earth/answers/solar-project-finance-financed-emissions

Under PCAF, a lender takes its share of the project's own Scope 1 and 2 emissions, using outstanding loan divided by the project's total equity and debt. For a solar plant that figure is small. Avoided emissions from displacing grid power may be reported, but separately; they are never subtracted from financed emissions.

## The project finance formula

This is the project finance asset class in the PCAF Global GHG Accounting and Reporting Standard, Part A: Financed Emissions, third edition (December 2025). A general corporate loan to a solar developer falls under business loans instead, with attribution to the whole company.

1. Attribution factor = outstanding amount of the loan / total equity and debt of the project.
2. Project emissions = the project's Scope 1 and Scope 2 for the year. For an operating solar plant that is mostly grid electricity imported for auxiliaries at night, and any diesel used on site.
3. Financed emissions = attribution factor x project emissions, reported with a PCAF data quality score.

## Why avoided emissions cannot be netted

Financed emissions are an inventory of what the financed activity emits. Avoided emissions are a comparison with a scenario that did not happen. Part A leaves the avoided emissions method to a separate PCAF supplement on financed avoided emissions, which lets lenders report them only as a separate figure, with the baseline and method stated, so a portfolio full of solar loans cannot show negative emissions.

## Choices that change the number

- Construction years: check how the current PCAF standard treats emissions during construction before the plant operates.
- Data: metered auxiliary import and diesel invoices score better than an estimate per MW.
- Grid factor: use the location-based factor for the country, and state its source and edition.
- Denominator: keep total equity and debt as PCAF defines it, and do not switch to project value.

## What to put in the disclosure

Show financed emissions for the project finance book as a total with its data quality score. Show avoided emissions on a separate line, with the generation basis, baseline grid factor, its source and the lender's share. Do not add or subtract the two.

## Worked example: one 100 MW solar loan in India

- Bank outstanding Rs 200 crore; project equity and debt Rs 500 crore; attribution 200 / 500 = 0.4
- Auxiliary grid import: 600,000 kWh x 0.710 kg CO2 per kWh = 426,000 kg, 426 t CO2
- Financed emissions: 0.4 x 426 = 170.4 t CO2
- Separate line, avoided: 100 MW x 8,760 h x 18% = 157,680 MWh; 157,680 x 0.710 t per MWh = 111,952.8 t; bank share 0.4 x 111,952.8 = 44,781 t CO2
- Reported: 170.4 t financed, and 44,781 t avoided shown apart, not netted

Labelled estimate: auxiliary import and the 18% capacity utilisation factor are assumptions; the grid factor is the CEA weighted average, version 21.0, used here for illustration. A published avoided figure should state its baseline factor and source.

## What Senseible does here

Senseible does not compute PCAF figures for a lender's portfolio. A borrower can use it to turn the project's discom bills for auxiliary import and its site diesel invoices into documented kWh and litres, which gives the lender measured project emissions rather than a per-MW estimate.

- [Financed emissions for banks in India](https://senseible.earth/climate-intelligence/financed-emissions-banks-india)
- [How to calculate avoided emissions](https://senseible.earth/answers/how-to-calculate-avoided-emissions)
- [Financed emissions for vehicle loans](https://senseible.earth/answers/motor-vehicle-loan-financed-emissions)
- [Green bond impact reporting metrics](https://senseible.earth/answers/green-bond-impact-reporting-metrics)

Sources: [PCAF Global GHG Accounting and Reporting Standard, Part A: Financed Emissions, third edition (December 2025), project finance; and PCAF supplement on financed avoided emissions](https://carbonaccountingfinancials.com), [CEA CO2 Baseline Database](https://cea.nic.in/cdm-co2-baseline-database/?lang=en)

Last reviewed 2026-10-17. Checked against PCAF Part A third edition (December 2025); recheck its construction-phase guidance and the avoided emissions supplement for updates.