In a letter to the United States representative at the World Bank, Whitney Debevoise, six environmental groups said the bank could not effectively fight climate change while also funding high carbon-emitting projects, such as the 4,000 megawatt Tata Mundra coal project in Gujarat state.
The International Finance Corp (IFC), the bank's private-sector lender, said its $450 million proposed funding for the project was responding to India's enormous need for more and affordable electricity.
It said the coal plant, being developed by Tata Power Co Ltd, India's largest private-sector power firm, would use new "super-critical" technology, which cut carbon emissions by 40 percent compared to other plants in the country.
The project is likely to provide electricity to 16 million users in five states in western and northern India.
"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," Rashad Kaldany, IFC head for global infrastructure, said in an interview.
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.
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.
"If we're going to provide a consistent base load power, which is what the country needs. 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 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, is 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. "It is not ready yet to be deployed for power."
"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.