Financing Clean Energy Growth - Scaling up Green Bonds in India

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Coauthored with Ariel Cooper

With finance as a major point of discussion at the climate summit, next week, India is moving forward with innovative instruments such as green bonds to achieve its ambitious climate targets. This week IDBI Bank joined the global green bonds club with a $350 million five-year bond issue for financing renewable energy projects in India. To grow the burgeoning green bonds market, NRDC and our partner, the Council on Energy, Environment and Water (CEEW), led a series of finance roundtables in New Delhi and Mumbai.

The green bonds market is growing rapidly in India and worldwide. With India's robust clean energy potential and strong targets, green bonds continued to be the favored tool for scaling up clean energy investment. India has seen similar growth with the issuance by Yes Bank, CLP Wind Farms and IDBI. Globally, 2015 has seen a huge growth in green bond activity with a projected $100 billion to be issued by the end of the year, more than twice the $36.6 billion issued in 2014.

Global green bond growth. Data Source: Climate Bonds Initiative

Key Stakeholder Perspectives

Finances, banks, solar developers, government officials, and experts, are eager to see develop clean energy markets. Recognizing the coordinated action needed, here are key findings from the roundtable discussions:

  • Define "Green". Like the Climate Bonds Standards Board, that devises standards and certification scheme for green bonds, key stakeholders agreed that a widely accepted definition for the Indian market needs to develop to drive investment.
  • Rating Agencies. To enhance investor comfort, well-known credit rating agencies such as CRISIL, CARE, and ICRA could be entrusted with developing a standard for India.
  • Self-certification. The current practice of self-certifying a bond as "green" limits investor interest, therefore verification and monitoring of the use of bond proceeds would enhance market growth.
  • Credit Enhancements. Partial credit guarantees bring institutional investors to the table by bringing in a third party for credit enhancement. Domestic bank representatives shared their successful experience with this model and highlighted the need for more providers of credit enhancement products.
  • At the policy level, tax incentives for retail investors can go a long way in creating a demand for green bonds. While, the Indian Renewable Energy Development Agency (IREDA) has announced plans to raise $92 million through tax-free bond aimed for institutional investors, even greater participation can be ensured through public issues in the future.

As the climate summit starts next week, global markets are poised for rising clean energy investment. NRDC and CEEW will continue to engage with the stakeholders for greater action to finance the fast moving renewable energy markets in India and achieve India's climate targets.