GREEN BONDS & ENERGY INFRASTRUCTURE
Target 2022:
yy The Indian government has set an ambitious
target of generating 100GW of energy from solar
energy sources and 60GW from wind energy
sources by 2022.
The issue
yy But as of March, 2016, the generation through
solar and wind energy was 6.76GW and 26.7GW
respectively.
yy Currently, most renewable projects are financed
by banks commercial loan at 11-12% interest per
annum.
yy The Indian banking sector is currently going
through a balance sheet crisis.
yy Banks are unlikely to be able to expand their
balance sheets to be able to finance the additional
requirements of the renewable sector.
yy Alternative way: Green bonds may be the solution
to fill this gap.
Green bonds:
yy A green bond is a fixed income instrument for the
purpose of raising debt capital through markets.
yy The Green Bond Principles (GBP) are voluntary
guidelines issued by the International Capital
Market Association which states the procedure for
certifying a green bond.
SHANKAR IAS ACADEMY
The Best IAS Academy in South India
This file is part of Shankar IAS Academy mobile Application. To access other files please download
Shankar IAS Academy App. available for Android, iphone and Windows.
yy Green bonds can provide a long-term source of
debt capital for renewable infrastructure projects.
yy Since the cost of debt availed for project is higher
than the yield for Investment-grade bonds, it may
be possible to reduce cost of capital for green
infrastructure financed or refinanced by bonds.
Need of policy mandate:
yy Green bonds can facilitate the flow of capital to
low carbon infrastructure investments.
yy An enabling policy context is therefore vital for
the success of green bonds.
Government Initiatives
yy There are many ways by which the government
currently provides subsidies for green projects:
yy The first is through accelerated depreciation
provisions in consecutive years.
yy Feed-in tariffs are long-term contracts with
discoms to purchase power from a renewable
project, usually at higher rates.
yy A viability gap funding is a capital grant from the
government that bridges the gap between project
cost under the prevailing electricity rate and the
price quoted by the developer.
yy Under a generation-based incentive, the
government provides Rs. 0.5 per kilowatt hour,
supplied to the grid. It is subject to a cumulative
maximum of Rs.10 million/MW.
SINCE 2004
yy Under renewable purchase obligations, the yy
National Action Plan on Climate Change
(NAPCC) has set an ambitious target of 15 per
cent by 2020. yy
Advantages of Green bond
yy Would enable investor diversification,
yy Mitigate risks since the repayment is tied to the
issuer itself,
yy Build a community of green investors
yy Enable refinancing bank loans at a lower cost.
Development of green bonds
yy Fossil fuels have enjoyed huge subsidies throughout
their history namely, subsidised diesel, kerosene
and LPG and have contributed to environmental
degradation and global warming.
To develop a green bond market, the government
needs to increase the funds available for investment
in green projects on mandate.
Govt should provide specific tax incentives and
development of long-term finance markets.
yy Increase the priority sector lending limit for bank
loans under solar energy from a meagre of Rs.15
crore.
yy Standardising green bonds to boost the
environmentally sustainable projects.
yy For the green bond market to have long-term
credibility, investors and governments would need
recognise that the projects funded have in fact
delivered the intended environmental benefits.

*****

SHANKAR IAS ACADEMY

The Best IAS Academy in South India SINCE 2004
This file is part of Shankar IAS Academy mobile Application. To access other files please download
Shankar IAS Academy App. available for Android, iphone and Windows.