With the government setting an ambitious target of 160 GW of solar and wind capacities by 2022, green bonds can be a potential option to support the funding needs, a recent report said. Green bond is a debt instrument used to raise funds from investors and the proceeds are used only towards financing ‘green projects’.
According to a report released jointly by Assocham and Crisil, to meet the renewable energy target, there is a need to look at innovative channels for financing and banking alone would not be able to support the huge requirements.
“Green bonds could be a potential option to support these funding needs. These proceeds could either be used for funding the capital expenditure of green projects such as renewable energy projects or refinancing existing loans of eligible green projects of the issuer,” the report said.
The report also noted that while the green bonds are relatively nascent in the Indian context with only few of the renewable energy independent power producers issuing these bonds, globally first green bond was issued in 2007.
“Though the initial issuances remained small, they have gained lot of prominence in the past couple of years due to increasing appetite and commitment of investors in making climate-responsible investments,” it said.
India, with an installed capacity of 306 GW, has the fifth largest power generation portfolio in the world and the current renewable energy contribution to this portfolio stands at 45.6 GW as of September 30, 2016.
The country’s total installed wind and solar power capacities stand at 28 GW and 8.5 GW, respectively, as on September 30.
“Given that green bonds would facilitate attracting a category of investors which are environment friendly and demand investments in green/sustainable financial instruments, these could be a good option to part fund the huge investment needs of the renewable energy sector,” the report said.