How green bonds can help achieve 2022 RE targets

Achieving an additional capacity of around 136 GW in the next seven years seems to be a monumental challenge in the absence of favourable financing conditions

 

In June 2015, the Indian government reaffirmed its support to renewable energy (RE) suppliers by revising the generation capacity to 175 GW by 2022. Of this, 100 GW is slated to come from solar, 60 GW from wind, 10 GW from biomass and 5 GW from small hydro projects.
 
Given the fact that India's cumulative RE capacity grew by only 29 GW from 2007 to 2015 (CSE, India), achieving an additional capacity of around 136 GW in the next seven years seems to be a monumental challenge in the absence of favourable financing conditions.
 
Until now, the RE sector has relied heavily on sponsor equity and conventional lending channels for meeting its capital requirements. According to media sources, the target of 175 GW will need investments of $200 billion. However, banks have traditionally given priority to investing in more reliable thermal power projects over RE projects.
 
This raises two questions:
 
1) Will traditional lending channels such as commercial banks and public financial institutions (PFIs) be able to support this debt requirement over the next seven years?
 
2) Where is the large sum of money needed to fund such a sudden RE capacity-building exercise going to come from?
 
Conventional financing mechanisms may fall short for RE projects in India. These projects have higher initial investment requirements, longer payback periods and lower rates of return. To make large-scale RE projects attractive for developers, access to long-term loans with appropriate interest rates is essential. To ease the pressure on the cash-strapped RE sector, a financing scheme with longer tenure and lower interest rate needs to be floated.
 
Snapshots of governmental sources of funding
 
Currently, funds allotted to the Indian Renewable Energy Development Agency (IREDA) by the central government and the cess collected by the National Clean Energy Fund (NCEF) are the only two sources of funds that help the Indian government execute RE projects.
 
According to IREDA CMD K.S. Popli IREDA has finalised agreements for raising Rs.15,700 crore (over $2 billion) from various international funding agencies and banks to achieve the 2022 targets. In March 2015, the government agreed to keep aside Rs.2,680 crore annually to fund RE projects and minimise funding concerns. In addition, NCEF collects a cess annually and generated Rs.16,388 crore in 2014 and Rs.13,118 crore in 2015 (an average of Rs.14,753 crore per annum).
 
Assuming that NCEF continues to collect this average amount for the next seven years and IREDA and the government release the money as expected, the government will only have approximately $38 billion at its disposal. The country will still need to formulate a strategy to raise the outstanding $162 billion.
 
In an attempt to attract domestic commercial banks to fund RE projects, the Reserve Bank of India (RBI), in April 2015, revised the priority sector lending guidelines by including RE as a priority sector for banks.
 
This move was widely appreciated by developers and is expected to compel domestic and foreign banks (with more than 20 branches) to invest a portion of their credit in RE projects. One way for banks to avoid the RBI ruling from affecting their ongoing fund deployment and create new wealth pools for dedicated RE loans is through raising new funds by issuing green bonds.
 
What are green bonds?
 
Green bonds are standard fixed-income financial instruments where the proceeds are exclusively utilised for financing climate change related projects/programmes. They are an attractive instrument for both private and public sector organisations to raise capital for projects that benefit the environment and society.
 
In February 2015, YES Bank kick-started India's green infrastructure bond market by issuing the country's first green infrastructure bond of $160 million. The proceeds from this fund are expected to be only poured into RE projects. This issue was oversubscribed by two times.
 
Similarly, in March 2015, the Exim Bank of India issued a five-year $500 million green bond - India's first dollar-denominated green bond that was oversubscribed by 3.2 times. Both these bond issues reflect the faith and appetite of Indian investors for realising a carbon-free economy.
 
Assurance Mechanisms
 
Once banks have raised the capital through green bonds, they need to ensure that their investment activities are disclosed as per the norms introduced by SEBI in December 2015. These provide disclosure requirements by the companies intending to issue green bonds and demand periodic reporting of fund allocations.
 
These norms will ensure that banks and other commercial financial institutions invest in projects that have minimal impact on the ecosystem. In the larger interest of public disclosure, SEBI mandates the inclusion of an annual business responsibility report (ABRR) as part of the annual reports for top 100 listed companies. The ABRR of an institution is expected to disclose ongoing welfare activities and quantifiable benefits that ascended from efforts undertaken for social or environmental welfare in a given financial year.
 
To assure investors of their commitment towards carbon-free projects, lending institutions could hire third party auditors that appraise projects on a regular basis. A summary of the environmental impact of these projects could be featured in the ABRR on a regular basis.
 
Given the dire need for low-cost financing in the country, other banks and public sector utilities should consider raising funds through green bonds as they will definitely help expedite infrastructure development activities and further India's objective of realising a low-carbon economy.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

 

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Hearing on winding up Mallya's holding firm adjourned till April 11

Creditors like French bank BNP Paribas and State Bank of India, lessors such as Rolls Royce and International Aero Engines and state-run oil marketing firm HPCL had jointly filed petitions in the high court in November 2013 after the cash-strapped airline and its holding firm UBHL failed to repay dues worth Rs.600 crore

 

The Karnataka High Court on Thursday adjourned the final hearing to April 11 on winding up petitions against United Breweries Holdings Ltd. (UBHL) of liquor baron Vijya Mallya for defaulting on loans to its defunct Kingfisher Airlines.
 
"Justice Arvind Kumar adjourned the case to April 11, as arguments on both sides could not be completed for want of time," a counsel, who appeared for the creditors, told reporters.
 
Creditors like French bank BNP Paribas and State Bank of India, lessors such as Rolls Royce and International Aero Engines and state-run oil marketing firm HPCL had jointly filed petitions in the high court in November 2013 after the cash-strapped airline and its holding firm UBHL failed to repay dues worth Rs.600 crore.
 
When the Paribas counsel appealed to the judge for giving priority to its petition as it was the first aggrieved party to approach the court in November 2012 for relief, Justice Arvind Kumar said justice would be done to all the petitioners as they were same in the eyes of law.
 
As the group's flagship company, the Mallya-controlled UBHL has equity stakes in United Breweries Ltd (UBL), the country's largest beer producer, and United Spirits Ltd., the country's largest liquor maker, now controlled by the British Diageo plc.
 
Though Mallya lost control over United Spirits Ltd., he still has controlling state (52.34 percent) in the holding firm, which was funding the grounded airline.
 
According to the Paribas counsel, the holding company borrowed $26.63 million from the French bank to purchase three aircraft for its airline but failed to repay the principal amount as well as interest on it.
 
"We have petitioned the court to order winding up the holding company as it failed to honour corporate guarantees it gave on behalf of the airline," the bank counsel said.
 
UBHL's employees, however, opposed winding it up as it would render them jobless and affect the group's other companies, including the profit-making UB Ltd.
 
A consortium of 17 state-run and private banks, led by the SBI, on March 8 moved the Supreme Court after it failed to get relief from the Karnataka High Court and the debt recovery tribunal against defaulter Mallya and his airline, which owns a whopping Rs.9,000-crore debt, including compound interest.
 
The apex court on March 9 served notice to Mallya and posted the case for hearing to March 30, although he left the country on March 2 and is learnt to be staying in London.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

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Over two dozen die in Uttar Pradesh on Holi
The police said that most of the deaths in road accidents were result of rash, careless and drunk driving
 
Despite heavy security and precautions taken by the administration, more than two dozen people were killed in Uttar Pradesh on Holi, police said on Friday.
 
While five people were killed in road accidents in Lucknow, nine died in an accident in Bulandshahr and the remaining were killed during brawl or drunk driving.
 
The police said that most of the deaths in road accidents were result of rash, careless and drunk driving.
 
In central and western Uttar Pradesh, clashes between groups over trivial issues also led to some deaths.
 
As many as 252 people were injured in road accidents on Holi. A majority of the injured people suffered head injuries, fractures and open wounds, an official told IANS.
 
At the trauma centre in Lucknow, the neurology department was full as most of the patients were rushed with head injuries due to riding without wearing a helmet. The Ortho wards were also occupied in the city.
 
However, the Director General of Police headquarters in the state has put the toll at 14.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

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COMMENTS

srinivas

8 months ago

The Headline shows your sick mind. The accidents do not have any relation to Holi, they are result of rash driving. But your title says deaths are result of Holi. What a pathetic reporting. :(

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