India’s goal to dramatically ramp-up solar and wind energy capacity could get a major boost through two fast-growing financing innovations—green banks and green bonds—according to new analysis released by the Indian Renewable Energy Development Agency in partnership with the Natural Resources Defense Council and the Council on Energy, Environment and Water.These new advanced financing tools could attract much needed low-cost finance for clean energy projects and open the market to India’s huge clean energy potential, while also helping India achieve its climate goals.
Establishing a green bank and accessing green bonds, the reports show, could overcome one of the biggest market barriers—financing—and attract the capital the Indian clean energy market needs to expand renewable energy and provide electricity to more than 300 million citizens.India needs as much as INR17.5 trillion, approximately $264 billion, in financing to reach its target of producing 160 gigawatts of power from solar, wind and other renewable energy by 2022. The clean energy target is the centerpiece of India’s climate pledge announced in the international Paris climate agreement recently signed by more than 170 countries at the United Nations.
“India is at a critical crossroads,” said Sameer Kwatra, Climate Change and Energy Analyst with NRDC. “To reach India’s ambitious clean energy goals while providing electricity for millions across the vast country, India could tap into two emerging, and environmentally focused, financing mechanisms. Green banks and green bonds can help put India on the road to a clean energy future at home while protecting our climate worldwide.”Growing at a rapid clip, India is currently Asia’s third largest clean energy market, and is poised to become the largest in the next decade. “India can do much more to contribute to the world’s greening,” said Power Minister Piyush Goyal. In releasing the reports, he highlighted the enormous opportunity for clean energy growth in India. “We are committed to achieving our renewable energy targets,” he said and added that more can be done with longer-term and low-cost international financing while urging other countries to do their part in taking stronger action on climate change.
The reports released today are part of NRDC and CEEW’s series on clean energy finance with local partners in India, as well as key agencies in the government, to help India meet rising energy needs by maximizing clean energy, and develop adaptation and resilience programs to cope with the impacts of climate change.The first report by NRDC and CEEW, Greening India’s Financial Market, How Green Bonds Can Drive Clean Energy Deployment explores how green bonds work and how they are being used to finance projects such as renewable energy deployment or climate adaptation initiatives, and offers strategies to further lower the cost of money raised through debt markets in India and abroad.Just three years ago, green bonds financed about $11 billion projects worldwide. This year the financing could rise to $100 billion. India, meanwhile, has used green bonds to finance only about $1 billion in clean energy projects to date.
The second report by NRDC and CEEW, Greening India’s Financial Market: Investigating Opportunities for a Green Bank in India sketches how India might establish itself as a country on the forefront of innovation as part of the International Green Bank Network.A green bank could offer lower interest charges than traditional banks and tap into international capital to finance solar and wind projects to help India power its cities and rural communities. IREDA, an arm of the Indian government, currently appears to be the closest institutionally to a green bank, the report notes. Yet, opportunities for state level banks also appear promising.“The analysis on green bonds and green banks and what this means for clean energy advancement in India has come at an opportune time. It was valuable to collaborate with strong knowledge partners like NRDC and CEEW and we look forward to working together to unleash attractive finance for clean energy so that India can achieve its targets,” said IREDA Chairman K.S. Popli.
Green banks are public entities created to work with the private sector to increase investment in clean energy and bring clean energy financing into the mainstream. They are innovative and new tools that have been successful in the United Kingdom, Australia, Japan, Malaysia, and several U.S. states.“For India to meet the vital challenge of protecting the climate and extending energy access to millions of Indians, then the world of finance must be involved full force,” said Doug Sims, Director of Strategy and Finance, Center for Market Innovation at NRDC. “Smart financing instruments like green banks and green bonds can accelerate the necessary shift to investment in clean energy projects India needs to achieve its goals.”“Attractive low-cost finance for clean energy projects is crucial for tapping into India’s vast clean energy potential and for transforming India into a low-carbon economy. In 2015, India was the fourth largest issuer of green bonds in the world, raising debt worth $1.1 billion, ahead of several major economies such as China, Japan, Norway and the UK. Scaling up the market for green bonds could further reduce the cost of capital, stimulate the flow of finance from institutional and retail investors, and expand the base of issuers. India is also ready to be home to a green gank, which could offer solutions to overcome local financing barriers to clean energy,” said, Arunabha Ghosh, CEEW’s CEO.To analyze innovative clean energy finance opportunities in India on green bonds, green banks and other financing measures, IREDA – with partners NRDC and CEEW – has convened a stakeholder discussion on May 3rd in New Delhi.