(6th April 2015 – The Hindu) Green Bonds & Greener Way of Financing
Green Bonds & Greener way of Financing
What are Green bonds ?
(Bond – debt instrument with which an entity raises money from investors)
Bond issuer – gets capital
Investor – gets fixed income
Green Bond (GB)
- Similar to other bonds
- Difference : Capital is raised to fund green projects
- Green projects : Projects related to renewable energy, emission reduction, etc.
In India : Indian Renewable Energy Development Agency Ltd. , Greenko -> Have issued bonds can aka GBs.
Multilateral agencies such as World Bank, corporations & government agencies – issues GBs.
Some institutional investors & pension funds – buy such GBs e.g. Black ROck, PIMCO etc.
- Why in News ?
- EXIM bank of India – March – issued GBs – 5yrs- 500 million$ worth – to fund Green Projects in Bangladesh & Sri Lanka.
- Yes Bank – Feb 10 yrs. – 100o Cr Rs.
Why are GBs Important for India ?
- Target : Renewable Energy capacity
| Target | 2014 | 2022 | |
|---|---|---|---|
| Renewable Energy Capacity | 30 GW | 200 Billion $ funding required | 175 GW |
- Higher interest rates & unattractive terms – raises cost of renewable energy cost by 24-32% as compared to US & Europe.
- Budget allocation – insufficient.
- Most financing goes to reliable coal power projects.
–> GBs are good option.
Why GBs are attarctive ?
- (Any low interest rate (compared to loan offered by commercial banks.)
— > Offer better returns for independent power producer –> Win – Issuer.
- GBs carry inherent lower risk than other bonds (as per KPMG). Repayment is tied to issuer & not success of project. — > Win – Investor.
— > Win – Win.
2. Specific Investor fro Green projects — > Pricing could be attractive.
Performance of GBs
- Bloomberg New Energy Finance Report
2013 ————- 2014
15 B $ ———— 38.8 b $
———–2.6 times ———>
& Most issuance were oversubscribed
Controversy : Green Projects financed by GBs, whether green enough ?
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