Green Bonds Could Cut Indian Clean-Energy Costs 25%, Report Says

Apr 24, 2014 2:13 am ET

April 24 (Bloomberg) -- Funding renewable projects with Indian government-backed green bonds could lower the cost of clean power by as much as 25 percent, according to a study.

The government could sell bonds and lend the proceeds to wind and solar farm developers. India could offer funds a third cheaper than commercial bank loans and for double the tenor as the government has the highest domestic credit rating, according to a report by the Indian School of Business and Climate Policy Initiative, a San Francisco-based research firm.

India, ranked Asia’s third-most attractive country for renewable investments by Ernst & Young LLP this year, plans to double its clean-energy capacity to 55 gigawatts by 2017. Lack of affordable financing is an obstacle to reaching that target as the central bank is raising interest rates to combat inflation and commercial banks are wary about lending to new technologies.

The state-run Indian Renewable Energy Development Agency Ltd. raised about 7.2 billion rupees ($117.8 million) last month selling 10-, 15- and 20-year tax-free bonds to help finance clean-energy projects, according to data compiled by Bloomberg.

In addition to green bonds, the government could step in with other financing instruments such as infrastructure debt funds, partial credit guarantees for projects and a low-cost credit line to mitigate currency depreciation risk, the report said.

Indian commercial banks offer 10-year loans with interest rates of about 12 percent to renewable plants. Such unfavorable terms add as much as 32 percent to the cost of renewable energy in India, Climate Policy and the Indian School of Business said in a separate report last month.