Q&A with Mr. Sandeep Bhattacharya, India Projects Manager, Climate Bonds Initiative on green bonds, adaptation finance, climate PPPs, focus sectors & South Asian markets

Q. How did the green bond market in India fare last year?

A. Primary bond offerings from Indian issuers fell to a decadal low in 2018, as several Indian corporates shelved their fundraising plans amid rising US interest rates. India saw only one green bond issuance of State Bank of India. However, the outlook seems to be reviving since then and also with the Adani issuance, which included several unique structural features, a couple of them being its 20-year tenure and an investment grade rating.

Indian corporate bonds are usually below investment grade, i.e. junk or high yield paper. The issuer is deemed risky, and the likelihood of being repaid on time is not a given. Therefore, the issuer needs to pay a high coupon rate to entice yield-hungry investors. Given this backdrop, it was remarkable that one issuer (Adani) succeeded in shedding the perception of high risks (and the high cost of the bond) and obtained twenty-year money at below-5% in US$ ($362.5 mn at 4.625%, to be precise). This was achieved by structuring the underlying participants and projects to minimize the risk. The issue pooled together those assets where the paymasters were credit-worthy central institutions and not financially troubled state-level institutions. Thus, the bond got an investment grade rating  – a new benchmark! Thus, not only are issuances happening but even landmark ones since a dismal 2018.

“With more landmark and significant issuances in the pipeline (including green ABS), the Indian green bond market is expected to scale up further, both in terms of volumes as well as from many sectors and a variety of instruments”

In this context, overseas fund raising would remain instrumental. To meet the target of 450 GW by 2030, at current prices, we need an investment of $10-11 bn per year, out of which debt would be about 70%, i.e. $7-8 bn per year. Such volumes would be difficult to mobilise solely from the domestic market. And this, only in renewable energy assets.

Among other novel instruments is the Indore Municipal Corporation’s proposed green masala bond issue for funding a floating solar project on their water reservoir. The bond issuance is commercially attractive for the issuer, and is thus likely to pioneer a new segment within the green bond space. A recent TERI report states that the potential for floating solar in India is about 280GW-so this issuance can be significant.

Utility scale Renewable Energy needs to be supported by transmission Infrastructure and thus, transmission and distribution would need significant investments, to support the new renewable energy installations. So would electricity storage. Things are picking up here- and some capital market linkages would be seen with time

Q. What is the most critical factor affecting the decision of Indian issuers whether to go with green bonds or not?

A. There is no domestic “dedicated green capital” in India. In Western countries, the dedicated green funds create significant market dynamics in green bond issues. They affect the supply-demand dynamics of a green bond issuance, and the absence of this in India is a critical reason why many probable Indian issuers rethink about going the green bond way. This also explains why most Indian issuance have been offshore.

DFID is supposed to launch such dedicated funds in the INR market, as per market sources. If that happens, it can expand the scope for the typical smaller-sized issues in India.

Q. With South Asia becoming a hotspot for climate issues, which sectors could turn to climate bonds in near future?

A. Some of the near future issuances is explained below, sector wise:


Water is becoming active. As part of the Namami Gange Programme, sewerage treatment plants are to be put up from Hardwar to Kolkata. Even the industrial estates are reportedly turning serious on sewerage treatment plants, with Arvind Mills and Hindustan Zinc using treated sewerage water for industrial consumption. Jain Irrigation has creating watersheds for shared use. As the momentum picks up, we should see capital markets issuances backed by some water-related projects.

Green Building

The green building space should see action. The cost differential between a green building and a non-green variant has come down to single digits as per many green building consultants from around 25% on 2005, as the prices of green components have reduced. This has enticed businesses, to turn their premises green. The Indian Green Building Council started with a modest 20,000 sq. ft. green built-up area in India in 2003. By 2019-end, it had over 7.09 billion sq. ft.

While the forerunners in this apace are the MNCs and IT companies who often do not borrow in India or borrow at all, other corporates are following suit. Some corporates seriously active in this segment are Godrej & Boyce, Asian Paints, ITC and Hero MotoCorp etc.  Such corporates might issue green bonds with their buildings as an “eligible asset”. Among housing finance companies, IIFL Home Finance is also doing significant work to popularise green buildings.

Apart from the €100 mn Credit Facility Agreement between the National Housing Bank (NHB) and the French Development Agency (AfD) for affordable green housing, called SUNREF (Sustainable Use of Natural Resources and Energy Finance) Green Housing Programme would also support funding green housing by refinancing home buyers and developers of eligible green building projects. SUNREF should give a fill-up to the green housing space, specially in the low cost segment.

Distributed Renewable Energy

Solar rooftop was growing at ~70-80% annually, though from a small base has sputtered this year due to policy setbacks, specially roll back of net metering. Most Indian states have net metering policies, but a lot of them are changing it now. Growth is coming from the commercial and industrial segment, as they pay a higher tariff for electricity which cross subsidises the household sector. Falling storage prices are expected to revive growth soon. Falling module and battery prices is now enticing the household sector as well. Accelerated depreciation benefits is also an incentive. Says energy sector stalwart Ms. Mohua Mukherjee “…… I feel the main action will have to be on rooftops now, whether the key players like it or not. Either that or change the(Government’s RE) targets!

Micro-grids have not been commercially viable on a large-scale, but Tara Urja of Development Alternatives Group has digitised consumption measures to turn off devices/consumers with outstanding amounts, raising hopes for commercial capital to flow into this segment. There are arguments that the reach of the grid will stall microgrids, which I find only partially true as reliability and quality of supply remains an issue.

Small solar devices face an issue of good financing terms and also the distribution needed. However, Bandhan Bank has shown some success in financing and distribution of small solar devices. I hope more microfinance institutions can replicate Bandhan and hit the capital market in a pooled manner. Bandhan Bank is always a possible issuer.

Renewable Energy units set up for corporate consumption

As per Bloomberg NEF, companies globally purchased 13.4 GW of clean power in 2018 – a record for clean power procurement through PPAs in a single year. The USA led with 8.5 GW, while India passed the 1 GW mark for the first time to emerge 2nd with 1.3 GW. Corporate buyers adopting renewable power included technology providers, auto manufacturers, F&B companies and airports. Issuances from these sectors are likely, as some of them tap the capital market with these assets as the “green collateral” for purposes like branding and cost efficiency.

We have been approached by a few companies which provide services to the corporates and rooftop solar segment (not the majors) about their plans for resource mobilisation.

Hydro Power

Refinance of the hydropower sector’s current debt should be another segment. Many small hydro developers with stable cash flows would be looking for an exit, and some bankers are trying to pool them into a large-enough deal.

Other sectors

Green waste management companies are also scaling up, with NEPRA trying to issue a green bond soon.

Other environment-friendly segments like metro railways, electric vehicles services and financiers, charging stations for EVs and battery swapping stations are also likely to be funded by green bonds in the coming times.

Q. How do you see adaptation finance panning out in India or Asia?

A. Adaptation is currently nearly non-existent in this part of the world, except for the Indonesia sovereign sukuk and the Fiji sovereign green bonds. Capital market linkages with adaptation need to scale up.

“On this aspect, the Climate Bonds Initiative launched the Climate Resilience Principles in September 2019, which provides a dedicated framework to evaluate investment in adaptation projects, something missing in the industry so far”

EBRD recently launched the world’s first dedicated climate resilience bond, and the projects under it were selected in alignment with these Climate Resilience Principles.

The Indian private sector may lead some adaptation projects for water recycling treatment facilities to reduce the use of external water. This should create avenues for adaptation finance. Corporates who constructed such infrastructure include Hindustan Zinc and Arvind Mills. Mahinda & Mahindra have constructed infrastructure such that some of their factories do not need water from external sources for 200 days a year.

Climate resilient agriculture has been dealt by many government schemes, like the National Innovations in Climate Resilient Agriculture. Work is being done by several NGOs on this. But it is still not very clear how it can be scaled up. Zero Budget Natural Farming has made a lot of headlines, and has spread in Andhra Pradesh. While participants and other interested parties vouch for the crop’s ability to withstand storms and droughts, rigorous academic studies on its climate resilience is on- going.

Q. What is the state of the green finance market in other South Asian nations like Nepal or Bangladesh?

A. Apart from GCF funding, which all these countries have received to the tune of around 50 Mn$ or so, an interesting development has been the flow of carbon finance. In line with Article 6 of the Paris Agreement. Nepal receives an estimated $50 mn and Bangladesh an estimated $150 mn as carbon offsets from governments and corporates. Under these mechanisms, countries with low emissions can sell their “left over” allowance to larger emitters, with an overall cap of greenhouse gas emissions (GHG), ensuring their net reduction. The supply-demand for emissions allowances leads to the establishment of a global carbon price that would tie the negative externalities of GHG emissions to polluters. Consensus on Article 6 of the Paris agreement (the only major item on the agenda leftover for climate negotiations), if it comes in 2020, will increase the quantum of flow to these countries.

Says Sandeep Roy Choudhury, Director and Co-founder at VNV Advisory Services “In these countries (i.e. Bangladesh and Nepal) there is significant penetration of micro finance , and ODA being used as subsidies or partial guarantees. The combination of those instruments with Article 6 based mechanisms in future could be put to good use for large scale mitigation-based projects”.

Q. Do you see private-public partnerships as a solution towards deepening the climate market in India?

A. It would really depend from case-to-case.

The present IPPs in the renewable energy segment offers a clear model of how PPPs can be scaled up. Of course, there are issues like the weak financial health of state-level DISCOMS, but the scale up has happened despite that. These issues with DISCOMS are now a stumbling block, with many financiers shying away. Many solutions to this are being discussed – with centralizing PPAs with credit worthy bodies like NTPC and SECI being one.

Waste is an area where PPP would be useful. The local municipalities often lack the resources or technical know-how to execute transformative projects. The PPP route could help close that gap. Some examples are NEPRA’s Let’s Recycle initiative, which is engaged in dry waste recycling. The wet waste to energy project in Bandra, Mumbai, which produces biogas from wet waste to power streetlights. The Ayappa temple in Goregaon, Mumbai, uses a combination of solar panels, batteries and waste gassification (from flower offerings) to power a part of the temple.  There are examples of large-scale wet waste processing in Sholapur and Varanasi based on PPPs. We have an example of a couple of biogas units of Bruhat Bengaluru Mahanagara Palike (BBMP) being retrofitted through grants from an IT company. The plants were defunct earlier and now can process waste for 3 wards and the resultant gas is to be supplied to restaurants around the area.

Operationalising wet waste to electricity in a decentralised manner has the additional advantage of avoiding carbon emitted in transport. There are firms involved in this activity who are trying to digitise operations, so operations and maintenance of these plants can be done in a cost-effective manner. The municipality must provide space for the machines and, of course, access to the wet waste. In certain places, the waste mafia could pose an issue, an answer to which is to process the wet waste before it leaves the gated communities – all possible in the decentralised model.

PPPs in water have not been smooth, though projects have been done in Nagpur and Jamshedpur. Public finance and ownership may be the better route in this space, at least till the Nagpur experiment is successful and clears the doubts about private participation in this segment.

Charging stations for electric vehicles can also offer scope for PPPs, especially in the fast-charging station model. This has started in Tirupati, with Amara Raja Batteries installed charging stations in collaboration with the municipality. In Hyderabad, Gayam Auto Works installed swapping stations in collaboration with retailers like IKEA, Flipkart and other retailers etc., and this can surely be put up in collaboration with the municipality as well.

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