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Insights into Editorial: Building India’s green finance ecosystem


Insights into Editorial: Building India’s green finance ecosystem


 

Introduction:

With 300 clear sunny days, over a dozen perennial rivers and a coastline of more than 7,500 KMs, India since the age of Puranas, had realised the importance of the sun and other sources of renewable energy and the power they possess for the benefit of its inhabitants.

But as of now, this fact is not hidden from anyone that India is the world’s fourth-largest carbon emitter with its population of 1.3 billion people with power sector contributing majorly to the same. But in the recent years, India has made significant strides in the renewable energy space. The Climate Change concern across the Globe has further propelled the Government and Decision Makers to develop a detailed blue print for clean and sustainable power for all.

Besides promoting phases of the solar parks plan and powering public facilities such as railway stations and stadia using solar power, the Centre should put in place arrangements that make it easier for every citizen and small business to adopt rooftop solar.

This is crucial to achieving the overall goal of 100 GW from this plentiful source of solar energy by 2022, and to raise the share of renewables in the total energy mix to 40 per cent in the next decade.

 

Need for Building Green finance ecosystem:

As part of the initial commitments to the Paris Climate Accord, India plans to reduce its carbon emission intensity – emission per unit of GDP – by 33-35% from 2005 levels over 15 years. It is working towards producing 40% of its installed electricity capacity by 2030 from non-fossil fuels. This would lead to a significant shift from coal-based power generation to renewable energy sources. To achieve these challenging statistics, it has to produce 100 gigawatt from solar, 60 gigawatt from wind, 10 gigawatt from biomass and 5 gigawatt from small hydropower by 2022. By 2022, India’s renewable capacity will more than double.

 

According to the World Bank, 70% of the global greenhouse gas emissions comes from infrastructure development, construction, power plants and transport system operations. The World Health Organization projects that the number of deaths attributable to the harmful effects of emissions from key infrastructure industries will rise from the current 150,000 per year to 250,000 by 2030. Therefore, the challenge before developing economies is: how to modernize societies, build quality infrastructure and provide efficient transportation services while minimizing the damage to the environment.

 

Green Projects: Only Solar or Wind Energy?

Let’s not confine the “green projects” status only to solar or wind energy. Sustainable land use, water and urban waste management, green buildings, clean transportation, pollution prevention and control systems, and energy efficiency projects are some of the areas that are globally eligible to receive green financing.

The electric vehicles play a complementary role to biofuels, which represent 80% of growth in renewable energy consumption in transport. However, it said the share of renewables in total road transport energy consumption remains limited, increasing only from 4% in 2016 to almost 5% in 2022.

With success of electric vehicles, there can be a situation where road transport is free of fossil fuels. There can be a situation of carbon free economy. India has to think and act strategically and try in leapfrog in forefront. Leapfrogging also helps in creating domestic manufacturing capacity. For now, India’s most of solar equipment are imported from china. However, India produces wind power which cannot satisfy adequate energy needs.

 

Green Bonds: Gateway for Environment-friendly Investment:

Today, green bonds help companies tap money from specialized funds focused on climate change. As of now, 120 institutional investors from nine countries have joined the Institutional Investors’ Group on Climate Change. Also, over 1,500 institutions are signatories to the United Nations’ Principles for Responsible Investments.

Sovereign funds like GIC, Abu Dhabi Investment Authority, and multilateral agencies such as International Monetary Fund, International Finance Corp. and Asian Development Bank, among others, are proactively channelling funds to invest in green sustainable projects.

These global institutions believe in growing responsibly and, hence, are committing funds to mitigate the impact of climate change and avail business opportunities associated with the transition to a lower-carbon society and economy.

According to the International Energy Association, to limit climate change to 2 degrees, CO2 emissions must fall by 70% in aggregate by 2050 in Asia. For this to fructify, emissions from the power industry, for example, should reduce by 85%.

 

Green Bonds in India:

India’s green bonds market is still nascent. The country’s first green bonds were issued as recently as 2015. Cumulatively, India has raised over $6 billion via green bonds, of which one third were issued in 2017.

China was the top green bonds issuer in 2017 with a 22% share, followed by the US (13%) in the $120 billion global market. Our internal research is bullish on green bonds. We believe that green bond issuances in Asia will cross $600 billion over the next five years. Demand for green financing continues to be high from international investors and it is in India’s interest to develop a strong green financing ecosystem.

In India, banks and non-banking financial companies have traditionally been the primary sources of green infrastructure funding. But they have a limited appetite for long-term debt due to asset-liability mismatch. Also, the current regulatory restrictions allow insurance companies and pension funds to invest only in AAA-rated bonds.

This regulatory framework should change in order to provide a fillip for green bond issuances. To deepen the green bonds markets in India, the government should actively consider making them tax-free. Tapped astutely, the Smart Cities project can attract huge capital from these bonds.

A conducive and transparent regulatory environment can unlock the full potential of green financial strategies in India, helping the country achieve its Paris Climate Accord targets.

 

Conclusion:

The status of energy sector in India has been highly uneven and the scope of reforms in many areas still exist. There is a need for a comprehensive energy policy.

Subjects such as need for unified energy policy, requirement of seismic data sets and encouragement of biofuels, improving gas supplies, setting up of gas hub and regulatory issues were discussed.

India’s rising energy demands and the need to connect millions who are still without power will not be possible only through intermittent renewable energy and phasing out coal power units. A major shift towards renewable energy will render some thermal power plants idle and investment in these plants will be wasted as it no longer will be possible to recover any returns from them.

 

Way Forward:

To achieve a consistent round-the-clock power supply and green energy ecosystem, considerable improvement in the operational efficiency of distributors through extensive and intensive change management and capacity-building programmes as well as strengthening of the electricity sub-stations and sub-transmission network are required.

“At the same time, electricity must be priced rationally and the tariff structure is simplified”.

Decentralized renewable energy solutions such as mini-grids and rooftop solar, where the grid can’t reach or reliably serve, and operating together is the most sustainable last-mile solution to reach consumers and achieve universal access to energy.

Going green” is no longer jargon but an imperative of the times we live in. All stakeholders—the government, companies/ banks, individuals—must collectively own the responsibility to conserve the environment for our future generations.