Home
Council on Energy, Environment and Water Integrated | International | Independent
Report

Greening India’s Financial Market

Investigating Opportunities for a Green Bank in India

Arunabha Ghosh, Kanika Chawla, Anjali Jaiswal, Sameer Kwatra, Meredith Connolly, Nehmat Kaur, Bhaskar Deol, Anna Mance, Douglass Sims, Sarah Dougherty, Jeff Schub, and Rob Youngs
May 2016 | Renewables

Citation: Natural Resources Defence Council and Council on Energy, Environment and Water. 2016. Greening India’s Financial Market: Investigating Opportunities for a Green Bank in India. New York, New Delhi: Natural Resources Defence Council and Council on Energy, Environment and Water.

Overview

This interim report on green banks is the latest in the NRDC-CEEW India Clean Energy Finance Series, analyses financing solutions to support the growth of India’s clean energy market. It examines how a green bank can scale up clean energy finance and details its benefits. Further, it analyses green banks in the Indian context and how they can accelerate low-carbon development in India. Further, it examines whether an existing Indian institution could become a green bank.

Key Highlights

  • The mission of the Green Bank is to maximise the deployment of clean energy while lowering the cost of energy for all businesses and residents.
  • Green banks utilise capital from public sources such as central and state government grants, climate finance, green bonds, utility ratepayer funds, renewable portfolio standards, and fossil fuel cess.
  • Green banks can offer reduced lending rates and flexible terms below market standards (i.e., lower rates than available in private sector transactions) that match the terms and payback period of clean energy projects.
  • Green banks lend their name, capital, and credibility to clean energy projects, thus making them more attractive for private players. Also, co-investment with local banks and contractors helps bring these investments to the secondary markets through bond issuances and private placement.
  • Green banks can provide immediate market information and facilitate best practices to increase transparency, boost investor confidence and reduce perceived risks in clean energy investment.
  • Ensuring that low-cost financing (with lower rates) and flexible terms are available to support clean energy projects directly impact whether demand for renewable energy and energy efficiency projects and products exists.
  • Green banks may cover 100 per cent of the project cost but more commonly use co-lending or risk mitigation strategies to bring in private investment.
  • The UK Green Investment Bank and the U.S.-based Connecticut Green Bank are two leading examples of the impact already made by green banks to finance and scale local clean energy markets.

The value proposition for Green Banks in India

  • Reduce the cost of domestic capital in India: Green banks can provide lower interest rates and longer terms of financing to match the payback period and enable more projects to be built.
  • Attract, coordinate, and deploy capital: Green banks would serve as a bridge between government ministries and private markets to ensure market responsiveness in the service of the public interest.
  • Reduce perceived financing risk: Green banks can offer products such as partial credit guarantees, insurance, or loan-loss reserves that reduce the risk and therefore the cost of capital.
  • Attract international investment: Green banks lend their name, capital, and credibility to clean energy projects, which is attractive for private players to invest in them. They can issue green bonds, which enables access to scalable, long-term and low-cost debt capital from institutional investors.
  • Finance smaller projects: Green banks can finance smaller projects like rooftop solar installations on buildings and off-grid solar panels or microgrids in rural villages as having the potential to be transformative in India.
  • Meet national renewable energy targets: Green Bank’s ability to attract international investment and finance smaller projects at a lower cost for developers makes it a key tool to quickly scale the domestic market.
  • Meet international climate commitments: India’s emissions intensity reduction target of 33-35 percent from 2005 levels by 2030 – made as part of the UN climate commitments in December 2015 in Paris – require serious investment in renewable energy and energy efficiency.

Preliminary analysis suggests that a specialised financial institution like a green bank can leverage limited public funds and unlock broader private investment in clean energy projects. Green banks offer solutions to overcome local financing barriers for clean energy and can play a significant role in accelerating low-carbon development projects.

Sign up for the latest on our pioneering research

Explore Related Publications