Leveraging the bond market to accelerate the energy transition

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Presentation transcript:

Leveraging the bond market to accelerate the energy transition Arjun Dutt Energy Horizons 2019 New Delhi 19-7-2019 Session Partner © Council on Energy, Environment and Water and Climate Bonds Initiative, 2019

India’s clean energy ambitions require considerably higher capital flows Renewable energy Electric mobility Additional investments by states needed in: Transmission infrastructure Solar parks Investments needed across the value chain: Component manufacturing Battery manufacturing/assembly Charging infrastructure Mobility services After-sales services Sources: RE investment flows 2013-2017 – BNEF, 2018-2030 – IFC; EV market share ambition – Press Information Bureau

Various constraints limit capacity of existing sources to bridge the financing gap Debt capital from banks and non-banking financial companies (NBFCs) is constrained by: Asset-liability mismatches Sectoral lending limits Non-performing assets (NPAs) Challenges in raising capital for NBFCs in wake of IL&FS default

Green bonds could complement debt capital from banks and NBFCs Green bonds: Benefits of regular bond + Value of green labelling/certification Benefits of bond financing Re-financing existing debt capital from banks and NBFCs Enables access to institutional investors Fixed coupon rates – greater certainty over debt repayments Value of green labelling/certification Transparency of end use of proceeds Lower due diligence costs for investors Improved corporate governance processes for issuers Superior secondary market returns compared to conventional bonds Enables access to dedicated green funds

Classification of Indian green bond issuances Total Issuances: USD 7.6 billion* *As of May 2019, includes both certified and non-certified green issuances. Source: CEEW and CBI analysis

Key reforms and regulatory measures could accelerate bond market development Emerging economy corporate bond markets are underdeveloped relative to developed country markets Key drivers of corporate bond market development in India Overhaul of regime for creditor protection Introduction of the Insolvency and Bankruptcy Code (IBC) in 2016 Measures aimed at boosting market depth Large corporates to raise one-fourth of incremental borrowings from bond market Minimum credit rating for investments by pension funds lowered to ‘A’ from ‘AA’ Market instruments for liquidity management Introduction of tri-party repo Source: Corporate bond market depth - CARE Ratings, Corporate bond market liquidity - CRISIL

Green bond-specific challenges and opportunities for enhancing issuances in India Demand-side challenges Lack of awareness about benefits of green bonds Concerted action by both government and private sector on awareness generation Supply-side challenges Absence of standardised definition of ‘greenness’ Developing a standardised, granular green bond taxonomy incorporating performance standards Limited pipeline of investible issuances Credit enhancement Aggregation and securitisation Lack of visibility of project pipeline to underlie issuances Green tagging assets on bank balance sheets Green tagging central and state outlays for climate-change adaptation and mitigation

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