Photo: Bloomberg
Photo: Bloomberg

India, China seen leading growth in green bond market: Moody’s report

India aims to reduce the emissions intensity of its GDP by 33% to 35% by 2030 from 2005 levels

New Delhi: The global green bond market is expected to exceed $40 billion, with countries such as India and China offering sizeable growth potential, Moody’s Investors Service said in a report released on Sunday night.

“We believe the year’s total volume will be in excess of $40 billion because issuance is likely to pick up toward the end of the year to coincide with the December United Nations Framework Convention on Climate Change (UNFCCC) Conference of Parties (COP21)in Paris," said the report.

The UNFCCC is to be held in Paris in December, where countries will try to hammer out a new global agreement to combat climate change.

India has said that it aims to reduce the emissions intensity of its gross domestic product (GDP) by 33% to 35% by 2030 from 2005 levels, and achieve 40% of its cumulative electric power of around 350-gigawatt installed capacity from non-fossil fuel-based energy resources, mainly renewable power, as part of its intended nationally determined contributions.

India is looking to raise these low-cost, long-term funds to finance its plan to quadruple its renewable energy production and to make it economically viable.

Seeking to minimize India’s dependence on the coal-fuelled electricity, the Narendra Modi government has pushed renewable energy to the top of its energy security agenda.

“Three India-based issuers came to market with a total of $205.9 million in green bonds. India has established itself as an early leader in Asia’s nascent green bond market, and we expect the country, along with China, to be a prominent driver of regional issuance over the coming years, given the government’s ambitious targets on building out renewable energy capacity," the report said.

India plans to set up a green energy capacity of 175,000 megawatt (MW) by 2022, to which solar, wind, biomass and small hydro power plants will contribute 100,000MW, 60,000MW, 10,000MW and 5,000MW respectively.

India has a $250 billion investment opportunity in the renewable energy space, Piyush Goyal, Union minister of power, coal and renewable energy, had said at Mint’s energy conclave in New Delhi on 1 September.

This includes the peripheral transmission and the generation segments as well.

“Looking ahead, we expect strong growth in green bond issuance from Indian entities, as the central government looks to renewable energy as a means to help plug the country’s perennial power deficits," the Moody’s report said.

But concerns remain over the increasing reluctance of state electricity boards (SEBs) to buy power on account of their poor financial health.

With a debt of 3.04 trillion and losses of 2.52 trillion, SEBs are on the brink of financial collapse.

“Such ambitious renewable targets will require multiple sources of funding, particularly given India’s capital-constrained banking system. The average Tier I capital ratio for India’s rated public-sector banks was just 8.2% at end-2014, and asset quality continues to deteriorate. Given such enduring pressures in the banking system, much of the government’s planned investment in renewable energy will need to be financed by the country’s debt markets," stated the report.

Gross bad debt of 41 listed banks have jumped to 3.3 trillion in June, compared with 91,178 crore in March 2011.

The report added, “Because India’s green bond market remains in its infancy, we believe that the country’s large commercial banks and government-backed agencies will remain the most prominent issuers. Such entities have sufficient size and market reputation to attract investor interest, and stand to benefit from government incentives on green investment."