A recent report titled ‘Low-cost finance for energy transition’ produced by the International Renewable Energy Agency (IRENA), has praised India’s achievement in rolling out renewable energy capacity, calling it “unprecedented”. 

“The country’s renewable energy sector has seen unprecedented growth driven by national targets of 175 GW of renewable energy capacity by 2022 and 500 GW of non-fossil fuel capacity by 2030,” the report says, noting that India ranked third on the Renewable Energy Attractive Index in 2021. Noting that India’s solar and wind power base is the fourth largest in the world, the report says, “The country’s capacities are some of the fastest growing among the top five countries promoting and advancing renewable energy. The comprehensive policy framework designed by the Indian government has ensured that the national targets are well supported.” 

The report, which zooms in on the efforts towards transition to green energy —Argentina, Brazil, India and Indonesia—makes a special mention of India setting up the government-owned, non-banking finance company, Indian Renewable Energy Development Agency (IREDA), in 1987. 

IREDA has been serving India’s renewable energy sector and the government’s ambitions for the past 35 years. It has helped commission approximately 20 GW of renewable energy capacity in the country through financing to renewable energy developers, the report notes. “This is the highest capacity commissioned by a financier in India,” it points out, adding that IREDA continues to pioneer new and emerging technologies (battery energy storage system, green hydrogen electrolysers, e-mobility, waste to energy) by introducing policies for financing in these new technologies to promote their use.  

According to the IRENA report, IREDA has also become “the preferred agency through which DFIs across the world contribute to green project financing in India.” 

$10 trillion 

Building on IREDA’s success, sovereign green bonds are a “next logical step” to showcase India’s commitment to building a low-carbon economy, mobilising private sector capital for sustainable development and lowering the cost of capital for green projects by tapping into new investors, IRENA says. It notes that India would need $ 10 trillion to meet its 2070 net-zero target—from 2070, the country would put out no more greenhouse gas emissions than it can absorb back or offset by buying carbon credits. 

Thus far, overall green bond issuance in India has grown significantly to $18.3 billion cumulatively, with 2021 being the banner year with a record issuance of $7 billion. 

The report dwells in some detail on the government raising sovereign bonds earlier this year. On 25 January, the Indian government sold Rs 8,000 crore of securities, comprising ₹4,000 crore each of 5-year and 10-year notes, “at a pricing that was slightly lower than similar maturity sovereign bonds issued previously by the government.” Though the $1.93 billion-equivalent bond offering on January 25 and the follow-on offering of $2 billion-equivalent bonds on 9 February would constitute only 1% of the government’s overall borrowing this year, it could reduce the supply from non-green bonds, thereby lowering the overall yield of government bonds, the report says.  

The bulk of the issue was bought by local banks and insurance companies, with some participation from foreign banks as well. Demand from foreign institutional investors was more restrained, possibly due to their general preference for USD-denominated debt. Investment in green bonds qualifies towards the Reserve Bank of India’s so-called statutory liquidity ratio, which refers to the minimum percentage of deposits that local commercial banks are required to invest in liquid assets such as government bonds. Insurance companies were allowed to classify green bonds as infrastructure investments. Meanwhile, investment in sovereign green bonds will also be designated as specified securities under the “Fully Accessible Route” for foreign investors, where unlimited investment is allowed.