Union Government planned to push for Green Bonds to meets its target of renewable energy

Green Bonds:  Fixed-income financial instruments linked to climate change solutions

Green Bonds were in news recently as Union Government plans to push for it to meet its target to install 100 gigawatts (GW) of solar power and 60000MW of wind power by 2022 for which it needs 200 billion US dollars.

Green Bonds or Climate Bonds are fixed-income financial instruments (bonds) linked to climate change solutions. These bonds are either dollar or rupee denominated and are relatively a new asset class.

Like normal bonds, these bonds can be issued by governments, multi-national banks or corporations. The issuing entity guarantees to repay the bond over a certain period of time, plus either a fixed or variable rate of return.

These bonds were created to fund projects that have positive environmental and/or climate benefits. The majority of the green bonds issued are green use of proceeds or asset-linked bonds. Proceeds from these bonds are earmarked for green projects but are backed by the issuer’s entire balance sheet.

Green bonds will potentially help cut the cost of clean power and make it easier for developers to sell power to distribution utilities.

Towards this, the government has approached eight lenders to raise low-cost and long-term funds. These lenders are Infrastructure Finance Co. Ltd (IIFCL), Power Finance Corp. Ltd (PFC), REC, IDBI Bank Ltd, Indian Renewable Energy Development Agency Ltd (IREDA), ICICI Bank Ltd and Yes Bank Ltd, among others.