REPORT AUGUST 2016

GREENING INDIA’S
FINANCIAL MARKET:
OPPORTUNITIES FOR A GREEN
BANK IN INDIA

© Bhaskar Deol
ABOUT THIS REPORT

About Council on Energy, Environment and Water

The Council on Energy, Environment and Water (CEEW) is an independent nonprofit policy research institution
that works to promote dialogue and common understanding on energy, environment, and water issues in India and
elsewhere through high-quality research, partnerships with public and private institutions and engagement with and
outreach to the wider public. (www.ceew.in)

About Natural Resources Defense Council

The Natural Resources Defense Council (NRDC) is an international nonprofit environmental organization with more
than 1.3 million members and online activists. Since 1970, our lawyers, scientists, and other environmental specialists
have worked to protect the world’s natural resources, public health, and the environment. NRDC’s India Program focuses
on advancing climate change and clean energy solutions with leading partners. (www.nrdc.org).

Authors and Investigators

NRDC team: Anjali Jaiswal, Sameer Kwatra, Nehmat Kaur, Bhaskar Deol, and Eric Weiner
CEEW team: Arunabha Ghosh, Kanika Chawla, Neeraj Kuldeep, and Manu Aggarwal

Neither CEEW nor NRDC has commercial interests in India’s National Solar Mission, nor has either organization received
any funding from any commercial or governmental institution for this project.

Acknowledgments
The authors of this report thank government officials from India’s Ministry of New and Renewable Energy (MNRE),
Indian Renewable Energy Development Agency (IREDA), and other Government of India agencies. We would also like to
thank Minister Piyush Goyal for his leadership in advancing clean energy, as well as MNRE Secretary Upendra Tripathy
and IREDA Chairman K.S. Popli for their guidance in preparing this report. We are grateful to the solar developers,
financial institutions, solar manufacturers, solar energy experts, academics, and community members who shared
their feedback and helped inform the findings of this report. The authors would also like to thank the following peer
reviewers for their valuable insights: Ardeshir Contractor, Sean Kidney, Kajetan Czyz, James Abraham, Gireesh Shrimali,
David Rasquinha and Bryan Garcia. We are also grateful to clean energy finance experts Doug Sims, Jeffery Schub, Sarah
Dougherty, Roger Baneman and David Goldstein as well as key contributors, Meredith Connolly and Anna Mance.

PAGE 2 NRDC INTERNATIONAL: INDIA GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA
TABLE OF CONTENTS
Executive Summary 4

Section 1: Green Banks and How They Scale Up Clean

Energy Finance 6
Comparing Green Banks to Commercial Banks 6
Value Proposition: How Green Banks
Increase Clean Energy Finance 7

Section 2: Green Banks in the Indian Context 9

The Value Proposition for Green Banks in India 9
The Role of Green Banks in Accelerating
Low Carbon Development in India 10
Examining Existing Institutions
Transitioning to Green Banks 14
IREDA Converting to a Green Bank 15

Section 3: Highlighting International Green

Bank Models 16

Conclusion 18

GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA NRDC INTERNATIONAL: INDIA PAGE 3
EXECUTIVE SUMMARY

India is at a critical juncture in scaling renewable energy to provide energy access to growing
cities and vast rural communities. Financing is one of the principal barriers to the rapid
expansion of India’s clean energy market needed to meet the ambitious national target
of 175 gigawatts (GW) of solar, wind, and other renewable energy by 2022, as well as the
broader targets of the Paris Climate Agreement. Financing must be not only abundant, but
also cheap, so that clean energy can compete with fossil fuels. Therefore plentiful, low-cost
capital will allow India to transition to a clean energy platform while enabling continued
economic growth.

Although investment in renewable energy and energy risk – unlocking broader private investment in clean energy
efficiency is growing both internationally and in India, the projects to scale up the market. In this way, green banks
scale of investment does not yet match the scale of financing tailor their offerings to match domestic needs and can help
needed for India to reach its internal clean energy targets.1 mainstream green investment locally. Green banks have
Over $160 billion of investment is required in the next six many tools at their disposal to grow clean energy markets in
years to reach India’s solar, wind and efficiency targets three primary forms:
to increase clean energy access. Significant collaborative
 Offering flexible, affordable lending that matches the
efforts are required from various stakeholders, including
terms and payback period of a clean energy project,
government, financial institutions, investors, industry,
thereby lowering the cost of energy.
and research organizations, in order to develop innovative
financing solutions to achieve these targets. The key barriers 
Using financial products and techniques to mitigate
to clean energy finance in India include lack of enough specific risks that currently limit investment in the
domestic debt capital to finance infrastructure, high cost Indian clean energy market.
of domestic debt capital, high perceived risk due to lack 
Engaging in market development and demand
of knowledge within the domestic banking sector about generation.
innovative clean energy technologies, and off-take and
currency risks for foreign investors.2 Green banks can attract and channel international capital
and accelerate domestic investment by leveraging limited
Strong policy settings and incentive structures must be public funds to reduce risks, resulting in abundant and
adopted to enable renewable energy investment to scale affordable capital to scale clean energy. For example, major
up to needed levels in India. Dedicated “green” financial providers of international public finance, such as the
institutions known as green banks are proving to be World Bank are stepping up their commitment to invest
successful models internationally at leveraging public funds in the transition to low-carbon economies. The World
to bring in private capital. Green banks could propel India’s Bank recently committed to spending 28 percent of its
solar and wind energy markets and support critical energy- investments (worth $16 billion) directly on climate change
efficiency and climate resilience projects. projects.3 While this money is not traditionally directed
towards climate change or low-carbon projects, green banks
To achieve India’s clean energy and climate goals, an have the potential to both attract and deploy this money in
innovative financial institution like a green bank can India.
leverage limited public funds to reduce capital costs and

PAGE 4 NRDC INTERNATIONAL: INDIA GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA
FIVE KEY TAKEAWAYS: BENEFITS OF A GREEN the initial transactions for clean energy projects.
BANK IN INDIA Additionally, green banks can provide aggregate
market information and facilitate best practices to
A green bank is an institution that is more than the sum
increase transparency, boost investor confidence and
of its parts. Green banks are a new kind of specialized
reduce perceived risks in clean energy investment.
intermediary designed to accelerate the growth of
Following “open source banking” techniques like
clean energy markets.4 Their role is not to replace or
tracking, publishing and sharing information about
“crowd out” commercial banks and private investors
the performance of projects and investments in other
but to “crowd in” private capital. What this means in
markets can further reduce real and perceived risks and
practice is different in each country. Green banks are
boost investor confidence.
tailored to the country’s goals, resource endowment,
market opportunities and market risks. Green banks use Investment partnerships bring new players on board.

private-sector experience and discipline in the service of Green banks lend their name, capital, and credibility to
the public good. They play a transformative role because clean energy projects thus making them more attractive
neither traditional government programs, with their for private investors. Co-investment, in which the green
limited engagement with markets, nor the private sector, bank lends in consortium with other commercial banks,
with its competitive pressures and fiduciary constraints, helps bring new lenders to the clean energy markets.
can reliably achieve this outcome. Green banks can also identify and analyze technologies
that are new to the local market, but have a track record
Better financing terms means more projects, lower
elsewhere. This can expand financing for commercially
cost energy and lower subsidy costs. Domestic Indian
mature, but unfamiliar technologies to India. Green
banks typically offer higher interest rates and shorter
banks can potentially attract higher international capital
financing terms than would be economical for clean
in India and facilitate rapid scaling up of the domestic
energy projects. High-cost, short-term and variable-
market.
rate debt raises the cost of renewable energy in India
by 24 to 32 percent compared with similar projects Green banks facilitate the scaling up of distributed

in the United States.5 Green banks introduce lower clean energy resources. Small projects like rooftop
lending rates and flexible terms that match the terms solar and off-grid solar applications in rural villages
and payback period of clean energy projects because have the potential to be transformative in India. The
of their green investment mandate, specialized main barrier is that financing small, nonstandard
green underwriting expertise, and public sources of projects, individually and on a one-off basis, incurs
capital. This enables a broader pool of clean energy high transaction costs and is often perceived as high
projects to be viable, making projects more likely to be risk. Green banks can establish standard terms as
developed and also attract diverse investors, including a requirement of receiving financing. This reduces
directing international sources of capital to local costs and has the added benefit of allowing projects
projects. Ultimately, this will drive down costs to a rate to be more easily aggregated into a portfolio. To
competitive with coal. Low cost debt can also reduce stimulate markets, green banks can finance, aggregate
the overall subsidy cost by 28 to 78 percent relative to or “warehouse” deals to reach a scale where they
existing support of renewable energy.6 become attractive for on-sale to large investors or for
securitization through green bond issuances. Once this
Green banks keep lending costs low. Green banks help
has been demonstrated, commercial lenders and other
bridge the gap between the perceived risk associated
investors understand it is possible and can replicate.
with clean energy investments and the expectations
of the private lenders by offering products such as
This report on green banks is the latest in the NRDC-CEEW
subordinated debt, partial credit guarantees, insurance,
India Clean Energy Finance Series.7 IREDA along with NRDC
or loan-loss reserves. Green banks play a leadership
and CEEW released an interim version of this report in May
role that can guide commercial lenders. Since some
2016 during an extensive stakeholder consultation with
commercial lenders are unfamiliar with clean energy
Minister Piyush Goyal. This final report is based on the May
technologies, higher perceived risk exists for financing
2016 discussions as well as additional discussions with the
clean energy projects. The risk mitigation products
Ministry of New and Renewable Energy and key stakeholders.
offered by green banks can help private banks execute

GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA NRDC INTERNATIONAL: INDIA PAGE 5
SECTION 1
GREEN BANKS AND HOW THEY SCALE UP CLEAN
ENERGY FINANCE
Green banks are new institutions that are publicly funded Green banks differ in several important ways from
and finance renewable energy, energy efficiency, and other commercial banks, namely, in their mandate, objectives, and
clean infrastructure projects in partnership with private legal structures.
lenders.8 Green banks catalyze private financing for low-
 Mission: Unlike commercial banks, whose mission
carbon technologies by using financial tools such as long-
is to maximize returns for shareholders and to make
term and low-interest loans, revolving loan funds, insurance
profitable investments, the mission of a green bank
products (loan guarantees or loan-loss reserves), green
is to maximize the deployment of clean energy while
bonds, and low-cost public investments. When a green
lowering the cost of energy for all businesses and
bank uses public funds for financing, rather than grants
residents. This mission is primarily achieved through
or subsidies, the public funds are preserved through loan
green investments aimed at creating and supporting
repayment.9
clean energy and low- carbon markets.

Green banks also develop underserved clean energy Source of Capital: Commercial banks draw capital from
markets by disseminating information, convening training shareholders and depositors’ funds, limiting traditional
workshops and launching renewable energy aggregation banks from offering lending terms that are not profitable
programs. Green banks can spur market development for or risk losing the investment. Green banks utilize
distributed and off-grid renewables, clean transportation capital from public sources such as central and state
vehicles and infrastructure, as well as water and energy government grants, climate finance, green bonds, utility
efficiency measures in small businesses and homes. Many ratepayer funds, renewable portfolio standards and fossil
of these opportunities are new to investors; a green bank’s fuel cess (tax proceeds such as India’s National Clean
pioneering investments and support provide the experience Environment Fund). Because green banks receive the
and data that investors need to enter this market. public revenue collected from the government without
a requirement to pay neither the money back nor a
COMPARING GREEN BANKS TO COMMERCIAL required lending rate, they can provide more attractive
BANKS financing with flexible terms that support clean energy
and other carbon-cutting investments. For this reason,
Green banks differ in several important ways from commercial green banks can also accelerate investor risk-taking
banks: mandate, objectives, and legal structures.
through guarantees, co-investment, demonstration
Commercial Bank Green Bank and pilot projects of new commercial technologies and
Mission and Maximize returns for Create and support other means of reducing risk. As recipients of public
Mandate shareholders clean energy and low- funds, however, green banks still remain accountable to
carbon markets taxpayers and must invest responsibly.
Source of Shareholder capital, Central and state Ownership: Commercial banks can be public or
capital depositors funds government grants,
privately owned. Green banks are generally publicly
climate finance, green
bonds, utility ratepayer owned and leverage public funding to attract private
funds, renewable finance. However, green banks can still carve out
portfolio standards, independence from the government to avoid political
India’s National Clean interference and attract long-term capital from
Energy Fund (NCEF)
institutional investors, as demonstrated by the UK Green
Institutional Either public or Established as a public Investment Bank’s (UKGIB) separate bank structure.10
Origin privately established policy instrument to
promote clean energy

PAGE 6 NRDC INTERNATIONAL: INDIA GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA
 RELATIONSHIP BETWEEN GREEN BANKS AND GREEN BONDS

Green bonds are a capital-raising tool that can be used by green banks. Green banks are financing institutions that are typical-
ly capitalized by government capital. Green bonds are bonds just like any other that raise capital, but for green projects. Green
banks, as financial institutions, typically issue bonds in order to raise additional capital beyond government grants, and to sell
loans and recapitalize its balance sheet. The bonds issued by a green bank would, by definition, be green bonds, because all
green bank capital goes toward green projects. Therefore, green banks and green bonds should be used in tandem to raise,
recycle, and deploy capital. A green bond is a tool that can be used by a green bank institution.

To meet India’s renewable energy targets, a variety of mechanisms and instruments are needed to mobilize adequate finance
in a timely manner.

A green bank is a pioneering institution that finances the deployment of renewable energy, energy efficiency, and other clean
infrastructure projects in partnership with private lenders. They are commonly government-funded and run, and catalyze private
financing for low-carbon technologies by using many financial tools, including issuing green bonds.

Green bonds are a growing financing tool that function like any other type of bond with the added characteristic that the
proceeds must be used to support “green” projects such as renewable energy deployment, water, clean transportation, and
climate adaptation efforts. As described in detail in “Greening India’s Financial Market: How Green Bonds Can Drive Clean
Energy Deployment” (another report in the NRDC-CEEW India Clean Energy Finance Series), green bonds can provide low cost
financing in multiple ways: a) by providing lower interest rates than typical domestic clean energy project financing, b) by being
cost-competitive as compared to other corporate bonds, and c) by potentially bringing down transactional costs even more
through strategies such as standards and certifications.

In India, both a green bank and green bonds could support renewable energy projects by providing broader access to domestic
and foreign capital as well as better financing terms, including lower interest rates with longer lending terms. In this way, both
innovative green financing tools can act as an effective vehicle to raise capital for renewable energy projects while meeting the
environmental targets of the investors and climate targets of the Government of India.

VALUE PROPOSITION: HOW GREEN BANKS INCREASE

Green Banks Considerations: CLEAN ENERGY FINANCE
National vs. State Level
Green banks are capitalized with public funds that do not
have to be repaid. Due to their green investment mandate
There are many considerations when creating a green
and public source of capital, green banks can deploy funds
bank or “greening” an existing public institution to
in a more flexible manner that both leverages private capital
become a green bank at either the national, state, or and lowers the borrowing cost to the ultimate customer. This
regional level. State-level green banks may be easier enables a broader pool of clean energy projects to achieve
to capitalize on a sustainable basis. State green economical financing, which makes the projects more likely
banks can be more responsive and tailored to local to be developed and also attracts more investors, directing
financing needs, in addition to expanding beyond international sources of capital to local projects. Green bank
state boundaries when needed through consortium financing methods leverage private capital to fill financing
gaps by reducing real and perceived risk and asymmetrical
lending. However, national green banks may have
information. This allows private investors the chance to
a cost advantage, due to higher volumes and risk
learn about a new market opportunity with the security of
diversification government partnership. As private lenders gain experience
and information about the processes, risks and addressable
market size in clean energy, they can become increasingly
comfortable and confident lending into these markets.

GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA NRDC INTERNATIONAL: INDIA PAGE 7
Green banks have shown that with experience and data, Co-Investment: Green banks lend their name, capital,
private investors are more eager to enter clean energy and credibility to clean energy projects thus making
markets at scale, ultimately without any green bank it more attractive for private players. Co-investment
support.11 In this way, green banks engage in market with local banks and contractors helps bring these
development and create demand for clean energy projects, investments to the secondary markets through bond
in addition to offering flexible, low-cost financing that help issuances and private placement. Green banks can also
meet clean energy targets. identify and analyze technologies that are new to the
local market, but have a track record elsewhere. For
KEY TAKEAWAYS: BENEFITS OF A GREEN BANK example, UKGB was an early investor in UK off shore
wind while other investors were still reluctant. Now the
Attractive, Low-Cost Financing Terms: Green banks can
UK off shore wind market is the largest in world.13
offer reduced lending rates and flexible terms below
market standards (i.e., lower rates than available in Warehousing: Green banks can bundle small projects
private sector transactions) that match the terms and together to reach a scale where they become attractive
payback period of clean energy projects because of their for on-sale to large investors or for securitization
green investment mandate and public source of capital. through bond issuances. This aggregation technique
This enables a broader pool of clean energy projects to reduces transaction costs and drives investment.
achieve economical financing that makes projects more Additionally, green banks can standardize contracts to
likely to be developed and also attracts more investors, facilitate aggregation and reduce costs of individual
including directing international sources of capital projects. In Connecticut, CTGB compiled market
to local projects. Additionally, green banks can issue friendly data of residential solar potential and
green bonds, which provide lower cost, stable funding aggregated rooftop space to attract large installers,
opportunities for renewable energy projects from the such as Solar City, leading to significant expansion in
international market. residential solar in the state.
Credit Support: A green bank helps bridge the gap Increased Supply of Capital: Green banks can also
between the perceived risk associated with clean energy provide immediate market information and facilitate
investments, and the expectations of the private lenders best practices to increase transparency, boost investor
by offering products such as partial credit guarantees, confidence and reduce perceived risks in clean
insurance, or loan-loss reserves. These risk mitigation energy investment. Following “open source banking”
products like guarantees and credit enhancements help techniques like tracking, publishing and sharing
private banks execute the initial transactions for clean information about the performance of projects and
energy projects. For example, the Connecticut Green investments in other markets can further reduce real
Bank (CTGB) in the U.S. provides credit enhancements and perceived risks and boost investor confidence.
for working capital loans for Connecticut-based solar
companies as a way of bridging the working capital
needs of contractors with the needs of local lenders. 12

PAGE 8 NRDC INTERNATIONAL: INDIA GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA
SECTION 2
GREEN BANKS IN THE INDIAN CONTEXT
VALUE PROPOSITION FOR GREEN BANKS IN INDIA government bonds, infrastructure debt funds, partial
credit guarantees, partial risk guarantees and currency
Green banks can spur the growth of the domestic clean hedging facilities could address core limitations of
energy market by maximizing the impact of limited public Indian debt markets. Staffed with finance professionals
funds. Green banks offer solutions to overcome local and capitalized with low cost funds, an Indian green
financing barriers for clean energy and can play a significant bank would be a nexus for the development and
role in accelerating low carbon development projects by deployment of such products. Green banks would serve
doing the following: as a bridge between government ministries and private
markets to ensure market responsiveness in the service
of the public interest. The green bank would be endowed
Reduce cost of domestic capital with sufficient flexibility to evolve products in real time
as information on their performance comes in.14

Reduce perceived financing risk Attract international investment: International

investment and new private financial investors to Indian
clean energy projects are critical untapped sources of
Attract international investment capital to spur India’s renewable energy deployment.
Currently, domestic investment (both public and
private) is more than twice the amount of international
Finance underserved market investment in low-carbon or climate-resilient projects.15
Green banks lend their name, capital, and credibility
Meet national renewable energy targets to clean energy projects, which is attractive for private
players to invest in them. Additionally, a green bank
can issue green bonds, which enable access to scalable,
Meet international climate commitments long-term and low cost debt capital from institutional
investors. Following on the example of rupee
denominated “masala” bonds, green banks can help
Reduce cost of domestic capital: Domestic Indian banks attract and funnel international private investors to local
typically offer higher interest rates and shorter terms clean energy projects, which is currently lacking
than clean energy projects’ payback periods allow.
Finance under served markets: Smaller projects like
This creates an uneconomical mismatch that makes
rooftop solar installations on buildings and off-grid solar
such projects more difficult to finance and build if the
panels or microgrids in rural villages have the potential
developer is not already well-resourced. Green banks
to be transformative in India. It is currently estimated
can provide lower interest rates and longer terms of
that microgrids provide electricity to at least 125,000
financing to match the payback period and enable more
households across India.16 These projects have the
projects to be built – a critical role as India scales its
ability to supply electricity to a previously underserved
clean energy market.
population or reduce strain on an already strained grid.
Reduce perceived financing risk: Traditional Indian In addition to this, the projects could increase work
bankers perceive clean energy investments as high and school productivity during night hours as well as
risk due to their unfamiliarity with clean energy displace the use of kerosene or other harmful fuels. The
technologies. These high risks result in higher cost ability of green banks to aggregate these smaller projects
financing. Green banks can offer products such as through “warehousing” enables them to be financed
partial credit guarantees, insurance, or loan-loss through green banks by large investors.
reserves that reduce the risk and therefore the cost of
Meet national renewable energy targets: India has
capital.
set ambitious energy targets for itself, including 175
Attract, coordinate, and deploy capital: Research on the GW of renewable energy by 2022. Local developers
Indian clean energy markets shows that instruments like cannot rely solely on domestic finance or international

GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA NRDC INTERNATIONAL: INDIA PAGE 9
 development banks to fund and build the solar and wind THE ROLE OF GREEN BANKS IN ACCELERATING LOW
energy projects needed to achieve these clean energy CARBON DEVELOPMENT IN INDIA
targets. Green banks’ ability to attract international
investment and finance smaller projects at a lower cost In order to generate 175 GW of renewable energy by 2022
for developers makes it a key tool to quickly scale the and to reduce greenhouse gas emissions intensity by 33
domestic market. to 35 percent from 2005 levels by 2030 as part of India’s
climate commitment, India has set ambitious goals for
Meet international climate goals: India’s emissions
five key sectors: 1) ground-mounted, large-scale solar, 2)
intensity reduction target of 33-35 percent from
rooftop solar, 3) off-grid solar, 4) wind energy, and 5) energy
2005 levels by 2030 – made as part of the UN climate
efficiency. Green banks are designed to address local market
commitments in December 2015 in Paris – require
and policy failures.
serious investment in renewable energy and energy
efficiency. As one of the countries most vulnerable to the
Based on international models, green banks can provide
impacts of climate change, positioning itself as a leading
financing solutions to grow India’s clean energy market.
clean energy market not only reduces carbon emissions
Not all will be appropriate to the Indian context and actual
and meets these climate commitments, but also allows
opportunities will be determined through detailed market
India to develop its low carbon economy.
research.

THE MANY BENEFITS OF A CLEAN ENERGY MARKET IN INDIA

Developing markets in renewable energy (particularly solar and wind) and energy efficiency tailored to India can help achieve
the national carbon emissions reduction targets, meet the ambitious goals in power generation from renewables, and
provide many other benefits as energy demand rises. Growing India’s renewable energy market and expanding the energy
efficiency market provides the following additional benefits:
• Generate economic benefits through enormous job creation across all renewable energy and energy efficiency sectors.
For example, meeting the 100 GW solar energy goal by 2022 could create as many as 1 million jobs.
• Increases national energy security by creating a reliable, domestic source of energy and thereby reducing reliance on
foreign imports of fossil fuels to power economic growth.
• Addresses power shortages as energy demand currently exceeds energy supply in most Indian cities, making power
cuts a regular – and sometimes daily – occurrence. Incorporating energy efficiency measures into the construction and
retrofit of buildings and appliances reduces the energy demand of one of the largest energy users, particularly as air
conditioner use expands.
• Increases energy access through clean energy technologies like off-grid solar applications, which can help electrify rural
villages that the traditional grid cannot reach. Improving access to light at night may also lead to increases in productiv-
ity. Moreover, in some rural areas where extreme heat increases will be most severe, farmers may adapt by farming at
night, making electrification critical.
• Reduce air pollution and improve health conditions by providing increasingly affordable and available clean energy op-
tions such as solar, which can reduce the overall reliance on fossil fuel use in individual households for cooking, heat,
and light, and reduce harmful health impacts of air pollution exposure on a city and regional scale.
• Reduce overall greenhouse emissions by taking advantage of plentiful solar and wind capabilities and locking in energy
savings in new building construction and appliances. This will be critical to reducing emissions and thereby limiting the
impact of climate change, while also meeting the needs of the growing population and economy.

PAGE 10 NRDC INTERNATIONAL: INDIA GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA
ROLE OF A GREEN BANK IN GROWING CLEAN ENERGY MARKETS AND ACCELERATING LOW CARBON
DEVELOPMENT IN INDIA

Barriers to Finance Potential Green Bank Financing Solutions International Examples

Ground-mounted, large-scale solar energy projects17
India’s Target for Power Generation by 2022: 60 GW
Definition: Solar farms greater than 1 MW and interconnected to the high-voltage transmission grid
• Expensive financing available from domestic • Reduce cost of domestic capital by offering • Connecticut Green
banks makes projects uneconomical (e.g., lower rates, fixed interest rates, and longer Bank (CTGB) provides
high domestic interest rates cause high debt tenors to attract international investment; credit enhancements for
up-front capital costs, limited non-recourse this also reduces overall burden of high cost working capital loans for
loans, shorter loan repayment terms debt for solar projects Connecticut-based solar
increase debt burden) • Mobilize attractive debt capital via partial companies
• Investments perceived as high-risk due to credit guarantees (PCGs) for project bonds • Australian CEFC19 is
lack of familiarity with newer technology and infrastructure debt funds (IDFs) to improve another example where
• Information gaps on project development credit ratings of projects, attract domestic installers are connected to
cause discomfort among lenders investors, reduce cost of debt and increase local lenders
• Difficult to attract international investors due tenors
to high risks (e.g. lack of access to cheap • Serve as a foreign-exchange hedging facility to
and long term domestic debt financing, off- reduce currency risks
take and currency and political risks) • Provide viability gap funding, refinancing, and
• Lenders remain concerned about solar plant securitization
commissioning dates and performance, • Mitigate risk through credit enhancements
repayment rates, and supportive government tools such as guarantees
policies • Increase transparency and immediate sharing
• Need for financing and regulatory of market information to bridge gaps in
collaboration to reduce completion risks information and reduce perceived risk
(such as building transmission lines) to • Fill the gap from declining multilateral
increase solar penetration in cost-effective investment to meet the goals of the National
manner Solar Mission18
• Currency volatility risks inhibit foreign • Increase familiarity, experience, and track
investment, and make Rupee-denominated record with financing solar technology over
agreements risky time to reduce perceived risk of investment
• Share best practices on measuring and
quantifying benefits from other markets
• Sharing information and data about project
technology and performance to help grow the
market
Rooftop solar energy projects
India’s Target for Power Generation by 2022: 40 GW
Definition: Installations less than 1 MW and connected to the low-voltage distribution grid)20
• Small loan ticket size makes financing • Facilitate warehousing to aggregate small • Connecticut Green
unattractive for lenders rooftop installation projects into larger projects Bank (CTGB) provides
• Lack of experience with procurement attractive for investors credit enhancements for
process creates a gap between solar project • Facility development of business models working capital loans for
commitments and actual deployment of based on leasing and third party financing for Connecticut-based solar
rooftop solar rooftop solar PV at lower costs to overcome companies
• Less mature market increases risks to investment barriers
foreign investors and commercial banks • Improve conditions for foreign investment
unwilling to finance projects for residential to supplement inadequate domestic capital
customers (leading to high cost of debt) availability
• Serve as depository of data on the value
proposition of solar rooftop installations to
increase investment

GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA NRDC INTERNATIONAL: INDIA PAGE 11
Barriers to Finance Potential Green Bank Financing Solutions International Examples
• Domestic debt capital to finance • Increase pool of potential investors and • In the U.S., states and
infrastructure is both expensive (e.g. State lower cost of capital by issuing asset-backed municipalities are ramping
Bank of India offers interest rates at 11- securities up Property-Assessed
13%)21 and largely unavailable due to less • Share information and increase familiarity with Clean Energy (PACE)
engaged domestic banking sector benefits of rooftop solar projects with potential financing schemes,
• High requirement of capital upfront and customers like local businesses and real under which property
low domestic availability of capital to estate developers owners, especially on
finance solar systems prevent uptake by • Standardization of contracts to facilitate the commercial side, can
commercial, industrial and residential aggregation and reduce individual project costs pay for renewable energy
customers • Work with utilities, distribution companies, and energy efficiency via
• Lack of third-party financing to reduce states and municipalities to develop and an assessment on their
upfront capital costs implement rooftop solar programs based on property tax bills. The
• Low availability of long term financing; short property taxes, on-bill charges, etc. additional tax assessment
tenor of financing options increase unit is secured by a senior
costs in the short term lien on the property,
• Lack of incentive policies such as net which confers strong debt
metering to encourage solar rooftop collateral. Green banks
penetration connected to the grid could potentially run such
• Lack of available, quality data on benefits of a program in coordination
solar rooftop installations over time with local municipalities in
• Un-sturdy residential and industrial rooftops India.
inhibit rooftop installation
Off-grid solar/energy access projects
India’s Target for Power Generation by 2022: 3 GW
Definition: 1 kW-100kW installations that operate in isolation or embedded in an off-grid micro-grid
• Upfront costs of capital prohibitively high for • Attract large institutional investors by • UNEP Solar Loan
many potential customers warehousing smaller project loans and selling Initiative subsidized
• Difficult to attract large investors to small- them at scale through securitization interest payments and
scale projects • Provide financing and credit enhancement coordinated market entry of
• Difficult to extend the electricity grid to • Standardize contracts to facilitate aggregation international microfinance
remote areas and reduce transaction costs to achieve investors to expand reach
• Prohibitive cost of energy storage project scale that is commercially attractive of off-grid solar. Green
technologies • Improve investment climate to accelerate Banks could play a similar
• Lack of investment in building off-grid technical collaboration and diffusion role in India.
renewables • Guarantee working capital and low-cost debt
• Lack of available and affordable domestic finance to off-grid entrepreneurs
capital for off-grid projects • Reduce collection risk and increase investor
• Diverse actors seeking financing confidence by linking payments through bank
• Commercial banks unwilling to lend capital accounts to improve revenue collection
to off-grid projects due to lack of familiarity • Disseminate data and de-risk investments
by sharing track record and familiarizing
bankers with the technologies and financing
arrangements

PAGE 12 NRDC INTERNATIONAL: INDIA GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA
Barriers to Finance Potential Green Bank Financing Solutions International Examples
22
Wind energy projects
India’s Target for Power Generation by 2022: 60 GW
• High cost and low availability of debt in India • Green banks can work with MNRE to facilitate • UK Green Investment
increases wind project finance costs grid infrastructure for wind power Bank’s offshore wind fund
• Unfavorable land acquisition policies, which • Pool wind farm assets to facilitate repayment offers co-investment with
are vital for attracting investments in wind • Co-invest in large utility scale projects investment banks and
energy market • Mitigate risk by offering loan-loss reserves, institutional investors in a
• Unstable and fluctuating fiscal incentives guarantees, insurance to protect against wholesale approach that
including accelerated depreciation (AD) and construction and operational risk, and debt has made the UK a leader
generation-based incentives (GBI) impacts subordination to attract financing of the sector.
investment • Implement mechanisms to attract investment • The National Social
• Limited non-recourse financing to achieve goals of National Wind Energy Economic Development
Mission Bank in Brazil has spurred
• Green banks can potentially support the wind energy investment
reintroduction of policies like accelerated through low-cost, long-term
depreciation23 debt financing at a large
scale.
• NYGB investment in
distributed wind24
Energy efficiency (EE) projects25
India’s Target for Energy Intensity Reduction by 2030: 33-35 percent of 2005 levels

• Single project financing difficult to obtain • Aggregate smaller-scale efficiency projects into • C-PACE: Connecticut Green
due to high transaction costs for small-scale “deal-size” projects and sell at scale through Bank’s Energy-Efficiency
EE projects securitization Program uses a property-
• Lack of structure for retail and commercial • Through warehousing and coordination with assessed clean energy
EE investments to allow energy savings to ESCOs, green banks can aggregate demand structure to provide long
offset loan repayments and provide capital subsidies term financing to building
• Local lenders do not account for estimated • Reduce upfront costs of efficiency measures owners to perform energy
savings from EE projects during underwriting through low-interest loans and innovative upgrades and repay loan
process and focus only on borrower’s credit financial products as a new tax lien on the
rating • Co-investing can improve familiarity with EE property. This increases
• Lack of familiarity with benefits of EE projects, expertise, and grow market demand lending security and
investments and savings among private • Consult with Reserve Bank of India (RBI) to enables a longer payback
investors reduces customer demand26 issue guidelines on EE investment for banks, term. The bank has
• Perceived high upfront costs for efficiency including potentially portfolio-based efficiency financed nearly $54M in
technologies by developers targets and regular audits, and/or making EE energy upgrades for 89
• Lack of energy efficiency focused guidelines investment a priority lending sector buildings from 2013-2015.
on bank loans by Reserve Bank of India • Provide credit-enhancing and direct investment • UK Green Bank’s Green
(RBI) mechanisms to deploy private capital and Loans helps municipalities
• Small energy service company (ESCO) leverage private investment in EE switch to EE street
market • Develop EE-focused funds and provide direct lighting through an
• Lack of data on verified savings increase lending and leasing offerings to fill gaps in innovative “Green Loan”
perception of risk market for municipalities, which is
• Insufficient collateral for banks because • Risk mitigation through credit enhancement for specifically tailored to help
efficiency measures include fixtures which commercial banks in initial transactions cities upgrade their street
are difficult to repossess in case of non- • Share best practices on quantifying benefits lighting to more energy
payment proven in other markets to overcome supply efficient light emitting
• Limited market experience in energy and demand issues diodes (LEDs), resulting in
efficiency financing to evaluate projects • Develop standardized and transparent energy 80% savings
based on energy and cost-savings potential performance contracts (EPCs) that promote
• Financial institutions often do not know finance models that include energy saving
how to understand, verify and quantify the monitoring and verification; standardization to
economic benefits of EE projects or have reduce costs of individual projects
difficultly monetizing the energy savings

GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA NRDC INTERNATIONAL: INDIA PAGE 13
EXAMINING EXISTING INSTITUTIONS TRANSITIONING length of the project, then the cash flows of savings
TO GREEN BANKS and loan repayments can be matched, and make the
project “cash flow positive.” In other words, the amount
A green bank can be established as a new institution, or an of money saved exceeds the amount of money that
existing institution could become a green bank. Supporting must be repaid in each period. This is highly attractive
an existing institution’s transition to become a green bank to borrowers and energy customers and can grow the
could avoid duplicative government efforts to grow the market.
clean energy market and may generally be less costly and
 Risk mitigation: In addition to offering lower rates and
time-intensive than establishing a new green bank. Existing
longer terms, green banks may cover 100 percent of the
institutions in India play some of the roles of a green bank,
project cost but more commonly use co-lending or risk
but no single institution currently offers the exact type and
mitigation strategies to bring in private investment. For
breadth of financing activities that a green bank can provide.
instance, many green banks use credit enhancements
• A green bank could utilize many tools to address the like loan loss reserves to support more private lending
existing financing gap for clean energy projects in India, on better terms. Currently in India, credit enhancement
filling in particular these three key roles: schemes with entities such as the IDFC, YES Bank,
• Offering flexible, low-cost lending that matches the and the IIFCL have been providing first loss partial
terms and payback period of a typical renewable energy credit guarantees to many recently-issued renewable
or energy efficiency project; energy bonds.27 However, there are still very few of
• Mitigating specific risks that currently limit investment these credit enhancement tools in place. Green banks
in the Indian clean energy market; and can offer attractive financing terms that support clean
energy because they act as independent, non-regulated
• Engaging in market development and demand
entities that are capitalized with government “grants”
generation.
or contributions, rather than private investment
 Offering flexible, low-cost lending: Currently, in India, capital. For example, the CTGB is capitalized with
the benchmark lending rate is around 10%, hence dollars collected from utility revenue paid by their
there is need for lower cost capital for emerging clean energy customers (utility ratepayers), effectively a tax
energy markets. A core function of a green bank is to support clean energy. The green bank receives all the
providing economically attractive financing. Ensuring revenue collected for that purpose from the government
low-cost financing (with lower rates) and flexible terms without a requirement to pay the money back nor a
are available to support clean energy projects directly required lending rate. The green bank should be given
impact whether demand for renewable energy and wide flexibility (within the confines of its charter,
energy efficiency projects and products exists. The sound business practices and prudent management of
length of the loan is particularly important for deep public resources) in how it uses this money and could
energy efficiency projects and solar projects that have theoretically choose to lend it at 2 percent for 30 years,
a long payback period. If the loan term can match the just enough to cover its operating expenses.

OVERVIEW OF INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY (IREDA) AND NATIONAL

CLEAN ENERGY FUND (NCEF)

IREDA was established on 11th March, 1987 as a Public Limited Government Company under the Companies Act, 1956 with the
goal to “promote, develop and extend financial assistance for Renewable Energy and Energy Efficiency/ Conservation Projects.”
IREDA has been notified as a “Public Financial Institution” under section 4 ‘A’ of the Companies Act, 1956 and registered as Non-
Banking Financial Company (NFBC) with Reserve Bank of India (RBI).
The main objectives of IREDA include giving financial support to specific projects for generating electricity and energy through new
and renewable sources and conserving energy through energy efficiency. Additionally, it aims to maintain its position as a leading
organization providing efficient and effective financing in clean energy projects, and to increase IREDA’s share in the renewable
energy sector through innovative financing. IREDA’s mission is to “Be a pioneering, participant friendly and competitive institution
for financing and promoting self-sustaining investment in energy generation from Renewable Sources, Energy Efficiency and Environ-
mental Technologies for sustainable development.”
One of IREDA’s important functions is providing low interest bearing funds and refinance schemes to viable renewable energy pro-
jects based on capital from the National Clean Energy Fund (NCEF). NCEF was established by the Government of India by levying a
cess (tax) on coal produced in India as well as from imported coal. The IREDA NCEF Refinance Scheme aims to bring down the cost
of funds for renewable energy projects by providing refinance at concessional rates of interest, with funds sourced from the NCEF.28

PAGE 14 NRDC INTERNATIONAL: INDIA GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA
 Market development, demand generation: One of the IREDA CONVERTING TO A GREEN BANK
most valuable functions of a green bank is its focus on
creating demand for clean energy projects, in addition Based on extensive research and stakeholder consultations,
to providing attractive financing. Green banks often IREDA appears to be the institution most like a green bank
proactively seek to generate demand through certain in India today. Among other benefits functioning as a green
market development activities. For example, a green bank would enable IREDA to do the following:
bank may hold a focused contractor training to ensure
 to attract domestic and international funding by
that contractors and installers understand the role
lowering its capital,
financing plays in the clean energy transaction and so
they can “sell” financing appropriately. Another role  to amplify its impact by financing clean energy, and
to develop the market is acting as a clearinghouse,
 to play a truly transformative role in India’s clean energy
making data and information about clean energy
markets.
technology and financing widely and easily available to
all citizens. This includes providing information that is
As described in the key questions outlined below, more
otherwise challenging to come by, such as explaining
study is needed to understand whether IREDA has the
how clean energy technologies work, why they can
institutional flexibility to implement the elements needed to
be economical, and how to access financing and find
achieve the results a green bank can provide. For example,
clean energy solutions. Green banks also work hand
IREDA appears to primarily offer senior debt loans at fixed
in hand with private banks and local lenders, helping
terms. Those terms tend to be in the low double digits and
them understand the value proposition and mechanics
the loan period is typically around 10 years or less. Green
of clean energy lending. This helps build engagement
banks typically offer lower rates and longer terms in order to
and interest in lending, beyond the use of financial
increase the market size of economically viable projects.
leveraging instruments like co-lending or credit
enhancements.
QUESTIONS ADDRESSING THE VIABILITY OF IREDA AS
 Run demand aggregation programs. For instance, in A GREEN BANK:
an effort headed by the CTGB, several green banks run
 Does IREDA have the institutional flexibility to provide
“solarize” programs, which are community-focused
flexible, low-cost lending activity at the level a Green
demand aggregation programs. The green bank first
Bank can?
selects a city to be a ‘solarize’ city. Then, the green bank
runs an RFP to find an installer willing to offer the lowest  Do IREDA’s sources of capital (including NCEF proceeds
possible cost for rooftop solar installation in exchange from the Government of India and DFIs) restrict how the
for exclusivity in that market for a period of time. In money can be used, both in terms of the rates that must
addition, the more customers that sign up, the lower be offered or the markets that must be served?
the installation cost is for everybody. This encourages
 Does IREDA’s legal status under the Reserve Bank of
community engagement and broader adoption, thereby
India as a Regulated Non-Banking Financing Institution
lowering the cost and making clean energy cheaper.
prevent it from engaging in certain kinds of financing
Taken together, this market development, when paired
that green banks can otherwise provide? For example,
with creative financing, enables emerging clean energy
can IREDA use the proceeds from the NCEF to create a
markets to grow much more quickly.
reserve to support more lending?
 Does IREDA’s mandate and internal expertise allow
it to perform the market development and demand
generation activities of a green bank?
Figure 1: Can IREDA become a Green Bank?

Does IREDA have the institutional flexibility to provide flexible, low-cost lending activity at the level of Green Banks?

Do IREDA’s sources of capital restrict how the money can be used (rates offered, markets served)?

Does IREDA's legal status under the RBI prevent it from engaging in certain financing activities (loan loss reserves)?

Does IREDA's mandate and internal expertise allow it to perform market development, demand generation activities?

GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA NRDC INTERNATIONAL: INDIA PAGE 15
SECTION 3

HIGHLIGHTING INTERNATIONAL GREEN BANK MODELS

Accelerating clean energy deployment – particularly solar investment to meet both domestic targets for renewable
energy, wind energy, and energy efficiency projects – is energy deployment and energy efficiency as well as
now the primary strategy to transition to lower carbon international climate targets for carbon emission reductions.
economies that mitigate the impacts of global warming. A The Paris Climate Agreement, as well as, the falling prices of
lack of enough affordable traditional financing to fund the clean energy technologies and associated cost parity with
magnitude of clean energy projects that need to come online other forms of energy, has increased the demand for greater
to rapidly support a greener energy system has motivated and new sources of capital for clean energy projects. The
many countries to explore innovative financing solutions. UK Green Investment Bank and the U.S.-based Connecticut
Green Bank, among others are leading examples of the
Across the globe, green banks have been established impact already made by green banks to finance and scale
at national and sub-national levels to mobilize private local clean energy markets.

EXAMPLES OF GREEN BANKS AROUND THE WORLD

California Lending for Energy and Clean Energy Finance Connecticut Green Bank Hawaii Green Infrastructure
Environmental Needs (CLEEN) Corporation (Australia) (Connecticut, U.S.A.) Authority (Hawaii, U.S.A.)
Center (California, U.S.A.)

Green Finance Organisation Japan Green Tech Malaysia (Malaysia) Montgomery County Green Bank
Masdar (United Arab Emirates)
(Japan) (Maryland, U.S.A.)

New Jersey Energy Resilience Bank New York Green Bank (New Rhode Island Infrastructure Technology Fund (Switzerland)
(New Jersey, U.S.A.) York, U.S.A.) Bank (Rhode Island, U.S.A.)

UK Green Investment Bank

(United Kingdom)

Source: Institutions listed in OECD, “Policy Perspectives: Green Investment Banks,” p. 6 (2015),
http://www.oecd.org/greengrowth/green-investment-banks.htm.

PAGE 16 NRDC INTERNATIONAL: INDIA GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA
UK Green Investment Bank
UK Green Origin and Formation: Created in 2012 and formally launched on Nov. 28, 2012, the UK Green Investment
Investment Bank Bank plc was established as a stand-alone institution to attract private funds to finance the public sector’s
investment in environmental preservation and low-carbon business and infrastructure investments. The
bank is structured as a public limited company and owned by the UK Department for Business, Innovation,
and Skills.
Purpose: The UK Green Investment Bank (GIB) is the world’s first investment bank dedicated to greening the
economy. The mission of the UK GIB is to “mobilise investment in the UK’s green economy” through a
strategy designed to maximize green impact and “underpinned by robust principles and policies designed
to ensure that each investment’s green impact is assessed, monitored and reported to the highest
standard.”29
Assets: The Bank had an initial capitalization of approximately £3.8 billion. According to the 2014-2015 Annual
Report, the GIB was close to its expected long-term investment run-rate of £800 million to £1 billion per
year.30
Funding: UK Pension Fund, sovereign wealth fund, private investors, institutional investors.31
Target Projects: The GIB invests in innovative, environmentally-friendly areas for which there is a lack of support from
private markets, namely offshore wind, energy efficiency, waste and bioenergy, and onshore renewables.
In 2014-2015, the GIB expanded its investment mandate into community-scale renewables, largely hydro
projects of less than 8 MW and onshore wind projects of less than 18 MW. Overseas projects in South
Africa, East Africa, and India are also beginning to develop, funded by an initial pilot of £200 million from
the Department of Energy & Climate Change (DECC).32
Impacts: To date, the GIB has invested in 68 green infrastructure projects and seven funds. It has directly
committed £2.6 billion to the UK’s green economy into transactions worth £10.6 billion.33 The GIB has
extended its reach into over 200 communities across the UK, created jobs, and mobilized private capital.
For every £1 invested, GIB has brought in £3 of additional private capital for UK-based green projects. In
March 2015, an FCA authorized subsidiary, GIBFS, reached its first close on a new offshore wind fund,
further attracting investors to that sector. GIB also reported becoming profitable in the second half of the
2014-2015 financial year.34

Connecticut Green Bank

Origin and Formation: Established in July of 2011, the Connecticut Clean Energy Finance and Investment Authority (CEFIA),
also know as the Connecticut Green Bank was the first green bank in the United States. It is a quasi-
public organization created by PA 11-80. It succeeds the Connecticut Clean Energy Fund.32
Purpose: The CT Green Bank was established to develop programs that will leverage private sector capital to
create long term, sustainable financing for energy efficiency and clean energy to support residential,
commercial, and industrial sector implementation of energy efficiency and clean energy measures. A
corollary goal is to transition programs away from government funded grants, rebates, and other subsi-
dies and towards deploying private capital for innovative low-cost financing of clean energy deployment.
Assets: Approximately $110 million in assets as of Jan. 28, 2016
Funding: $0.001/kWh surcharge on electric ratepayer bills that provides $27-30 MM/year. RGGI provides about
$5MM/year. SunShot initiative, ARRA-SEP, private capital. 33
Target Projects: The Green Bank finances the Commercial Property Assessed Clean Energy (C-PACE), an innovative
public-public-private partnership program that is helping commercial, industrial and multi-family property
owners access affordable, long-term financing for smart energy upgrades to their buildings through
a voluntary assessment on their tax bill. C-PACE covers 100% of costs with no money down. Capital
provided under C-PACE is secured by a lien on the property and is repaid as a long-term assessment,
increasing cash flow and making it easier for low-interest capital to be raised from the private sector.
Impacts: Since 2013, funded projects have increased every quarter and attracted increasing amounts of private
capital. From 2012 to 2015, the CT Green Bank has increased its leverage ratio from 4:1 to 9:1. The
bank intends to issue revenue bonds, proceeds of which will be used to scale impact by attracting
more private investment in clean energy deployment. The residential solar PV market saw skyrocketing
installation capacity from 2013 to 2015 from approximately 10,000 KW installed capacity to 60,000
KW, while reducing overall installation costs and subsidies.

GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA NRDC INTERNATIONAL: INDIA PAGE 17
 POTENTIAL REGULATORY FORMS OF A GREEN BANK IN INDIA

STATE-BASED GREEN BANK SYSTEM:

Non-Banking Financial Company: IREDA is a Non-Banking Financial Company (NBFC), which is registered under the
Companies Act, 1956 and must conduct financial activity as its principle business. Unlike a bank, a NBFC cannot accept
demand deposits. If a Green Bank was to be an NBFC, it would be governed by the Reserve Bank of India (RBI) within the
framework of the RBI Act (1934) Chapter III B and the directions issued by it. More research is needed to understand if
NBFC status would prevent the Green Bank from engaging in certain forms of financing that otherwise commonly benefit
emerging clean energy markets.

Infrastructure Finance Company: A Green Bank could potentially also take the form of an Infrastructure Finance company
(IFC), deploying more than 75% of its total loans to infrastructure projects. IFCs are mandated to have INR 300 crore as
minimum net owned funds and a minimum credit rating of ‘A’ or equivalent. To meet this requirement, it may be beneficial
to create a Green Bank in India at a central government level, so that central and state contributions to the Green Bank can
be aggregated to meet the net funds owned requirement. Additionally, autonomous central government agencies can secure
high credit ratings, as was demonstrated by IREDA’s AAA rated tax-free green bond issued in 2014, which included a sover-
eign guarantee from the Government of India.

As per RBI regulation, IFCs must maintain a Capital to Risk Weighted Assets Ratio (CRAR) of 15%. A Green Bank in India
could potentially offer insurance products for credit enhancement without risk participation by paying a fee and seeking per-
mission from the Insurance Regulatory Development Authority of India (IRDA), complying with the regulations for acting as a
‘composite corporate agent’ with insurance companies.

CONCLUSION
Strong policy settings and incentive structures must be
adopted to enable renewable energy investment to scale up
to needed levels in India. Innovative financial mechanisms
and institutions – such as green banks and green bonds –
have proved successful on the state level and internationally.
These financing tools and institutions can help propel India’s
solar and wind energy markets and support critical energy-
saving efficiency and climate resilience projects.

While in-depth legal analysis and landscape mapping

is required to identify the options for capitalizing and
establishing a green bank in India, preliminary analysis
suggests that a specialized 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.

PAGE 18 NRDC INTERNATIONAL: INDIA GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA
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ctgreenbank.com/wp-content/uploads/2015/11/CGB_FY15_and_FY16_Comprehen- (accessed April 8, 2016).
sive_Plan.pdf (accessed August 4, 2016). 30. UK Green Investment Bank plc, Annual Report and Accounts 2014-15, June 22, 2015,
13. Jessica Shankleman, “U.K.’s World-Beating Offshore Wind Could Get $8.4 Billion Big- http://www.greeninvestmentbank.com/media/44802/gib_annual_report_2015_aw_
ger,” Bloomberg, February 15, 2016, www.bloomberg.com/news/articles/2016-02-15/ web.pdf (accessed April 8, 2016).
u-k-s-world-beating-offshore-wind-could-get-8-4-billion-bigger (accessed August 4, 2016). 31. OECD, Policy Perspectives: Green Investment Banks, 2015, www.oecd.org/green-
14. Gireesh Shrimali, Charith Konda, Sandhya Srinivasan, Solving India’s Renewable Energy growth/green-investment-banks.htm, Page 14.
Financing Challenge: Instruments to Provide Low-cost, Long-term Debt, Climate Policy 32. Ibid.
Initiative, Bharti Institute of Public Policy, March 2014, climatepolicyinitiative.org/wp- 33. Green Investment Bank, Summary of Transactions, March 17, 2016, http://www.
content/uploads/2014/04/Instruments-to-Provide-Low-cost-Long-term-Debt.pdf. greeninvestmentbank.com/media/45015/gib_transaction_table_170316.pdf (ac-
15. OECD, Policy Perspectives: Green Investment Banks, 2015, www.oecd.org/green- cessed April 8, 2016).
growth/green-investment-banks.htm (accessed April 8, 2016). 34. UK Green Investment Bank plc, Annual Report and Accounts 2014-15, June 22, 2015,
16. David Ferris, “Indian Microgrids Aim to Bring Millions Out of Darkness,” Environment http://www.greeninvestmentbank.com/media/44802/gib_annual_report_2015_aw_
360, January 16, 2014, e360.yale.edu/feature/indian_microgrids_aim_to_bring_mil- web.pdf (accessed April 8, 2016).
lions_out_of_darkness/2729/ (accessed August 4, 2016). 35. Connecticut Green Bank, http://www.ctcleanenergy.com/Default.aspx?tabid=62 (ac-
17. NRDC-CEEW, Re-energizing India’s solar energy market through financing, 2014. cessed April 8, 2016).
18. For more information on the National Solar Mission, please visit www.mnre.gov.in/ 36. Inter-American Development Bank: Public-Private Partnerships to Finance Climate
solar-mission/jnnsm/introduction-2/; See also NRDC-CEEW, Re-energizing India’s solar Protection, Connecticut Green Bank, January 28, 2016 (accessed August 5, 2016).
energy market through financing, 2014.

LIST OF STAKEHOLDER ORGANIZATIONS

From 2013 to 2016, we held discussions and roundtables with many stakeholders, including the following organizations, to
develop this report:
 Asian Development Bank  Kiran Energy  New York Green Bank
 Bloomberg India  Hero Future Energies  NTPC Vidyut Vyapar Nigam
 Bridge to India  ICICI Bank  Project Finance Corporation of India
 Central Electricity Regulatory  ICICI Prudential Life Insurance  Securities Exchange Board of India
Commission  Indian Renewable Energy Development  Shakti Sustainable Energy Foundation
 Citibank Agency  Solar-Arise
 Climate Bonds Initiative  International Finance Corporation  Solar Energy Society of India
 Climate Policy Initiative  International Solar Alliance  Suzlon
 CLP India  InterSolar 2015 participants  Tata BP Solar
 Coalition for Green Capital  KPMG  United States Agency for International
 Connecticut Green Bank  Ministry of New and Renewable Energy Development
 Export Import Bank of India  Ministry of Finance  United States Department of State
 Federation of Indian Chambers of  Ministry of Power  United States Export Import Bank
Commerce and Industry  MSCI India  World Bank
 KfW  National Bank for Agriculture and Rural  Yes Bank
Development

GREENING INDIA’S FINANCIAL MARKET: OPPORTUNITIES FOR A GREEN BANK IN INDIA NRDC INTERNATIONAL: INDIA PAGE 19
INDIA CLEAN ENERGY FINANCE SERIES
The Clean Energy Finance Initiative (CEFI) is a collaborative research effort by the Natural Resources Defense Council (NRDC) and the
Council on Energy, Environment and Water (CEEW), aimed towards finding policy and market based solutions to scale up the flow of
finance in to the Indian renewable energy market. Based on ongoing research (CEFI) has identified specific themes, analysis on which will
underpin the successful development of a domestic finance sector dedicated to clean energy in the years to come. CEFI is partnering
with key policy stakeholders including the Ministry of New & Renewable Energy (MNRE), Indian Renewable Energy Development Agency
(IREDA) and others to facilitate increased private investments in the clean energy sector in the country. CEFI also engages with multiple
other stakeholders ranging such as the Securities and Exchange Board of India (SEBI), to financiers and industry actors such as Export
Import Bank of India, Yes Bank, Hero Future Energies, Kiran Energy, and Bloomberg New Energy Finance.

For more information and to download these reports, please visit:

https://www.nrdc.org/resources/renewable-energy-india-employment-potential-and-financing-solutions-solar-and-wind-energy

INTERNATIONAL: INDIA AUGUST 2014 REPORT

Reenergizing India’s Solar Energy INTERNATIONAL: INDIA APRIL 2016 REPORT

Greening India’s Financial Market:

Market Through Financing
INTERIM REPORT
REENERGIZING INDIA’S SOLAR ENERGY
MARKET THROUGH FINANCING GREENING INDIA’S FINANCIAL MARKET
HOW GREEN BONDS CAN DRIVE
CLEAN ENERGY DEPLOYMENT How Green Bonds Can Drive
PREPARED BY:
Council on Energy, Environment and Water
Natural Resources Defense Council www.nrdc.org/international/india/ EXECUTIVE SUMMARY

Clean Energy Deployment

© Bhaskar Deol

India is at a critical juncture in scaling renewable energy 1) Reduce the cost of capital further,
Solar Panels at a NSM to provide energy access to its growing cities and vast rural 2) Stimulate demand from institutional and retail investors,
commissioned power plant

files/renewable-energy-solar-financing-
communities. Financing remains the principal barrier to and
at Jaisalmer, Rajasthan
the rapid expansion of India’s clean energy market needed

https://www.nrdc.org/resources/greening-
3) Expand and diversify the issuers base.
to meet the ambitious national target of 175 gigawatts
(GW) of solar, wind and other renewable energy by 2022. Encouraging the development of a robust financing
The right policy settings and incentive structures must be ecosystem that leverages inputs from stakeholders across
adopted to enable renewable energy investment to scale up sectors can help achieve these strategies. As this report
to needed levels in India. Innovative financial mechanisms lays out, the following recommended roles for government

report.pdf
and institutions such as green bonds and green banks, agencies, domestic financiers, industry stakeholders and
respectively, which have proved successful on the state level

indias-financial-market-how-green-bonds-can-
clean energy experts can support green bonds scaling up in
and internationally, can help propel India’s solar and wind India.
energy markets and support critical energy-saving efficiency
and climate resilience projects. IREDA, National Clean Energy Fund, and Ministry of New
& Renewable Energy, in collaboration with credit rating
A green bond is a fixed-income financial instrument for agencies and regulators:
raising capital through the debt market, like traditional
corporate bonds. The key difference is that green bonds • Facilitate market development for currency risk

drive-clean-energy-deployment
raise funds for projects with environmental benefits, such hedging products, such as 10-year or longer options
as renewable energy, low carbon transport or climate and contracts, at competitive prices. Availability of
adaptation. hedging products can help lower the cost of capital for
the issuer and make Indian green bonds more attractive
To achieve India’s clean energy and climate goals, new internationally. Alternatively, development finance
innovative financial instruments (such as green bonds) that institutions (DFIs) like the Export-Import Bank of India
tap into international resources to leverage a wider investor (Exim) that hold high credit ratings and need long-term
base (such as pension funds, sovereign wealth funds and funds based in U.S. Dollars can be approached to enter
insurance companies) need to scale up. Our analysis finds into a currency swap that would be mutually beneficial.
that strategies that help strengthen and expand the market • Coordinate efforts to determine whether (a) to a adopt an
for green bonds in India from this nascent stage should aim international certification standard for green bonds such
to achieve these three objectives: as the Climate Bond Standard, (b) to adapt international
standards for India, or (c) develop a new India-specific

SUPPORTED IN PART BY:

INTERNATIONAL: INDIA AUGUST 2014 ISSUE PAPER

A SECOND WIND FOR INDIA’S ENERGY MARKET:

A Second Wind for India’s Energy Greening India’s Financial Market:
FINANCING MECHANISMS TO SUPPORT INDIA’S
NATIONAL WIND ENERGY MISSION
India is struggling with skyrocketing energy demands, declining energy supplies, and peak load blackouts and
shortages that limit energy access.1 The country’s recent economic growth has depended largely on fossil fuels,
resulting in greater energy security concerns, higher electricity pricing, and increased pollution. At the same time,
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Market: Financing Mechanisms Investigating Opportunities for a Green
to Support India’s National Wind
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Bank in India
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times its current level to achieve the country’s 100 GW wind energy potential.2 To achieve the higher potential, the
government announced plans in 2014 to launch a National Wind Energy Mission. Designing strong policies and
programs that attract investment is essential to scale wind power to reach 100 GW and to breathe new life into
India’s wind energy market.

India’s renewable energy capacity is nearly 13 percent

of total generation capacity. Of the total renewable energy
generation, wind energy currently makes up the majority
with nearly 70 percent. The country’s 100 GW wind energy
potential—almost half of India’s total electricity generation
capacity in 2013—reveals tremendous opportunities for
solving India’s energy crisis through a resurgence in wind
energy installations. Wind energy is also vital to diversifying
India’s energy mix and is a viable means to meet demands for
clean, affordable energy that creates jobs as discussed in the
12th Five-Year Plan.
Investments in the Indian wind market have fluctuated
as have government policies. Financiers invested more than
Rs 18,700 crore ($3.9 billion) in wind energy to add 3,200 MW
Mission https://www.nrdc.org/resources/greening-
www.nrdc.org/international/india/
© Bhaskar Deol

indias-financial-market-investigating-opportu-
Wind mills in Jath, Sangli district
in Maharashtra, India

files/renewable-energy-wind-financing- nities-green-bank-india
Ip.pdf
SUPPORTED IN PART BY:

INTERNATIONAL: INDIA SEPTEMBER 2014 ISSUE BRIEF

SURGING AHEAD:
SCALING INDIA’S CLEAN ENERGY MARKET
Surging Ahead: Scaling India’s Clean
THROUGH JOBS AND FINANCING
Increasing energy access, clean energy development, and economic livelihoods are national priorities for India Prime
Minister Narendra Modi’s new government. As India faces rising fuel prices, threats to energy security, and the
impacts of climate change, renewable energy offers a critical solution, which also supports the new government’s
agenda. India’s solar and wind programs have catalyzed rapid growth. In just four years, India’s solar market has
grown more than one hundred fold. India is also the world’s fifth largest wind energy producer.
Energy Market Through Jobs and
Financing
© Bhaskar Deol

The clean energy sector is providing much needed

energy access while also creating enormous employment
INDIA’S SOLAR AND WIND ENERGY MARKET
EMERGING QUICKLY
www.nrdc.org/international/india/
files/india-renewable-energy-jobs-ib.pdf
opportunities for India’s workforce. Highlighting the In 2010, as part of its plan to address the country’s urgent
opportunity a scaled-up clean energy market offers for job and growing demand for energy, India’s Ministry of New and
creation in India, new analysis by NRDC and the Council on Renewable Energy (MNRE) launched the Jawaharlal Nehru
Energy, Environment and Water (CEEW) estimates that solar National Solar Mission (NSM or Mission) to promote grid-
photovoltaic (PV) projects commissioned in India between connected and off-grid solar energy. The administration
2011 and 2014 created approximately 24,000 full-time hopes to establish India as a global leader in solar energy and
equivalent (FTE) jobs. Along with various estimates of job to deploy 20 gigawatts (GW) of grid-connected installed solar
creation in the wind sector, grid-connected renewable energy power—equivalent to the energy capacity of 40 mid-sized
is estimated to have created nearly 70,000 FTE jobs in India coal-fired power plants—and 2 GW of off-grid solar power by
so far. 2022.
This analysis also finds that the Indian government and In just four years, India’s solar market has grown more
business leaders must overcome financing obstacles to than one hundred fold to achieve more than 2.5 GW of
achieve the country’s renewable energy goals and reach the grid-connected installed solar energy (about the same as
full time growth potential of the clean energy sector. Policy California), largely driven by national and state policies. With
support through innovative financing mechanisms and eight years left in the Mission, India is rapidly ramping up
instruments such as green banks and green bonds could its solar installations, presenting an opportunity to increase
help reduce the high cost of renewable energy and scale the public support for this potentially transformative energy
market to help power India’s future. resource.

AUTHORS
NRDC
CEEW team: Anjali Jaiswal,
team: Arunabha Ghosh,Sameer
RajeevKwatra, Nehmat Kaur,
Palakshappa,
Bhaskar Deol, and Eric Weiner
Rishabh Jain, Shalu Aggarwal, Poulami Choudhury
CEEW
NRDC team: Arunabha
team: Anjali Ghosh,
Jaiswal, Kanika
Meredith Chawla, Neeraj
Connolly,
Bhaskar Deol,Kuldeep, and Manu
Nehmat Kaur, Aggarwal
Avinash Kar
Natural Resources Council on Energy,
Defense Council Environment and Water
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