India Plans Tax-Free Bonds To Fund Renewable Energy Projects

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The Indian government, through its enterprises, is planning to raise funds by issuing tax-free bonds for renewable energy projects.

At least 3 government-owned organisations — Power Finance Corporation (PFC), Rural Electrification Corporation (REC), and Indian Renewable Energy Development Agency (IREDA) — will raise more than $600 million through tax-free bonds. The entities will use the funds raised to provide low-cost finance to renewable energy project developers. According to media reports, these entities will provide finance at 10.5%, which is comparatively cheaper than the rates on offer by the Indian banks. PFC will use the raised funds specifically to finance solar power projects.

India plans to add 97 GW solar power capacity by 2022 and funding such a large capacity addition program remains a major concern. Apart from foreign investors and development banks the Indian government is also looking to tap the domestic market to raise funds.

The Indian Export-Import Bank raised $500 million through green bonds issue. Yes Bank, a private sector bank, also raised $150 million through India’s first-ever green bond issue earlier this year. The government, in April, had asked at least 8 entities to raise funds through green bonds. PFC, REC, and IREDA are among the first to respond to this call. India’s largest power producer NTPC Limited has also announced plans to raise at least $500 million through green bonds to fund its own solar power capacity addition.

Renewable energy is still classified under the power sector in the Indian banking sector and all banks have exhausted their limits to lend to power sector companies including generators and distribution companies. As a result, banks have no capital left to finance renewable energy projects even if they want to. To address this problem, the Reserve Bank of India is believed to be working on separating the renewable energy sector from the overall power sector for the purpose of funding. In the meantime, and as a supplementary measure, banks as well as non-banking financial institutions have been asked to float green bonds to raise funds.

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3 thoughts on “India Plans Tax-Free Bonds To Fund Renewable Energy Projects

  • I get 1 % interest on savings in the bank, and pay 3 % on the morgage.
    10,5 % seems like a robbery to me.

  • India has a high rate of inflation compared to the US and Europe. 10.5% sounds very high to us but we’re working from a much lower rate. Factoring out a 5+% rate of inflation makes the 10.5% more like 5% and not as hard to swallow.

    • Yes, that’s another way of looking at it. Agreed.

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