Renewable energy finance: Green bonds


As renewables have become a compelling investment proposition, global investments in
new renewable power have grown from less than USD 50 billion per year in 2004 to around
USD 300 billion per year in recent years (Frankfurt School-UNEP Centre/BNEF, 2019), exceeding
investments in new fossil fuel power by a factor of three in 2018.

Another defining trend of renewable energy investments has been a geographic shift towards
emerging and developing markets, which have been attracting most of the renewable investments each year since 2015, accounting for 63% of 2018 renewable power investments
(Figure 1). Besides China, which attracted 33% of total global renewable energy investments in 2018, other top emerging markets over the past decade include India, Brazil, Mexico, South Africa and Chile (Frankfurt School-UNEP Centre/BNEF, 2019). Nevertheless, many developing and emerging countries in Africa, the Middle East, South-East Asia and South-East Europe still have a largely untapped renewables investment potential.

Figure 1 Global renewable energy investment (excl. large hydropower), in USD billion, by region, 2004-2018

In addition to the growing technological and geographical diversity, the renewable energy
investment landscape is also witnessing a proliferation of new business models and investment vehicles, which can activate different investors and finance all stages of a renewable asset’s life. Examples include the rise of the green bond market, growing interest in corporate procurement of renewable power and new business models for small-scale renewables such as the pay-as-you-go model.


Green bonds help bridge the gap between providers of capital and green assets, helping
governments raise finance for projects to meet climate targets and enabling investors to
achieve sustainability objectives. Along with other innovative capital market instruments,
green bonds can support new or existing green projects through access to long-term capital.

A green bond is like a conventional bond in the sense that they both help the bond issuer to raise funds for specific projects or ongoing business needs in return for a fixed periodic interest payment and a full repayment of the principal at maturity. A green bond differs in the “green” label, which tells investors that the funds raised will be used to finance environmentally beneficial projects. The green bond market started about a decade ago and has undergone rapid growth in the past five years (2014-2018), as global efforts to scale up finance for environmentally beneficial assets intensified. From a market dominated by development banks,
green bonds have experienced not only growth in the total amount issued, but also a diversification of issuer types and sectors financed, and a widening geographic spread.

The green bond market continues to offer enormous growth potential. The cumulative
issuances of green bonds are below USD 1 trillion, while the global bond market is valued at around USD 100 trillion. On an annual basis, green bonds raised USD 167 billion in 2018, while the total bond market raised around USD 21 trillion (CBI, 2019a; SIFMA, 2019), as seen in Figure 2.

Figure 2 Green bond issuances, renewable energy power investment, renewable energy power investment need,
low-carbon energy transformation investment need and global bond issuances (USD, annual)


The green bond market has taken off in the past five years, with 2019 issuances expected to reach USD 190 billion. Along with the growing amount of capital raised, the market also expanded in its geographic reach, diversification of issuers and currencies in which green bonds are offered. Renewable energy leads the use-of-proceeds categories and is present in around half of all green bonds issued.

Overall, annual global green bond issuances rose from EUR 600 million in 2007 to USD 37 billion in 2014 and USD 167 billion in 2018 (Figure 3) (CBI, 2019a). For 2019, a new high of USD 190 billion is expected (CBI, 2019b).

Figure 3 Annual green bond issuances, per region, 2014-2018, USD billion

Green bonds are also issued in more currencies than ever before. While the US dollar and the euro are the top two currencies of issuances (accounting for 83% of issuances, by number, in 2018, followed by the Chinese renminbi), green bonds were issued in a record 30 currencies in 2018 (CBI, 2019a).

Renewable energy dominates green bond issuances, followed by energy efficiency projects
and clean transport. Most green bonds finance multiple “green” categories (Figure 5). Out of the sample of over 4 300 green bonds analysed by IRENA, 50% of the bonds (by volume, in USD) had renewable energy as one of the use-of-proceeds categories, while 16% were solely earmarked for renewable energy assets. On a regional basis, 21% of green bonds in Europe were dedicated only to renewables (by volume, in USD), 19% in Africa, 16% in the Americas and 14% of green bonds in AsiaPacific (IRENA, forthcoming (a)).

Figure 5 Breakdown of green bond issuances by use of proceeds, by cumulative volume (USD), 2010-2019*


While the promise and potential of the green bond market is large, scaling up current issuance
levels will require co-ordinated actions from multiple stakeholders to reduce market barriers.
Those barriers include lack of awareness of the benefits of green bonds and hence a lack of local investor demand, lack of clarity regarding green bond guidelines and standards, a shortage of green projects and high transaction costs for green bonds compared to traditional bonds.


Green Bond Principles (GBP): Core components

Use of proceeds: Bond proceeds should be described in the bond offering documentation,
with projects’ environmental benefits described and, if possible, quantified. Share of financing
versus re-financing amounts should also be provided by the issuer. The GBP list the most
commonly used types of projects supported by or expected to be supported by the green bond market. These are:

  1. Renewable energy (production, transmission, appliances and products);
  2. Energy efficiency (e.g., new/refurbished buildings, energy storage, district heating, smart grids and products);
  3. Pollution prevention and control (e.g., reduction of emissions, waste prevention/ reduction);
  4. Environmentally sustainable management
    of living natural resources and land use (e.g., sustainable agriculture, fishery, aquaculture and forestry, natural resources preservation or restoration);
  5. Terrestrial and aquatic biodiversity conservation (protection of coastal, marine and watershed environment);
  6. Clean transport (e.g., electric, hybrid, public, rail transport or infrastructure, reduction of emissions);
  7. Sustainable water and wastewater management (e.g., sustainable water infrastructure, wastewater treatment, drainage systems, flood mitigation);
  8. Eco-efficient and/or circular economy adapted products/technologies (e.g., sustainable products, resource-efficient packaging and distribution);
  9. Green buildings meeting applicable standards or certifications.
Climate Bonds Standard (CBS): Categories of eligible projects

Bonds could facilitate vast global capital flows into low-carbon assets. Through co-ordinated action between policy makers and the financial sector, green bonds can mobilise the large capital pools owned by institutional investors.

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