Scaling up Renewable Energy Assets: Issuing Green Bond via Structured Public-Private Collaboration for Managing Risk in an Emerging Economy

Abstract

Green bonds have increasingly been utilized around the world as a source of financing for renewable energy development, designed with compliance requirements and measurable economic returns to investors, while mitigating climate change. However, the efficacy of green bond arranged in the emerging economies for financing renewable energy assets and how the underlying risks are managed have remained to be explored. The paper aims to examine the evolving green financial system sponsored by both public and private institutions in managing such risks within China’s emerging economy. A case study of green financing for a bundle of wind power assets led by a state-owned enterprise (SOE) reveals an alternative approach by structuring public–private collaboration while stipulating market-based financial incentives to institutional stakeholders under a political economy. This institutional consortium is composed of a state development bank, a commercial bank, credit rating agencies, institutional and private investors, regional power purchasers, and carbon trading entities. Financial stakeholders’ risk in such emerging sustainable investment is moderated by these participating institutions and structured “upsides” from carbon trading aligned with the framework of green finance and standards for green bond development. The results reveal the potentials of scaling up the development of renewable energy by adequately managing and sharing key risks, while allocating substantial funding into renewable energy projects under such a green financial system that is to be complementary with a scalable post COVID-19 economic recovery.

Role of green finance in improving energy efficiency and renewable energy development

“…A group of scholars showed that green finance is not an efficient tool in many countries because of various core problems. For instance, Fu and Ng ( 2021 ) and Hafner et al ( 2020 ) showed that green finance tools such as green bonds are inefficient in developing or less-developed economies because of the weak private sector and inappropriate financial infrastructure. Consistent with these studies, Hammoudeh et al ( 2020 ) attempted to find a link between green bonds and different economic and environmental indicators and concluded no causal link between green bonds and other variables.…”

Green Finance and Green Energy Nexus in ASEAN Countries: A Bootstrap Panel Causality Test

“…Researchers are concerned about green financing and energy efficiency. Eco-frie financing is not a viable option for many countries because of various underlying is Furthermore, the lack of private sector and insufficient financial infrastructure make g financing approaches like green bonds ineffective in developing or less developed na [13,14]. In line with earlier studies, Hammoudeh, Ajmi [15] investigated the relation between green bonds and various environmental and economic indicators and foun evidence of a causal association between them.…”

Performance of Green Bonds in Emerging Capital Markets: An Analysis of Academic Contributions

“…The "renewable energies" cluster also refers to papers that analyse the impact of various non-financial drivers on development of the green bonds market: GDP per capital, CO 2 emissions and energy consumption in Nigeria [17]; economic infrastructure for public-private collaboration in the renewable energy sector [24]; macroeconomic, fiscal, and social-economic policies to change the flow of subsidies from fossil-fuel energy production to renewable ones [3]; and regulatory constraints about green energy and green finance [25].…”