Category: Finance

Would Muni Bonds fund Solar Energy in India?

We will talk about ‘Muni’ Bonds today. Please be warned that this article does not pay homage to the popular Bollywood dance number in any manner.

According to a report published by Climate policy Initiative, the third part financing woes of solar rooftop developers can be resolved by issuing ‘Muni’ Bonds. Muni Bonds help municipal corporations to raise funds for infrastructure projects by issuing bonds to Institutional and public investors.

Very recently there was news that the Ahmedabad Municipal corporation has decided to issue ‘Green’ Bonds. The bond will be issued to raise funds to implement a bio-mining technique at the city’s landfill to reduce and recycle the waste being dumped there.

Basically, the Muni bond for solar rooftop projects is likely to fund and make popular the RESCO Model. Under this model,  a RESCO (renewable Energy Service Company )will buy assets (panels, collectors) and then monetize the generated energy by selling it to utilities/building owners. The bond will help the developer to access the debt capital market to buy said assets. More often than not such ‘tax free’ bonds are issued to banks, insurance companies and pension funds. Just last year, Pune Municipality Corporation issued Muni bonds to modernize its water supply system. The 10 year bond with a pricing at  7.59 per cent was oversubscribed 6 times and the Pune municipal corporation raised a cool Rs 200 Crores.

Municipal bonds are fairly popular in the US. The bonds have funded many public sector renewable energy projects.The default rate is rare if not zilch. Back home, SEBI has put in place safeguards to prevent defaults. Only those Municipal corporations which have a good investment credit rating  can issue bonds. Additionally, the corporation should not have defaulted on loans in the past one year. The revenue raised from the project will be kept in an escrow account which would then be regularly monitored by banks or financial institutions.

We hope that a muni bond to fund India’s rooftop solar dreams is issued soon.



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