IRENA Announces Funding for Renewable Energy Projects

Monday, November 24, 2014

The International Renewable Energy Agency (IRENA), a Solutions Center partner, is accepting applications for funding of renewable energy projects in developing countries.


Bonds are long-term debt securities—essentially contractual promises to pay a specified amount (principal) by a specified date (maturity) with interest. Borrowers (issuers) offer bonds into the capital markets and the purchasers of these bonds act as lenders. Bonds typically are one of the more secure clean energy investment mechanisms, as bond lenders are typically in senior position vis-à-vis other investors in a project and receive payments before any other investors. When considering bonds, investors will examine the yield, credit rating, duration (tenor), and whether the bond is included within a standard index (CPI 2013). As a low risk finance instrument, bonds can provide a steady and safe rate of return for institutional investors.

Renewable energy developers can issue bonds either against individual project cash flows (i.e., from a power purchase agreement or other contractual arrangement), or bonds can be “backed” by a range of collateral types, including company balance sheets (aka a parent company guarantee) and stock. In the former case, the debt would be “non-recourse” to the corporate parent, though bondholders would have recourse to the project assets in the case of a default. In the latter, the company must come up with the money to pay penalties or other damages including principal and all unaccrued interest in the case of a default. Unsecured bonds can carry higher interest rates, but in some cases highly creditworthy borrowers—e.g., the German and Canadian governments (as of this writing)—can obtain low interest rates without posting collateral.

In addition to developers, other entities, including governments (national and subnational), development banks, and corporations may also issue bonds for the purpose of renewable energy development. Bonds can be issued to fund construction or operation (term financings); generally the interest rate will be lower for operational assets as risk exposure is greater in the construction phase.

Green bonds are a type of bond, whereby bond proceeds are used for “green” investments with positive environmental benefits (see ICMA's Green Bond Principles web page). At the end of 2014, the total value of all green bonds was approximately $50 billion USD. Green bonds are typically issued to public or private entities by international, regional, or national development banks, as well as private companies. Bond issuers can underwrite the bond to lower risk profile and attract investment.

There are no official international standards for green bonds, so currently they may be issued by any type of entity for any purpose. Accordingly it falls to individual investors the exercise diligence to confirm that the bonds are in fact funding activities and businesses that fall within their definition of “green”. Several large banks—both commercial and development—have been active issuers of green bonds in recent years. Together, through the coordinating efforts of organizations such as the Climate Bonds Initiative (, these institutions have adopted a set of principles that outline common definitions, covered areas of investment, and other standards.