Chapter: Blended Capital Market Mechanisms for Critical Decarbonisation Projects in India

This chapter addresses two critical decarbonization challenges in India: repurposing coal-fired power plants that dominate electricity generation and enabling MSMEs to adopt low-carbon technologies. The authors propose innovative blended finance mechanisms that leverage public capital to mobilize private investment from sustainable debt capital markets. These solutions aim to accelerate India’s energy transition while maintaining energy security and supporting economic growth.

Sustainability-Linked Green Bonds (SLGBs) for Coal Plant Repurposing

This mechanism targets private coal-fired power plants by combining green bonds with sustainability-linked bonds, linking financial incentives to coal decommissioning, renewable capacity addition, and just transition for workers. The structure can be enhanced through concessional financing from multilateral development banks, credit guarantees, and a “transition credits” system that generates additional revenue from verified emissions reductions. With private companies owning 35% of India’s coal capacity and studies showing repurposing benefits exceeding costs by 2-4 times, SLGBs offer a market-based pathway to fund this critical transition.

Green Finance Platform for MSME Decarbonization

The platform, ideally managed by SIDBI, would enable India’s 63 million MSMEs to access affordable long-term debt from capital markets for investing in low-carbon technologies like rooftop solar and energy-efficient equipment. By issuing green bonds following international standards and channeling proceeds to eligible MSMEs through direct lending or financial intermediaries, the platform addresses the sector’s $530 billion credit gap. Credit enhancement through partial guarantees from public institutions and MDB participation as cornerstone investors would improve bond terms, while aggregating small borrowers reduces transaction costs and demonstrates commercial viability of green technologies.

Book Publisher: