Issuance of renewable energy bonds is set to take off in Asia as new regulations push banks to step back from extending loans to projects, the Asian Development Bank (ADB) said in its June bond market report.
"Energy needs in Asia are huge," the ADB said, estimating the region's share of energy consumption globally will rise by about a half of global use by 2035, from around a third in 2010. "To ensure that the growing energy needs of Asia can be met sustainably, there will have to be increased diversification of energy sources away from fossil fuels and toward renewable energy."
But the main obstacle to Asia adopting more renewable energy sources is from financing, it said.
"Most renewable energy projects have high initial costs and very low operating costs. This means that renewable energy projects will require significant long-term financing," the ADB said. "Given that government finances are already overstretched in many developing economies in Asia, it is unlikely that government can act as the direct financier in most cases."
While banks are usually the main source of project financing in the region, new Basel III regulations requiring banks to hold more liquid assets may make them reluctant to step up for renewable energy projects, the ADB said. With institutional investors under pressure to divest fossil-fuel holdings, those large pools of assets could spur greater investment in renewable energy, it said.