Subsidy for ‘green’ bonds crucial to grow economic cake — economists
KUALA LUMPUR: The government should subsidise the bonds for its renewable energy sector in order to draw in more investors and diversify the economy, economists said yesterday.
Asian Development Bank (ADB) Economic Research and Regional Cooperation Department Senior Economist Dr Thiam Hee Ng said that with renewable energy, the initial costs are often higher than conventional energy investment thus deterring investors from going down the green route.
“Renewable energy tends to be more pricey. So for the private sector to come in, most people would go for conventional energy because it’s cheaper, unless the government comes in and levels the playing field by giving subsidies which is common in Europe.
“We need someone to be the catalyst, to show that renewable energy is profitable and the risks are manageable,” Thiam said during the launch of ADB’s ‘Asia Bond Monitor’.
Malaysia University of Science and Technology Business School Dean Dr Yeah Kim Leng added that the government could encourage renewable energy bonds by introducing some form of insurance for early adopters who face higher risk.
“As a catalyst we will likely require some form of a guarantee from the government or some kind of insurance provided to ensure that it is highly rated because that will fulfil one of the key requirements in the market if it is highly rated,” he said.
“Likewise we do see opportunity for the government to provide across the board kind of incentives in order to attract the early investors who perhaps are taking more risks than the later investors so I think this risk taking should be compensated for the early investors,” he added.
Thiam also pointed out that while fossil fuels could stand to show instant returns, renewable energy served as a long-term investment which could also make investors hesitant.
Yeah added that the renewable bond market in Malaysia could make the country more attractive to investors but it had to be “wellstructured,” suggesting a company like Tenaga Nasional Berhad (TNB) act as a guarantor in the early stages.
“It will have to be well structured and there would need to be a strong off-taker so in the case of Malaysia there’s TNB who will have to guarantee some of the payments. Once you have that structure its fairly easy to structure the kind of renewable energy bond pulling all these assests together.
“I think one of the key attraction is this is enhancing the investment landscape for the country because we are not just creating new productive assets but also expanding the pool of investors that in turn enhances the economy,” he said.
This comes after Reuters reported on April 30 that Khazanah Nasional would issue Malaysia’s first social-impact sukuk, in line with Putrajaya’s ambitions to make the country a centre for socially responsible investment.
Local agency Ram Ratings said the RM1 billion Sukuk Ihsan programme, to which it assigned a AAA rating, was the first social-impact bond to be rated globally.