Electrification of the Transport Fleet in India - Macquarie Asset Management
Macquarie worked with the Green Climate Fund and local partners and investors to create unique leasing and financing solutions to enable the transition of heavy transport fleets to EVs.
- Investor: Macquarie Asset Management
- Source of finance: Equity
- Financial instrument: Concessional equity (Green Climate Fund)
- Sector: Electricity and energy – decarbonising transport
- Geography: India
Macquarie Asset Management (Macquarie) works in close partnerships with stakeholders in the public and private sectors to support the energy transition and advance solutions to climate challenges. The case study outlines the development of a blended finance platform which aims to introduce unique leasing and financing solutions to reduce the high upfront capital expenditure associated with electric vehicles (EVs), tackle impediments around EV charging infrastructure and manage uncertainty around commercial EV performance in India. Emissions from vehicles in India account for ~20-30% (Reference: https://www.iea.org/reports/transitioning-indias-road-transport-sector/executive-summary) of urban air pollution. Reducing this is critical to India’s climate transition. The platform also provides social impact through improving the safety and security for women who travel in these vehicles, as well as creating employment opportunities.
Macquarie developed a new blended finance platform with the Green Climate Fund, which seeks to accelerate the adoption of electric vehicles (EVs) across India, with the aim of helping to reduce the country’s CO2 emissions and improve urban air quality. Known as ‘Vertelo’, the platform was officially launched in April 2024 and aims to deliver US$1.5 billion over the investment term to accelerate India’s EV transition. Financing India’s e-mobility transition | Macquarie Group
The transaction took three years to be approved by the Green Climate Fund and within seven months of receipt of funding, four Heads of Agreement contracts with local EV bus and car manufacturers were executed. Vertelo was enabled by Macquarie’s project instigation, the Green Climate Fund’s concessional equity and the collaborative approach taken by the local Macquarie team in India with local manufacturers and EV users.
The Green Climate Fund is a critical element of the historic United Nations (UN) Paris Agreement and is the world’s largest climate fund, mandated to support developing countries raise and realize their Nationally Determined Contributions (NDC) ambitions towards low-emissions, climate-resilient pathways. The Green Climate Fund has a corpus of US$13.5 billion. One purpose of the Green Climate Fund is to derisk investment to mobilize climate at scale. About GCF | Green Climate Fund
The cost of electric buses was found to be twice as expensive as current diesel-powered vehicles. However, the battery life on an EV bus in actual use is untested at scale and the specifications and powertrain are still evolving technologies. Ongoing operating costs should be less than current internal combustion vehicles, however substantial uncertainty remains as to whether this will be the case. Macquarie developed a leasing model which enabled owners to lease rather than buy EV buses and heavy vehicles. This was a relatively uncommon financial instrument for vehicle finance in India, and it has been well received and can be replicated. Macquarie led the design of the financial structure and engagement with Green Climate Fund and other investors to create a blended finance solution.
Macquarie unlocked concessional finance through the Green Climate Fund which was used to reduce the risk of operating in a developing country and to enhance returns for commercial investors. An initial US$50 million junior equity financing was provided by the Green Climate Fund as seed capital for a new EV leasing company, including the appointment of a CEO and team, and to rapidly accelerate the growth of the company so that institutional investors had improved visibility as to deployment pace and underwriting standards. The Green Climate Fund facility can provide a further US$150 million as junior equity financing provided that a greater amount of commercial capital is raised.
The US$50 million seed funding and US$150m additional junior trance is to be matched by US$205 million from commercial equity partners, and anticipated debt capital of US$1.14 billion raised from financial markets.
The returns to investors matches is expected to align to their risk appetite and return expectations. Commercial investors receive a full return of their capital and a preferred return on their equity prior, and the Green Climate Fund receives its capital back and a subordinate return. Any additional returns from the asset will be shared such that both parties participate in future upside. The project is to be implemented over 10 years. ~9.5 MtCO2e of GHG emission
Final Insights
Concessional finance, such as that provided by the Green Climate Fund, helps reduce risk and provide an attractive return to key investors in a transaction that is delivering a new product in a new market and in a developing country. Blended finance can be a powerful tool to facilitate such opportunities.
The time from project inception to funding approval needs to reduce as this type of transaction becomes better known. Accelerating access to climate finance for scalable projects is critical.
Private Capital
The providers of private capital into blended finance transactions are usually investors with more flexibility and a higher risk appetite than institutional investors. This form of capital enables projects to build and scale up.
Sustainability for Strategic Advantage
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Sustainability for Strategic Advantage
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