Green sukuk in renewable energy financing: Potential, opportunities and advantages

Using conventional energy sources to meet energy demand in industrialization, globalization, economic-technological developments, competitiveness causes concentrated anthropogenic negativities and brings negative externalities. As a result of which, environment, climate, equality of opportunity, food quality and prices, economic growth and development have been materially deteriorated. Renewable energy is a sustainable resource that is climate and environmentally-conscious, capable of providing energy access and energy supply security; however, infrastructure financing of it is relatively costly. Green sukuk, the combination of energy and capital markets, is as an alternative asset class that can be used to finance renewable energy sources. The use of green sukuk in this field will enable the rapidly growing Islamic finance funds to be channeled in line with the fundamental doctrines of the sustainability and Islamic financial system, and will increase the depth and efficiency of the financial market while leading to a wider capital base. The aim of this study is to contribute to the theoretical understanding of green sukuk and to question its potential, opportunities and advantages in the funding of renewable energy infrastructure from the benefit-cost window. In the thesis, the concepts of energy and finance, conceptual, qualitative and quantitative dimensions of green energy and bonds, Islamic environmental perspective, qualitative and quantitative view of sukuk and green sukuk, development of it and issues handled from multi-dimensional perspective. Finally, a 10MW solar power plant (PV) project in the Karapınar district of Konya province has been financially analyzed using discounted cash flow (DCF), net present value (NPV) and internal rate of return (IRR) based on the financial model and the yield obtained were compared with the returns of equivalent financial assets. According to the analysis result, funding the mentioned PV project with green sukuk is financially feasible and green sukuk is more advantageous in terms of the return on equivalent assets. Keywords: Islamic Finance, Sustainability, Energy, Renewable Energy, Green Sukuk