Priming Banks for Green Loans

Potential Boon Ahead

Ken Silverstein | Feb 16, 2011

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Green energy needs more access to financing. That’s why the banking industry will be critical to its growth. But government support remains vital. 

 

That’s the conclusion of a study by Barclays and Accenture. The issuance of so-called green bonds would be the mechanism, or the means by which primary loans could be packaged and re-sold in secondary markets to pension funds, institutional investors and individuals. While the results of that study pertain solely to Europe’s transition to a low-carbon society, their findings are also pertinent to renewable energy markets both in the United States and around the world. 

 

“The path to a low carbon Europe has largely depended on government initiatives,” says Peter Lacy, managing director of sustainability services, Europe, Africa and Latin America, Accenture. “High public sector debt and maturing technology now mean that private sector capital, primarily intermediated by banks, must be provided to accelerate the investment we need to meet our 2020 goals.” 

That would enable Europe to bring down its carbon emissions to 83 percent of 1990s levels by 2020. To push those countries, the European Commission has set a goal of cutting the continent’s carbon emissions 20 percent below 1990 levels. It has renewable energy standard of 20 percent by 2020. 

Accenture goes on to say that the European nations would assume too much risks if they tried to do it alone. Literally, trillions must be financed. Having said that, it says that governments must still play a role to stimulate demand and stabilize carbon markets, which is best done through policies that remain certain and transparent. 

Investment could be made available to a number of ventures: Making energy efficiency retrofits to commercial properties; creating the kind of transportation energy infrastructure that will be necessary to support alternatively-fueled vehicles and building out a smart grid that could reduce carbon emissions by 13 percent. 

But perhaps the biggest investments would be targeted to the creation of solar and wind installations, which would comprise about two-thirds of  the money loaned out. Solar, both Accenture and Barclays say, would likely remain the most capital intensive. But those prices should fall as the technology spreads and the cost of production declines. 

Worthy Ideas

It’s an idea that has the general endorsement of the World Bank. In 2009, it launched its first “green bonds” initiative to support low carbon activities. The goal behind it is to help stimulate and coordinate new public and private-sector financing for climate action, the bank says. 

“Tackling climate change is going to take immense resources that will only come from a well-orchestrated flow of public and private finance,” says Robert Zoellick, head of the World Bank. “This transaction is an important early effort to show one way in which this can be done,” referring to partnership with several Scandinavian institutional investors that raised $350 million. 

Similar ideas have been floated in the United States. The selling point that advocates of green bonds make is that such financing would help put the country out front in terms of innovation. They say that China is actively involved in trying to build up its green energy sector while Europe has set mandates. 

An ad hoc group calling themselves The Coalition for Green Bank is pushing for a U.S. agency that would provide a comprehensive range of financing support to qualified clean energy and energy efficiency projects. It espouses a green bank to be capitalized with $10 billion through the issuance of green bonds. The bonds would be issued by the U.S. Department of Treasury, not to exceed $50 billion. 

The federal bank would supplement those loans made in the private sector. Among the supporters: Florida Power & Light, General Electric and the American Wind Energy Association. 

“Green Bank is a critical step towards facilitating green power development while meeting the primary objectives of carbon reduction and economic stimulus," says Todd Filsinger, co-chair of the group and Global Head of PA Consulting Group's Energy Capital Markets. "The environmental benefits are unprecedented and have the potential to drive US emissions to 1990 levels by 2020.”

Green banks, generally, are not about funding unworthy projects. They are about giving good ideas the push they need to make it commercially. To obtain loans for renewable energy projects, developers must be able to demonstrate to lenders that they have locked-up most of the available capacity in advance of construction so that they can pay back the loans.

Green bonds will have a part in the acceleration of renewable energy projects. The government’s role will be to create the certainty that developers need to go forth. Early on, the public sector will participate. But as the industry wins market share, those projects could later become a boon to private lenders.

EnergyBiz Insider has been named Honorable Mention for Best Online Column by Media Industry News, MIN.

So what do you think? Please share your thoughts by posting a quick comment below, or by sending a longer reply to energybizinsider@energycentral.com. 

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Comments

Excellent points but

But where is the outrage given to the fossil fuel sector that gets more subsidies and handouts  than any other fuels?

FINANCING BEGETS INNOVATION????

"The selling point that advocates of green bonds make is that such financing would help put the country out front in terms of innovation"

The availability of easy funds does not precede innovation. In fact, easy money retards innovation by artificially lowering the standard by which authentic investments are judged. Why shoot for genuine financial viability in a competitive market when lesser standards are richly rewarded?

Money chases innovation. Easy money merely produces more scoundrels, liars and cheats.

Financial Suicide!

Green energy, specifically solar and wind, are not economically feasible investments so a bank would be commiting financial suicide to fund these without considerable government funding.  By using taxpayer monies to fund these projects while the national debt is spiraling out of control and our manufacturing base is not growing, our leadership is making sure the nation commits financial suicide.

From US Energy Information Agency data:

Between 2007 to 2035, China's electrical generating capacity will increase by 1208GW from 716 to 1924 while US generation growth will be 221GW--995 to 1216.  China will add 737GW of coal-fired power (without CO2 capture) while the US will add 24 (likely with CO2 capture).  China's nuclear power growth will be 66GW in that time period--from 9 to 75 while the US growth will be 12GW--101 to 113.  China's wind power growth will be 124GW--6 to 130 while the US will install 53GW--growing from 16 to 69.  China's hydropower will grow 223GW from 145 to 368 while US hydropower is projected to stay flat at 77 to 78GW.  (Nothing rapes Nature quite like hydropower, inundating huge portions of land submerging forests, meadows, and farmland and altering the ecology of watersheds and river deltas.)

So, let's spend huge amounts of money investing in windfarms that require almost 10 times as much concrete and steel on a per MW capacity basis as a nuclear facility--which makes it 31 to 4.7 times as much concrete and steel on a per MWh basis.  Lets throw huge investments into solar power at a capital cost that equals or exceeds nuclear on a per MW basis and ignore the fact that the capacity factor is so low that the per MWh cost is 6.2 times that of nuclear.  (I will not even compare these technologies to fossil-power because it gets far worse.)  Let's tax the CO2 emissions of our generating companies and our refiners and petrochemical facilities so that we drive up the cost of business, and the cost of living for everyone, and drive these dirty industries completely out of the US--I mean we can all be computer scientists or some other "clean" professional--we don't need steel production, plastics manufacturing, and all the cars will be electric so let the dirty industries go elsewhere.

If one looks at all the non-OECD countries, the comparisons get even worse.

Oh, but China is investing in wind and solar so we have to invest more than they do!  China's wind and solar combined amount to 11% of their generating capacity increase which means the energy contribution of these will be only 3% of their total increase while we are calling for renewables standards of 20 and 30% and the President is calling for 80%.

This is economic suicide while simultaneously ensuring greater damage to the environment because many of the new plants built in the non-OECD countries will have no emissions controls.  And, don't say we need to sacrifice because we have plundered the rest of the world.  Our service personnel who fought and died alongside other free-world service people have paid our debt many times over by keeping a lot of the non-OECD (and OECD) countries free from foreign domination by countries run by insane men.  Many of the non-OECD countries may be dictatorships or near-dictatorships but the dictator is at least native to the country.  Our "plundering" brought a better life to the people of many countries and gave them visions of a still better one.

What you say is true, but...

The beauty of the "green" bonds is that when these finally collapse and wreck our economy even more, we can turn it around and blame those "greedy Wall Street" bankers! It won't help anyone, but it will enable the next stupid liberal scheme to come along...and we'll do it all again!

Potential Boon or Bust?

Let's see. Packaging green bonds in primary bonds and reselling them to pension funds, etc. You mean like packaging high risk mortgages into derivatives and reselling them to pension funds? Great idea...investments in technologies with unproven market viability which, as the article states, will depend on government subsidies for some time (governments which have run out of money!).

I'm sure when the current green market collapses and consolidates on the few truly viable technologies, the pensioners who have taken it in the shorts willl be most understanding! Maybe we'll just blame it on George Bush.

Another Ponzi scheme hatched by government liberals...

- Mike Fraley

Wrong direction

If you have enjoyed our current economic situation then pushing money into this "green industry" before the market is ready for it is a good idea!  Remember how the "Fair Housing Act" of Jimmy Carter that was forced into action by Bill Clinton created the problem in the housing and mortgage industry by forcing lending institutions to give sub-prime loans to unqualified people so they too could enjoy the American Dream.  Social engineering sounds good it was just unsustainable as we found out.  The lesson to be learned is that major changes to industry must be market driven, only enacted when the market can support them and not artificially mandated by government entities.  Green Energy will have it's day when it is a more developed and reliable alternative, that is just the way evolution happens.  The last thing the U.S. needs to do is follow Europe on any of it's social engineering efforts!  Run away from government solutions and let business heal our economy, after all, we have a HUGE supply of clean natural gas to fuel our needs for decades to come.