Asia may soon host a boom in green bond activity, according to leading international debt market players. Last week, Moody’s predicted there would be a surge in issuance from India and China, and Goldman Sachs set a new target to arrange $1bn in debt securities to finance clean energy projects in Japan.
A report by credit agency Moody’s said developing countries may help the global green bond market reach $100bn this year, triple the $37bn of 2014, citing estimates from the Climate Bonds Initiative.
The report highlighted India’s Yes Bank, which sold its first green bond to fund low-carbon power projects earlier this year. More information on this deal can be found in Bloomberg New Energy Finance’s recent note on renewable energy financing in India.
Moody’s said China’s plan to open its debt capital markets and cut pollution may transform the market if backed by clear regulation and standards.
Other credit agencies have backed Moody’s view. In an interview with Bloomberg New Energy Finance’s Clean Energy & Carbon Brief earlier this year, Standard & Poor’s said China’s green bond market could grow substantially over the next 12 months.
Also last week, Goldman Sachs said it set a target of arranging $1bn in bonds to finance clean energy in Japan, focusing initially on solar power. The Japan Renewable Project Bond Trust plans to reach that target within “the coming few years” and will expand to other renewable energy assets as “opportunities arise”, the New York-based investment bank said in a statement on its website.
It is part of Goldman’s plan, announced in 2012, to finance and invest $40bn in clean energy globally. The company has reached almost $27bn in financings. The trust will offer renewable energy companies “attractive rates of capital to fund their growth through the capital markets”, Toru Inoue, a Goldman vice-president in structured finance, said in the statement.
Utilities are looking increasingly at the debt capital markets to finance clean energy projects. Green bonds, in particular, have become a new source of finance for energy companies and an option for long-term investors, as shown in Bloomberg New Energy Finance’s recent note Trends in innovation for clean energy finance.
Institutional investors are starting to become new sources for renewable energy finance, the note points out, with the rise of securitisation. Individual clean energy projects often do not match the risk-return profile of institutional investors, the note said. If a group of projects is aggregated and packed into a financial product, the revenue source is diversified. This reduces overall risk for investors.
Last week’s deal between Banco Santander and two Canadian pension funds underscored the growing confidence of institutional investors in renewable energy.
Banco Santander started a low-carbon and water investment company with assets of more than $2bn with two Canadian pension funds. The $2bn portfolio comprises 19 wind, solar and water facilities either operating or being built. Previously owned by Santander, the sites generate more than 1,400MW and are in Brazil, Mexico, Uruguay, Italy, Portugal, Spain and the UK.
Cubico Sustainable Investments, based in London, will be held equally by Santander, the Ontario Teachers’ Pension Plan and the Public Sector Pension Investment Board, the investment company said in an e-mailed statement.
Last year, institutional investors committed about $5bn to renewable energy projects in Europe alone. This represents a 25%-plus increase year-on-year and compares with a total of $66bn of new investment in clean energy in the region, according to Bloomberg New Energy Finance.
The portfolio of new company Cubico Sustainable Investments is heavily skewed towards Latin America – the site of 90% of its renewable energy capacity, according to its website. The geographical focus is not a surprise, according to Bloomberg New Energy Finance, given Santander’s expertise and exposure to these markets and the growth in the region, which saw a 43% jump in investment in clean energy last year.
Source: Bloomberg New Energy Finance. Reproduced with permission.
