Development bank finance for clean energy projects could reach further if there was a facility to securitise qualifying loans and sell them onto private sector institutions
London and New York, 3 April 2014 ‒ More than $100bn of development bank finance goes into projects in clean energy, transmission and power distribution around the world each year. In a white paper published today, research company Bloomberg New Energy Finance suggests that the world’s transition to a low-carbon energy system could potentially be accelerated by the introduction of a securitisation facility, which would package these loans into high-rated bonds for sale onto to private institutional investors and sovereign wealth funds.
The White Paper argues that such a mechanism, which it dubs “Big Green Bucket”, could attract money from new sources not currently active in climate-related investment, allowing development banks to recycle their capital more quickly into new loans. A condition of accessing the Big Green Bucket would be that the originating development bank commits would undertake new climate-related lending over and above current business plans.
Michael Liebreich, chairman of the advisory board for Bloomberg New Energy Finance and author of the White Paper, said:
It is striking that development banks are making a lot of clean energy loans, the vast majority of which perform well, but instead of recycling their capital, they are keeping these loans on their balance sheets. Maybe they don’t need any more capital in order to make more loans. If they do, however, then it looks like Big Green Bucket could bring in up to $25 billion of new private sector money for clean energy projects and climate-related investment in developing countries each year.
Over the last five years, finance from development banks such as KfW of Germany, the European Investment Bank, the World Bank/International Finance Corporation and a dozen or more regional lenders has grown steadily. It exceeded $100bn a year for the first time in 2012, and likely did so again in 2013. This money has helped finance a wide range of clean energy projects, from offshore wind farms in the North Sea, to solar parks in South Africa and Latin America, local energy efficiency programmes in Europe, and hydro-electric schemes in Asia.
The White Paper can be downloaded from http://about.bnef.com/white-papers/. It will be the subject of an invitation-only breakfast discussion on the 9th April during the Bloomberg New Energy Finance Summit at the Grand Hyatt in New York. For further information on the Summit, see http://about.bnef.com/summit/.