Tuesday, March 10, 2015

How Creative Investments Are Funding Climate Change Innovation (Repost)

Here's a quick repost that gives some nice overview information of some of the latest developments By Bloomberg Custom Content, An Energy Realities Partner. Sourced from Forbes:

When international energy companies target their investments, they are primarily interested in finding the most prolific sources of energy, but variables such as distance to market, property rights and the conditions on the ground all factor into discussions of whether to green-light spending.

“Investment decisions aren’t just about where the energy is,” says Eirik Wærness, Chief Economist at Statoil. “There are tax systems to consider, as well as oil property rights, relationships with the local government, availability of supplier industries and possibilities of cooperating with local resource holders and local employers. Foreign-exchange rate risks also play a role in countries that have a history of an erratic foreign-exchange rate policy.”

And then there are places that don’t have much in the way of traditional energy resources at all, but still attract investor interest. Chile, for example, is a South American anomaly, lacking oil and gas resources. Still, Chilean President Michelle Bachelet hopes to move speedily toward her goal of having “45 percent of our energy come from clean energy resources by 2025.” Last August marked the opening of the El Arrayán wind facility, several hundred miles north of Santiago. The 115-megawatt wind farm is built to supply clean, renewable power equal to the needs of approximately 200,000 Chilean homes each year.

Public and private financing
Canadian “yieldco” firm Pattern Energy built, operates and partly owns the El Arrayán wind farm, and owns interests in 10 other wind-power projects. Investors greeted the company’s 2013 IPO warmly, attracted to its dividend-based value proposition, which, similar to the model of a REIT, avoids or minimizes taxation at the corporate level.

The same sort of investor would look hard at AAA-rated World Bank Green Bonds, which use funds from fixed-income investors to support the World Bank’s financing of projects that mitigate climate change. Since 2008, through the Stockholm bank that administers its Green Bond program, the World Bank has raised more than $7 billion to lend to eligible initiatives.

New power generation is a facet of Green Bond funding, although most of its projects represent a mix of climate change-related activities. Along China’s vital inland waterway, in Jiangxi Province, renewable hydropower construction is one such project and part of a larger plan that would also shift freight transport from land to water, reducing fossil fuel consumption and thus CO2 emissions.

The private sector on its own can do much to finance energy innovation. A prime example is California-based SolarCity SCTY -1.21%, which has doubled its residential solar-power installations multiple years running—and in the process gone public and acquired a leading solar-panel manufacturer. The financial transaction that underpins SolarCity’s business model is a long-term solar lease signed by each customer, with excess cash flow generated by the lease payments, net of the cost to build the system.

Back in Chile, in a desolate area that is said to receive more solar irradiance per square meter than anywhere else on Earth, a utility-scale solar-power facility is planned. The project, in the Atacama Desert, just had its construction funding approved by two hybrid finance organizations—the U.S. government’s Overseas Private Investment Corporation (OPIC), and the International Finance Corporation, an autonomous lender owned by the countries of the World Bank Group—and shows yet another way in which innovative financing is helping to create the future of energy.

This content is Bloomberg Custom Content, commissioned by Statoil. It previously appeared on the Energy Realities blog.