ORIGINAL REPORTING: New Opportunities To Finance New Energy
New money: Green banks and green bonds are bringing billions to utilities for the energy transition; The financial mechanisms are bringing investors to renewables and distributed energy as utilities, co-ops and munis move away from uneconomic legacy assets.
Herman K. Trabish, Nov. 19, 2019 (Utility Dive)
Editor’s note: It will take money to drive the energy transition. The alternative is campfires and lanterns.
Hundreds of billions of dollars in untapped new money can finance the U.S. power system's transition away from legacy fossil assets to renewables and distributed generation.
Utilities like Duke Energy and Xcel Energy have issued billions in green bonds to fund renewables development. Green banks in New York, Connecticut and other states are backing investments in distributed resources and energy efficiency. It appears much more institutional money wants in on the green opportunity.
"Green bonds are a capital-raising mechanism that a wide range of institutions could use to raise capital," Coalition for Green Capital Executive Director Jeff Schub told Utility Dive. “A green bank is an institution [capitalized by public funds] that invests capital in clean energy projects. [They] are complementary, capital raising and capital deploying.”
Together, they can attract hundreds of billions in institutional and financial market money to fund utility investments in large-scale renewables and public sector investments in local distributed generation. They can also work together to support utility transitions away from high-cost legacy generation to lower-cost "green" generation, stakeholders told Utility Dive.
Globally, over $788 billion in green bonds have been issued since the concept’s 2007 origination, according to new Bloomberg New Energy Finance data, and new issuances keep coming. Congress is considering proposals for a National green bank, which can help propel the energy transition if it can win the acceptance that major utilities told Utility Dive it deserves.
Only a few leading U.S. utilities have so far responded to the green bond opportunity. Of the approximately $41.6 trillion in U.S. bond obligations at the end of 2018, utility green bonds made up about $10 billion, according to a May 2019 Boston University (BU) paper. But new money wants in, BU reported. U.S. utilities could immediately "issue at least $250 billion to $500 billion in green bonds." Reduced risk could attract more utilities into issuances. Top credit rating agency Moody’s found green project loans "had a 10-year cumulative default rate of 5.7% versus a rate of 8.5% for non-green projects," BU added… click here for more