How can renewable energy financiers vastly expand worldwide investment to cut back climate change? On April 9, a panel called "The Future of Financing for Infrastructure" at the Bloomberg New Energy Finance Future of Energy Summit explained the uphill battle financiers face.
According to moderator Peter Sweatman, chief executive and founder of Climate Strategy & Partners, Ceres has said $1 trillion in renewable energy investment is needed to nip climate change in the bud. However, this industry now only receives $254 billion in investment.
To bridge the gap to reach Ceres’s goal, innovation will be necessary, said Rob Cormie, group operations director of Green Investment Bank. "One of our roles is to crowd in capital rather than crowd it out. Our job is to bring in other capital."
Recovering from the Recession
During the recession, banks lacked resources to ramp up investment in renewable energy, said Jim Barry, managing director of BlackRock’s Infrastructure Investment Group. Now that the recession is over, he said, "there's a lot of capital chasing fewer projects." There is now a new surge in capital going to equity funds in particular.
"When I hear there's more capital than what's needed, that's good for me," said Francesco Starace, CEO of Enel Green Power. He said banks are trying to understand where to allocate the money.
Facing Industry Obstacles
However, the renewable energy finance industry faces some entrenched obstacles, including organizations’ preexisting support of the fossil fuel industry. Ben Warren, head of energy and environmental finance at EY, said governments of countries possessing extensive fossil fuel reserves lack an incentive to transition to renewable energy. Barry said investors aren't seeing a massive worldwide movement toward divesting from fossil fuels.
Competition within and across industries makes renewable energy financing more difficult than it might be otherwise. The industry is quite competitive and contains many niches, Starace said. "The sector we're in needs to recognize we're competing with roads and transport," Warren said. "It's a very important role, then, to aggregate capital."
Building Investment Opportunities
The panelists are working on creating attractive investment options. Yieldcos are among the many possibilities the panel discussed. Suzanne Buchta, managing director of debt capital markets at Bank of America Merrill Lynch, said her organization has created a green bond and is watching this market closely. Barry said one can put financing into a classic 10-year structure emphasizing yield over return. Alternatively, he said, one can add pre-construction risk or merchant risk and move the financing into a private equity box.
"You have to create vehicles that investors can invest in," Buchta said. "How can we tailor what we're trying to achieve to meet the needs of your investors and ours?"
Buchta, Starace and Barry all emphasized the need for responsibility in setting up renewable energy financing opportunities. Starace said he has seen some inexperienced companies moving into the market and taking too many risks. Mistakes in this arena reflect poorly on the entire industry, he said. He said companies new to the field should move forward with the appropriate level of caution.
There are many areas for potential improvement and expansion within international renewable energy financing. "Private equity's had a disappointingly limited role," Warren said. He also said there has not been enough engagement yet in the arenas of creative energy efficiency, offshore wind, and software businesses. There has been a renaissance of venture capital in the last 12 months, Barry said, but it isn't going to higher-risk investments.
This article was originally published by the Clean Energy Finance Forum, which is produced by the Yale Center for Business and the Environment. You can subscribe to our newsletter by visiting here.