Energy Finance Report

Apple Leads the Way as Green Bonds Set to Grow in 2016

Posted by Van Hilderbrand on 3/4/16 3:04 PM

Co-author Morgan M. Gerard

Green_Bonds.jpgGreen bonds are fixed-income debt instruments earmarked for environmental or climate change initiatives. As companies undertake more “green” initiatives, including investing in renewable energy generation, the green bond market has grown rapidly. According to Climate Bonds Initiative, in 2015 there were $41.8 billion green bonds outstanding—a dramatic increase from the $2.6 billion in bonds in 2012. In the United States, municipalities and utilities entered the market first through new green offerings; however, it has long been predicted that private corporations with sustainability and other climate change reduction goals would soon flood the market.

Last month, technology giant Apple Inc. entered the environmental financing arena and filed a nine-tranche debt offering, including the Fruit’s first ever green bond. The seven-year bond’s profits will be reserved to develop the company’s green buildings infrastructure and fuel sustainability improvements along its entire supply chain, as well as to increase investment in renewable energy. According to Reuters, Apple’s first bond issuance was $1.5 billion and became the largest green bond to be issued by a U.S. corporation.

Although Green Bonds have Many Benefits, They also have Drawbacks

As more corporations jump into green bond issuances, accounting firm KPMG notes that the financing tool has both benefits and drawbacks. On the benefits side, green bonds “can give issuers access to a broader range of investors,” and “attract new investors focused on environmental, social and governance (ESG) performance.” Additionally, investors may be more comfortable with the green bond model since with these ‘use of proceeds bonds,’ repayment is tied to the issuer, not the project. Therefore, issuers are able to raise capital for riskier projects, while investors are better secured against non-performance. Yet, reporting and transparency are keys to validating the green credentials of the bonds; investors need to know that their bond holdings are financing green endeavors. Thus, KPMG notes that drawbacks of the bonds include the need for more tedious accounting for projects to ensure their “greenness” and the associated additional verification costs.

The Climate Bond Initiative reports that the accounting mechanisms have improved over time and are becoming more standardized and transparent. For instance, the Climate Bond Standard V2 was launched in December 2015, along with the development of sector specific standards on water, geothermal, bioenergy, low carbon transport and low carbon buildings projects. Another key development was the update of the Green Bond Principles to include more emphases on reporting and assurance. These initiatives will work to grow the market by helping companies and investors alike become more comfortable with this financing instrument.

Apple is Changing the Distributed Generation Landscape

Apple’s offering and increased green bond transparency standards will change the landscape as more large energy consumers opt to own or purchase distributed generation rather than to accept what the regulated utility has to offer. Other technology giants are moving to reduce their carbon footprint and increase their energy security as well, particularly in the data center sector. Thus, Apple’s green bond issuance may be a harbinger of things to come as companies turn to green bonds and other innovative financing mechanism to reach their sustainability goals and to fund their investment in distributed renewable energy generation.

Topics: Green Bonds, Renewable Energy, Green Energy, Distributed Generaton, Renewable Energy 2016, Apple

Renewable Energy Remains Poised for a Banner Year in 2016

Posted by Joshua L. Sturtevant on 2/25/16 1:24 PM

Co-author Morgan M. Gerard

Solar_Poised_for_Growth.jpgOpposition to the Clean Power Plan (CPP), promulgated by the EPA and championed by the Obama administration as a path to a cleaner energy future, recently came to a head as the Supreme Court granted opponents a stay halting implementation of the plan. The future of the CPP is full of uncertainty; motivated states on both sides of the debate, the recent passing of Justice Antonin Scalia, one of the votes against implementation, and the tumult created by the presidential election cycle make prognostication a difficult task. However, despite the uncertainty surrounding the CPP, renewable energy remains poised for a banner year in 2016.

The objective of the CPP, as currently constituted, is to reduce carbon emissions through the retirement of coal plants, improve the efficiency of natural gas generation and encourage the development of more renewable energy facilities. Renewable energy proponents had hoped that the implementation of the plan would help to drive the adoption of policies intended to stimulate renewable energy project development, particularly in states where deployment of renewables has lagged behind national averages. However, that hope may be missing the broader point; even with the uncertain fate of the CPP, the market data seems to be pointing to cost reductions as the driving forces behind what has been an extraordinary uptick in renewables coming online in recent years.

While some, particularly large consumers of electricity, have tapped into the commodity price hedge opportunities afforded by solar and wind deployment, and while those in off-grid situations and those with green goals have been utilizing renewables for decades, observers point to price declines which have made renewables more competitive with traditional sources as the main driver behind explosive mainstream adoption in recent years. While renewable install costs were very high in the early to mid 2000’s, the declines since then are nonetheless striking. AWEA has noted a two-thirds drop in wind power costs over the past six years while Lawrence Berkeley National Laboratory reports a seventy percent drop in solar panel cost since 2009. National Laboratory reports also point to a 50% decline in solar installation costs over a similar time period.

The impact of these price declines has been stark, and renewables are well on their way toward reaching the holy grail of grid parity. Renewable sources of power accounted for almost two-thirds of the new electrical generation placed in service during 2015 in the United States according to the Federal Energy Regulatory Commission (FERC). The continuing rise of wind generation was a particular highlight of this past year with the FERC’s December 2015 Energy Infrastructure Update showing that 69 new units of wind power accounted for 7,977 MW of new generating capacity (the American Wind Energy Association’s (AWEA) estimate was 8.6 gigawatts) – nearly a third more than the 50 new units of natural gas providing 5,942 MW of added capacity. Other renewable sources also scored well in 2015, with solar adding 2,042 MW of capacity, biomass adding 305 MW, hydropower adding 153 MW, and geothermal steam adding 48 MW. On the other hand, concerning conventional resources, FERC reported no new capacity at all for the year from nuclear power, 15 MW from oil and one new coal unit producing 3 MW.

Though it is early, the trend of new capacity being comprised mostly of energy from clean sources seems to be continuing into 2016. In January Invenergy reported that it signed a 225 MW wind power purchase agreement (PPA) with Google to provide the latter’s facilities with renewable energy to help support its data center operations. Other tech giants have also been focused on going solar in 2015, with Apple announcing that it will buy $848 million worth of solar energy from a First Solar-owned 130MW power plant.

Despite cost declines and national trends, there are still some states where adoption of renewables has lagged significantly. The ‘stasis trend’ is most predominant in the Southeast and the gulf region. It is also true that some states which had recently favored renewables have implemented regressive policies, typically at the behest of large utilities. Nevada provides a recent example as the state’s public utilities commission (NPUC) cut net metering payments by half while simultaneously raising the fixed fees for solar customers to around 40% by 2020. Because of these negative local approaches to solar, a permanent stay of the CPP, with the loss of a national mandate as a result, will certainly be a negative development in the short term for renewable progress. That said, and given both the price declines that have made renewables competitive with other generation sources and 2015 development trends, renewable energy appears positioned to make equally great strides in 2016. Even without the underlying certainty that would be provided by an unchallenged CPP, consumers, financiers, and regulators have received the message that renewables are an efficient, financeable and profitable proposition.

Topics: Solar Energy, Renewable Energy, clean power plan, Renewable Energy 2016, Wind Energy

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