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Green Financing: More than a Trend

Soaring energy needs, volatile oil prices and an increased focus on curbing global warming have spurred investments in clean energy, or “green financing,” in the last few years. Indeed, the PEW Charitable Trusts remarked the dawning of a new worldwide industry – clean energy – in 2005, when governments, financial institutions, investors and businesses started pouring money into technologies that would help the world address its energy requirements with a minimal impact on the environment.

Green financing – a roller coaster ride so far

Experiencing more than a 200% increase in growth since 2005, investments in clean energy received a setback in late 2008-09, owing to the global financial crisis. However, 2010 broke all records – at $243 billion, investments were double the figure in 2006 and nearly five times that from 2004. Marking a complete turnaround from the recession hit low of 2009, the main drivers of the rapid growth were China with an investment jump of 30% – the single largest for any country, European offshore wind and solar projects and an increased focus on research and development (R&D).

Asset finance continued to dominate the scene with investments in utility scale projects such as wind farms, solar parks and biofuel plants rising 19% to $127.8 billion. Venture capital and private equity investment also had a strong year, up 28% from 2009 to reach $8.8bn, while public market investment bounced back from the recession driven lows in 2008 and 2009, up 18% to $17.4bn in 2010.

In fact, bolstered by such strong growth figures, a question that begs to be asked is whether 2010 was a flash in the pan or the beginning of a solid, sustainable growth.

The growing energy challenge – particularly in Asia – will lead and sustain future growth in clean energy investments

As long as the world’s energy needs keep growing at a feverish pace, the future outlook of clean energy investments will continue to burn brightly. According to projections by the International Energy Agency (IEA), in the absence of an overhaul of regulatory policies by governments worldwide, demand for primary energy will increase by 40% between now and 2030. Non-OECD countries will account for over 90% of this increase, and China and India together for over half.

According to the Chinese government’s forecasts, the country’s demand for electricity is expected to double by 2020; with the IEA estimating that China will pass the United States around 2025, becoming the world’s biggest spender on oil and gas imports to meet its burgeoning energy needs. No wonder, already in 2009, China replaced the United States to emerge as the leader in clean energy finance and investments for the first time.

This trend is only expected to continue with China leading the way in attracting clean energy investments in the near future.  Along with China, India, Japan and South Korea will account for the lion’s share of investments in 2020 with the Americas and Europe trailing. While the United States will lose its leadership position, it does maintain the potential to attract $342 billion in private clean energy investments over the next decade. Similarly, given its early leadership in clean energy development, the European marketplace is expected to mature, with growth opportunities strongest in Southern Europe and offshore wind.

Financing the green movement

One of the main drivers of the unprecedented growth we saw in clean energy investments in 2010 was the direct result of government intervention. To combat the slowdown, governments were quick to create incentives to encourage activity in the space – whether this was in the form of cheap debt in China, feed in tariffs for solar projects in Europe or a more concerted push towards smart grids and other smart technologies such as electric vehicles, countries with more well-defined policies leapt to the front of the race.

Going forward, the future trajectory of investments in clean power projects will be determined by the strength of policies adopted by G-20 countries. In fact, according to a recent report brought out by the PEW Environment Group, if clean energy policies are strengthened significantly in the coming years, as much as $2.3 trillion stands to be invested in clean power assets over the next 10 years.

The on-ground situation already seems to reflect a certain enthusiasm for clean energy investments. Mercer, a global consulting firm, states in a report entitled “Top Investment Trends of 2011” that  across markets, environmental, social and governance factors are increasingly being integrated into investment decision making today. Furthermore, climate change is becoming a driver of investment risk mitigation and opportunity, with investors directing capital to “sustainable” themed investments such as renewable energy and cleantech.

Realizing the twin goals of growth and sustainability

Whichever way you look at it: green financing offers the right answers to the challenges of rising global energy demand, limiting the use of fossil fuel and depletion of natural resources. By tapping renewable energy sources and other environmentally-friendly technologies, it not only facilitates sustainable socio-economic growth but also offers an attractive opportunity to investors around the world. Increasing environmental consciousness across the globe and government support will keep the spotlight on clean energy, driving it into the mainstream in the foreseeable future.

Roland W. Chalons-Browne is President and CEO of  Siemens Financial Services GmbH; Munich. Based in Munich, he is responsible for leading Siemens Financial Services business worldwide. Roland has been CEO of Siemens Financial Services Inc. in the U.S. since October 2005. Based in Iselin, New Jersey, he was responsible for leading commercial finance and leasing business across North America. Prior to joining Siemens, Roland served as Managing Director of WestLB in the Americas from 1989 through 2004, including securitizations of future cash flows, project and structured finance deals, and transactions in natural resources. The Financial Services (SFS) division of Siemens is a global provider of financial solutions in the business-to-business area. With over 2,000 employees and an international network of financial companies coordinated by Siemens Financial Services GmbH, Munich, SFS supports Siemens as well as non-affiliated companies, focusing on the three sectors of energy, industry and healthcare. SFS finances infrastructure, equipment and working capital and act as a competent manager of financial risks within Siemens. For more information see: www.siemens.com/finance.

Roland W. Chalons-Browne
Roland W. Chalons-Browne is President and CEO of  Siemens Financial Services GmbH; Munich. Based in Munich, he is responsible for leading Siemens Financial Services business worldwide. Roland has been CEO of Siemens Financial Services Inc. in the U.S. since October 2005. Based in Iselin, New Jersey, he was responsible for leading commercial finance and leasing business across North America. Prior to joining Siemens, Roland served as Managing Director of WestLB in the Americas from 1989 through 2004, including securitizations of future cash flows, project and structured finance deals, and transactions in natural resources. The Financial Services (SFS) division of Siemens is a global provider of financial solutions in the business-to-business area. With over 2,000 employees and an international network of financial companies coordinated by Siemens Financial Services GmbH, Munich, SFS supports Siemens as well as non-affiliated companies, focusing on the three sectors of energy, industry and healthcare. SFS finances infrastructure, equipment and working capital and act as a competent manager of financial risks within Siemens. For more information see: www.siemens.com/finance.
 
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2 thoughts on “Green Financing: More than a Trend

  1. Hi Roland,

    What resources would you suggest referencing on factors governing the attractiveness of green finance to banks and other financial services providers?

    The huge need for such financing is clear and, as you’ve pointed out, there are policy drivers in a variety of markets encouraging such investment. However, has anyone done a substantive study on the returns which can be realized through investing in various shades of green versus other investments?

    I am working in Jakarta and would be particularly interested to hear any thoughts on the attractiveness of such investing in markets with very few policy drivers to support financing clean energy.

    Thanks for the contribution and I look forward to your thoughts.

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