The Green Energy Bonds Revolution

The First AAA-rated Green Bond was launched in 2008 by the World Bank in response to the demand of Scandinavian pensions funds — since, there has been a world-wide growth of bonds offering investment option across a variety of technologies. What started as a form of supporting climate-friendly projects, has turned into a profitable way of raising capital for many investors across the world.

The origin of the renewable revolution can safely be said to have started in Scandinavia. Denmark and Sweden have not only surpassed European renewable standards, but continue to set an example of an efficient and green way of life to countries across the globe. Albeit the importance of climate change and the exploitation of finite fossil fuels, the effect which finite resources will have on economic return may be more imperative to a capitalist driven society.

Renewables in the UK

Renewable technologies offer a variety of options — some more controversial than others, but all ultimately relying on their independent measures of generating energy. The United Kingdom has been attempting to keep up with their renewable energy targets since entering into the Paris Agreement and implementing the Renewable Energy Directive in 2009. The directive dictates that 20 per cent of the UK’s energy must come from renewable resources by 2020. Albeit predictions of the target short falling by 3.5 per cent, a large demand remains in the UK which continues to be fed as companies continue to invest into varieties of renewables. With the largest biomass plant being built in Sleaford securing £150m for their refinancing, there is major evidence to suggest that the demand for renewable energy continues.

Scotland serves as the largest contributors to renewable energy in the UK, has had a successful decade in developing renewables. In several parts of Scotland, homes fitted with solar PV panels had enough sunshine to generate more than 100% of the electricity needs of an average household. Wind turbines provided 863,495 MWh of electricity to the National Grid during May, an increase of almost 20% compared to May 2016 when wind energy provided 692,896 MWh. Overall the data showed that wind generated enough output to supply 100% or more of Scottish homes on 11 of the 31 days in May.

With the recent announcement from the United Kingdom’s government to ban new diesel and petrol cars by 2040. Ina addition, a recent Bloomberg report estimates that electric vehicles will make up 54 per cent of all light-duty vehicle sales by 2040. Not only the UK, but the world continues to push for sturdier renewable life style. Across the globe, the political turmoil that affected the USA’s withdrawal from the Paris Agreement has been subdued by the coalition that US companies displayed in support of renewables. On August 16th, JPMorgan Chase announced that it will source renewable power for 100 per cent of its global energy needs by 2020. The success of renewables continues to grow across the US across key states, and there is no evidence that key states in the US support president Trump’s views on energy.

Around the World

Source: Bloomberg, Nikko Asset Management estimates

Globally, the uncertainty and cost of fossil fuels has pushed for pleads to the G20 governments to cease the support of oil, gas and coal subsidies which are currently costing their economies $2.76 trillion in health costs. A study from the Health and Environment Alliance (HEAL) evidences that 24.9% of premature deaths are caused by air pollution — all preventable. The poor propaganda behind fossil fuels and the support evidenced towards a better alternative has pushed renewables to develop rapidly. Having one of the most active markets, the Green Bond market has grown from a niche asset class to nearly USD 200 bn (as of 31 Dec 2016). Reports estimate this amount will double by year-end to over USD 400 bn and if the market continues to develop at its current rate, the Green Bond market should exceed USD 1.2 trillion in total issuance and outstanding, by 2020 (see adjacent). With the recent growth of issuance, it will help to meet the Paris Accord at a faster rate.

In conclusion

The UK — and indeed Europe — could learn a lot from Scandinavian renewable energy policies. Harnessing our plentiful renewable resources — both offshore on onshore — makes not only financial sense, but also environmental and social sense. However, the large impact which Green Bonds are making are bringing a perspective which may cater better to investors who are looking for alternative gains.

Elizabeth Frumson © Amio Wealth Limited (August, 2017)

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