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Monday, 22 September 2014

Environmental Finance 2008

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Environmentalism has come a long way in a short space of time. The cause that was once the preserve of a radical minority has now burst onto the mainstream: bankers and traders have joined the dreadlocked hippies in the belief that the world needs to move to a low-carbon economy.

This change has seen a steady increase in the number of environmental projects being undertaken, from windmills to landfill methane plants. And while there is still little consensus on what proportion of energy consumption can realistically be generated from renewable sources, there is no lack of will in developing alternative power generation capabilities.

The number of options available to developers looking to build “green” energy plants has made life very interesting for the bankers trying to put the financing in place, with each throwing up a different set of challenges. Not only do solar panels require different solutions to windmills, but the jurisdiction involved has a huge bearing on how the financing will be achieved. Regulation, price and incentives differ from location to location.

Investors have been attracted to the opportunities presented by the carbon market and energy efficiency initiatives, and have also found a wide range of options available – from venture capital in the technology space, to the carbon market itself, via the EU Emissions Trading Scheme.

This carbon market, Europe’s flagship environmental achievement, has been particularly successful in capturing the imagination of investors and bankers alike. It is not often that a new market emerges, and rarer still that it is wholly driven by regulation.

This year the scheme entered its second phase. The spotlight was on the scheme after the price of carbon credits collapsed in the final months of Phase I, but the response has been positive: carbon credits are trading in a range that most describe as fair value, while liquidity has been improving steadily.

With two presidential candidates in the US paying lip-service to the benefits of a cap-and-trade system, there is less debate now about whether the EU ETS will survive: the talk is about how long it will be before it is joined by other schemes outside the EU.

For now, Europe retains its position as the world leader in environmental finance, but internal competition remains within the continent, driving innovation. Frankfurt remains the European capital for environmental listings, while Spain has won many admirers for its leadership in developing alternative energy production.

But if the coming years prove as revolutionary as those just passed, there is every chance new countries can force their way onto the environmental top table.

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