Following the global financial crisis, a more varied funding market is emerging in many countries. Established investors are assisting in filling the funding gap missed by the shrinkage in bank lending in the rouse of the crisis, particularly in long-term financing for infrastructure projects, and sitting alongside banks to offer a wider pool of capital to developers.
The economic climate overcoming the financial crisis of increased regulatory supervision and persistently low rate of interest led to pension funds and insurance companies in seeking an alternative source for a long-term stable investment.
Abundant number of pieces of evidence shows that renewable energy and energy efficiency are booming sectors for business. According to a report, 190 of the fortune 500 companies together saved around 3.7 billion dollars through their energy efficiency initiatives and collective renewable energy.
With the growing streak of this trend around the world, there is an increase in debt finance in the market from established investors mostly for an infrastructure project and more conventional renewable energy assets including solar PV, onshore wind and Bioenergy. Established investors that are on a quest to match long-term investments, index-linked liabilities and higher secure returns as compared to currently available bonds, are attracted by stable, long-term and index-linked type of assets.
A substantial amount of investment has been made in operating assets through which increasing capacity of risk has been taken by the investors. However, similar to banks, there seems to be a very little appetite for development risk factors. Established investors are moving faster towards banking counterparts in being able to provide reimbursement profiles and staged drawdown facilities that are suitable for this kind of financial markets.
Investments from non-bank institutions have often been through the purchase of participation in the secondary debt trading market or bond markets. However, a market of debt facilitates private placement (PP) which is a small group of sophisticated investors has been slowly developing.
Private placement market will entirely substitute other forms of finances for renewable projects. There are already long-established private placement market groups in many countries for corporate debt. Since the financial crisis, smaller national markets have also developed. To help encourage the development of private placement market, loan market association published a suite of standardizing the documentation for private placements across many countries for providing a proper framework. It is hoped that these suit will help to raise confidence in the market and will encourage investment by reducing the time and costs often associated with current private placements in certain countries.
Certain efforts are taken to simplify and make the process more transparent by turning towards more private placements. Governments across various countries have announced a tax exemption for private placements, this will help in encouraging both borrowers and institutional investors to invest in the capital market.
Many countries now support the growth of renewable energy sector and help in encouraging to further invest in energy infrastructure, renewable power and fossil fuels. Attracting cross-border investment and minimizing dependency on traditional bank debt, will further encourage institutional investment for key sector helping to stimulate growth and aid resilience in various economies.
Banks are also returning to the market which showed a substantial increase in long-term debt facilities offered by banks for renewable energy projects. In addition, many banking facilities are likely to preserve a significant role together with established investors by providing them ancillary facilities and deposit services. This includes catering to letters from credit facilities and working capital which non-banking investors are not able to provide the investors with. Likewise, the role of the bank is to provide trustee and agency with services in case the funds are ill-equipped.
Predictable sustained growth in Institutional Investment, alongside returning bank debt and other innovative funding structures, is creating a deeper impact on the capital market for renewable energy projects. Investors looking to invest in green business are coming across greater opportunities from future perspectives which is just a matter of time. Clean energy is just the tip of the iceberg. A recent study shows that companies could earn around 12 trillion dollars by 2030 in business revenue and saving by adopting sustainable, low-carbon business models. Investors all over the world are taking a note, as green bonds are increasingly seen as smart investments.