Green Banking

Realizing Renewable Energy Projects

Jörg Böttcher

• Publisher: De Gruyter Oldenbourg
• Year: 2020
• eBook ISBN: 9783110605693
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

Green Banking is the first guide encompassing all the disciplines necessary to realize renewable energy projects. This book focuses on cost-competitive and mature technologies, and on the processes enabling to develop, finance and execute such utility-scale projects.

The book starts with the aspects relevant for every form of renewable energy. It covers essential themes such as the role of renewables amid a changing energy world, the importance of the regulatory regime, its social acceptance and bankability criteria, to name only a few.

Chapters describe project financings vehicles for a range of renewable energy technologies including solar photovoltaic power plants, onshore wind farms and offshore wind farms. The book give readers a unique perspective on how renewable energy projects are realized, and is a go-to reference manual for understanding how the different project stakeholders act.

All of the articles are provided by authors with an ample experience in renewable energies and many years experience.

This book is especially useful for people working in this industry or students willing to get better knowledge out of their field of experience.

General Section

1 Renewable Energy, Climate Change, and Sustainability

Ulf Moslener

Frankfurt School – UNEP Collaborating Centre for Climate & Sustainable Energy Finance, Frankfurt am Main, Deutschland

Menglu Zhuang

Frankfurt School – UNEP Collaborating Centre for Climate & Sustainable Energy Finance, Frankfurt am Main, Deutschland

1.1 Challenges Related to Climate Change and Sustainability

Climate change is often described as one of the biggest risks facing humanity in the coming decades. As such it is part of the challenges the global society is facing with regard to long-term-sustainability. Both, climate change and sustainability have been raising on the policy agenda and are a driving force for a lot of policies and regulatory interventions. The driver of man-made climate change is known to be the emission of greenhouse gases into the atmosphere. A substantial part of those emissions is caused by energy conversion, mostly from burning fossil fuels – often for electricity generation. As a consequence, policies in order to mitigate climate change – in other words: policies aimed at reducing the emissions of greenhouse gases – are first and foremost targeting the actual emissions, or the activities and sectors which directly generate GHG emissions.

Since the energy and electricity sectors are particularly emission-intense, a significant part of the regulation related to the energy and the power sector is climate-related regulation. In fact, there are considerable overlaps between energy market regulation and climate-related policies. This overview focuses on climate and related renewable energy support rather than energy market regulation.

Therefore, climate change is the reason for a plethora of regulatory instruments aimed at reducing carbon emission by supporting renewable energy. However, increasingly climate change is also one reason for a broader perspective that puts financing in a more direct relation to climate change: Firstly, activities or assets that are financed are increasingly screened and evaluated along the question to what extend they contribute to climate change or to what extent they are consistent with a so-called two-degree target. Secondly, activities or assets that receive funds are increasingly analyzed with respect to the question how their value may be affected by climate impacts or ambitious climate policies.

Indeed, what we observe is a sustainability view increasingly being part of the overall perspective of economic actors, including (civil) society, policymakers, corporations as well as investors and the financial industry. Aspiration to move the world towards a long-term sustainable (including climate resilient, low carbon) future is a global trend. It is one purpose of this section to put the act of “financing the energy transition” in context with this global trend towards a sustainable economic system.

Therefore, the section is structured as follows: Section 1.2 provides an overview on climate policy trends and instruments and how this influences the financing of electricity based on renewables. It touches upon the international policy level for contextual reasons and looks in more detail at the landscape of national-level legislation as this is more directly relevant for the attractiveness of an individual project. That section also examines how some of those instruments – including investment support instruments – may have shaped the banks’ general view towards such projects. Section 1.3 is then focusing on the financial system. Despite the focus on the financial system, this section will broaden the view beyond reducing carbon emissions. As outlined above it will reflect the trend towards integrating a sustainability view into investment and financing decisions. This includes a perspective on climate related risks, broader considerations of risks related to social or governance issues but will also reflect about the consistency of investment decisions with the structural change as it is widely expected (and envisaged by regulator and societies). A number of initiatives at the international level, such as the G20 Task Force on Climate-related Financial Disclosure (TCFD), or driven by the financial centres are illustrating and accompanying this trend. Section 1.4 will conclude by combining the two trends and providing an outlook on some of the questions which remain open – such as how future regulation of the financial system may be influenced by sustainability considerations. Banks will need to navigate within this evolving landscape where new business opportunities will arise, and other business models will disappear. There is change ahead.

1.2 Climate Policy and Renewable Energy

In the past, in most cases the increased use of renewable energy-based power production has mainly been motivated by climate related concerns rather than cost-advantages. Climate policy processes can be observed at all political levels, the global (UN) level, the regional, the national and sub-national levels. Typically, UN-level activities will less directly have an impact on the attractiveness of individual projects but will be one of several drivers of regional or national-level policies.

In this section we will therefore only briefly introduce the UN Climate Process and then provide a general overview on policy instruments at the national and regional level. In parallel we discuss the impact of the different instruments at the project level. We finally consider how this may have shaped the financing banks over time.

1.2.1 The UN Climate Policy Process

The international community established a consensus that climate change would pose a serious threat to mankind already in 1992 at the Rio Summit where the UN-Framework Convention of Climate Change (UNFCCC) was signed by 154 states and entered into force two years later. Since then it is legally binding for major emitters including, e.g., the countries of the European Union, China and the United States. The Convention essentially recognized the need to act, and it introduced the principle of “common but differentiated responsibilities” of industrialized and developing countries.

As common in case of international conventions, further, more concrete action is taken through protocols to the convention. Within the frame of the Kyoto Protocol to the Climate Convention, a large group of countries formulated quantitative emission targets for the industrialized (so-called Annex-I) countries. Despite being signed by many countries in 1997 – including the United States – at the Climate Summit in Kyoto it was not ratified by all of them and entered into force only in 2006 – e.g., including the European Union and China, but without the United States.

In addition to quantitative targets, the Kyoto Protocol also contains elements to implement those targets flexibly – making use of some economic principles that would allow including countries without quantitative targets in the search of the least cost abatement options. In that sense the Kyoto Protocol allowed for so-called “emissions trading” between industrialized countries. It also allowed for the “clean development mechanism” (CDM) which would allow to establish project-based baselines in order to identify emission reductions in developing countries which do not have a quantitative target. These “certified emission reductions,” generated through project investments, could then be used by industrialized countries to meet their own targets. They would therefore carry a value and were supposed to generate cash flows for clean projects in developing countries. The lack of the ability of the international community to establish an emission constraint that would lead to a scarcity and relevant CDM price levels and widespread abuse of the CDM provided a fast end to a market phase where this UN-level regulation actually started to have direct impacts at the individual project level.

A number of years later in 2010 industrialized countries committed to “jointly mobilize” one hundred billion US dollars annually from 2020 on for mitigation and adaptation investment, coming from a “variety or sources” including public and private. The UN Climate process then established the so-called Green Climate Fund (GCF) as a new financial mechanism under the Climate Convention, which would have a dedicated window – the private sector facility – to also finance projects brought forward by commercial finance institutions if they are accredited to the GCF. However, the majority of projects receiving financing from the GCF remained co-financed by public institutions.

In 2015 the inte...

Table of contents

• Title Page
• Copyright
• Contents
• General Section
• Offshore Wind Energy
• Onshore Wind Energy
• Solar Energy: Photovoltaics
• Solar Energy: Concentrated Solar Power
• Index