Rising Momentum for Sustainable Infrastructure Deployment in 2017

When representatives of most of the world’s nations met at COP22 in Morocco in November, they showed continued momentum towards cutting greenhouse gas emissions by implementing the Paris agreement. That deal, forged at COP21 in Paris in 2015, calls for hard targets to limit the increase in the Earth’s temperature to “well below” 2 degrees Celsius.

With U.S. participation now in question, more than 600 global companies, with over $1 trillion in combined annual revenue, this week released a statement urging President-elect Donald Trump, his administration and Congress to implement goals set by the Paris Climate Agreement. Among the signatories are names like Dupont, General Mills, HP, Johnson & Johnson, PG&E, VF Corporation, Intel and Unilever.  “We want the US economy to be energy efficient and powered by low carbon energy,” reads the statement, released on Jan 10.

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In contrast to the U.S., China, the world’s biggest greenhouse gas emitter, asserted at COP22 that it will honor its promises to limit climate change.

In fact, China recently committed to investing $360 billion in renewable energy annually through 2020, which will create more than 13 million jobs in the sector and curb its greenhouse gas emissions, according to an announcement by its National Energy Administration last week. The types of renewable energy projects receiving the investment include solar, wind, hydro, tidal and geothermal.

Cities Will Be a Key Driver

Despite President-Elect Donald Trump’s statements denying climate change, American cities will continue to enact climate policies, former New York Major Michael Bloomberg argued in an opinion article in November. The U.S.’s achievements in fighting climate change have never been primarily dependent on Washington, according to Bloomberg. Progress instead has been driven by cities, businesses and citizens, he says.

Bloomberg leads the Compact of Mayors, an organization which includes 400 cities committed to implementing policies to fight climate change.

This commitment by cities is driving interest from technology firms such as Microsoft, IBM and Google to invest in innovative smart city projects focused on clean transportation, buildings, water and waste, such as those we uncovered here.

And Asia is increasingly become home to smart city hubs.  Siemens says it will build a new “Smart Eco Technology Demonstration Center” at a smart city currently under development in Guangzhou in southern China. It also co-authored a report with Citibank that says cities around the world need to invest a combined $57 trillion in their infrastructure to combat the effects of climate change.  The report explores the various ways these projects will be financed, including green bonds, equity capital, international and regional climate funds, city government-backed funds, international financial institutions and agency finance, and emissions trading programs (read more here.)

Key Adoption Trends Continue

Prices for energy technologies including solar, wind and battery storage continue to drop, making them more economical to adopt by both residential and corporate markets. That’s expected to lead to a continued increase in clean technology projects and financing.

In the U.S., wind prices have seen a 60% drop since 2009, while solar has fallen 70% since 2009, according to the U.S. Department of Energy.  Battery prices have fallen 35% over the past year.

Solar and wind now cost the same, or less, as new fossil fuel capacity in more than 30 countries, according to a December report by the World Economic Forum.

As prices for solar and wind power continue to fall, two-thirds of all nations will reach “grid parity” within a few years, even without subsidies, according to the report.

These trends are driving a strong desire for financing sustainability projects from banks and project financiers.

Banks Issue Big Sustainable Financing Goals

Goldman Sachs committed $150 billion to clean energy financing and investments by 2025, a sharp increase from its prior $40 billion target. The company had already mobilized $37 billion of capital for solar, wind, smart grid and other clean technologies by 2015.

Goldman’s focus is on the low carbon technologies it feels will have the greatest potential to attract large-scale financing and further deployment including: onshore wind, solar photovoltaics, light emitting diode (LED) lighting and electric vehicles.

Goldman is developing new financial instruments to fund green infrastructure projects, such as the DC Water and Sewer Authority’s first Environmental Impact Bond (EIB) to fund its DC Clean Rivers Project, a $2.6 billion program to control stormwater runoff and improve the district’s water quality. The $25 million, tax-exempt bond was sold in a private placement to the Goldman Sachs Urban Investment Group and Calvert Foundation in September.

In 2015, DC Water worked with Goldman Sachs to issue $350 million in taxable green bonds, the first 100-year maturity ‘green century bond,’ to finance the district’s water infrastructure projects.

Citigroup, meanwhile, has committed to $100 billion to lend, invest and facilitate climate change solutions, including energy efficiency and renewable energy, by 2025.

In response to demand from institutional clients, Citi is developing new sustainable investment products, including collateralized loan obligations for distributed generation assets, REITs and MLPs, according to Marshal Salant, head of Citi’s alternative energy finance group.

Citi worked with project developer Renew Financial on the world’s first securitization of a portfolio of energy efficiency loans, issued as an asset-backed security in 2015.

Capital is Flowing from New Institutional Sources

Major private equity firms are focusing on sustainability projects driven by institutional investor’s desire for real assets and critical infrastructure: 

- KKR’s $3.1 billion infrastructure fund, closed in 2015, has invested in efficient water and wastewaster systems as well as renewable energy projects.

- Macquarie Capital supplied $200 million in equity project financing for distributed energy storage firm Advanced Microgrid Solutions (AMS) last July.

- Starwood Energy Group invested $100 million in Stem Inc. for distributed energy storage in August. It also backed VionX, which focuses on utility scale energy storage. Starwood is increasingly focusing on solar, wind, and battery storage projects, according to Brad Nordholm, senior managing director at Starwood.

- BlackRock raised a new $680 million European renewable energy fund in August. The head of its North American Investment team, David Giordano, recently outlined renewable energy projects’ attractive features for investors, which include stable cash flows, high returns and portfolio diversification benefits.

- TIAA launched an $8 billion real assets investing division in early 2016 and is investing in innovative renewable energy projects, such as projects that capture landfill methane and turn it into renewable fuels.

Pension funds increasingly are looking to make direct investments in sustainable infrastructure:

- The California Public Employees’ Retirement System took a 25% stake in Desert Sunlight Investment Holdings last March. The company owns two solar photovoltaic power generation facilities near Palm Springs with a capacity of 550 megawatts.

- The New York City Retirement System’s $160 billion pension fund plans to invest 20% of its $1.7 billion infrastructure portfolio into renewable energy, with an increasing amount being invested directly into projects, rather than through funds, according to its head of infrastructure investments Petya Nikolova, speaking at a conference in June.

New financiers are providing financing solutions for sustainability projects:

- Private equity firm Orion Energy Partners is providing “flexible capital” in the range of $50 million to $150 million for energy infrastructure projects, including renewable energy and energy storage. The company will take on riskier, more structured and bespoke projects than traditional financiers, said cofounder and managing partner Gerrit Nicholas, speaking at a conference in June.

Generate Capital has built a portfolio of sustainable infrastructure projects worth about $500 million over two years since its launch in 2014. Its financing products include asset-backed lending, project finance, asset warehouses and other short-term financing, as well as other custom financing products. Generate’s “resource-related” project focus includes solar PV, solar thermal, energy efficiency, biomass, agriculture and wastewater, according to the firm’s founder Jigar Shah, who previously founded SunEdison. Generate is also the primary project finance backer of distributed energy storage firm Stem Inc., which has raised a project finance pool of $350 million.

Large Corporates Investing in Sustainability

Lockheed Martin launches waste-to-energy projects:

In October, Lockheed Martin signed an agreement with CoGen Ltd to develop energy-from-waste projects in the United Kingdom, starting with a new plant in Cardiff, Wales. Lockheed Martin will lead the engineering, procurement, manufacturing and construction of the plant and use technology from Concord Blue to convert waste to energy through a process called advanced gasification.

The facility will convert waste into up to 15 megawatts of energy, using approximately 150,000 tons of waste per year, significantly reducing the need for landfill use. Construction is expected to begin in 2018, with operations starting in 2020.

And in September, Lockheed  opened a new bioenergy facility in Owego, New York. The facility also uses Concord Blue’s waste-to-energy technology and will power Lockheed Martin’s operations in Owego, where it designs and builds space-flight hardware, military helicopters and fixed-wing aircraft.

Pepsi cuts water use by 25%:

In October, PepsiCo issued its 2025 sustainability goals which includes water efficiency as its key theme. It aims to increase water use efficiency of its direct manufacturing operations by 25% by 2025 while reducing greenhouse gas emissions across its value chain by 20% by 2030.

Pepsi said in August that its previous water conservation efforts had saved the company more than $80 million between 2011 and 2015 and that in 2015, it reduced its operational water use per unit of production by 26% versus a 2006 baseline.  

MillerCoors becomes landfill-free:

In September, MillerCoors announced that all eight of its major breweries have earned landfill-free verification from the global nonprofit public health organization NSF International, and that it is the first beverage company to have all its major breweries verified as landfill-free. By 2020, the company aims to achieve landfill-free operations at all its major manufacturing sites in the U.S.

In 2015, its brewery in Trenton, NJ opened a facility that creates a protein ingredient for use in fish and animal nutrition made from brewery wastewater using technology developed by Nutrinsic, which creates protein through the upcycling of unused nutrients in food product waste streams.

Google goes 100% renewable in 2017:

In December, Google announced that it will reach its 100% renewable energy target by 2017 by powering its data centers and facilities with renewable energy and implementing energy efficiency measures. It also announced a new commitment to achieve Zero Waste to Landfill across its global data center operations, with six of its 14 sites achieving 100 percent diversion rates.

Walmart pushes sustainable packaging:

Walmart is another large corporation with zero-waste goals, and achieved an 82% diversion of materials from landfills in 2015 by eliminating waste in its operations, promoting improvements in package and product design, and expanding recycling infrastructure. In October, it implemented a new policy to drive more sustainable packaging by its suppliers.

Western Cleantech Developers Working with Chinese Partners

China has made a major commitment to cleantech investment by saying it will keep energy consumption within 5 billion tonnes of standard coal equivalent by 2020, according to its new five-year plan published last March, as we reported.

It’s the first time that the country has put a cap on energy consumption in a five-year plan, reflecting the importance China is placing on cleaning up its environment.

We have been covering this trend and outlined the biggest opportunities for western clean technology developers in China in this article.

Here are some partnerships announced in 2016 that showcase this trend:

- Boston-based Oasys Water, which offers osmosis desalination technology, is deploying three new wastewater treatment projects in China with its Chinese partner, Beijing Woteer Water Technology. They are providing a Zero Liquid Discharge water treatment plant for process effluent streams at the $3.1 billion coal-based methanol petrochemical plant under construction in Inner Mongolia.

- Scottsdale, Arizona-based NexSteppe announced a partnership in China with the soil remediation subsidiary of China’s leading seed company, Longping Hi-Tech. Under this agreement, Longping will provide exclusive distribution, marketing and sales for NexSteppe’s Palo Alto biomass sorghum hybrids in China for the bioremediation and biopower markets.

- Oakland-based BrightSource Energy, which deploys solar thermal technology, signed a deal to sell its technology to a 135 megawatt Chinese project owned by a by a subsidiary of China’s State Power Investment Corp. China is aggressively building solar thermal farms as well as a massive number of solar panel farms.

- Washington-based UniEnergy Technologies, in partnership with China’s Rongke Power, is working on the world’s largest battery.  The 200 MW (800 MWh) vanadium flow battery is intended to provide peak shaving, grid stability, load management and emergency power to northeast China’s Dalian peninsula and is expected to be fully operational by 2020.

- New York-based wastewater treatment technology company Xylem won a contract to help build and equip a 31 hectare underground wastewater recycling plant in Beijing. The new plant is intended to ease sewage treatment pressure in southern Beijing and to improve the water quality of the Liangshui River.

 

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