With about $6 billion in green debt issued this year already, the market for clean-tech bonds is well on its way to hitting a record $9 billion, topping the $7.5 billion sold in 2010, according to data compiled by Bloomberg.
Institutional investors such as insurance companies and pension funds are the largest buyers of project bonds, according to the Bloomberg survey. The biggest purchaser right now is American International Group Inc., which has bought $308 million since 2011.
Sean Kidney, CEO at the Climate Bonds Initiative, a non-profit organization promoting low-carbon investment, says the sector has now entered the age of bonds. To bring these industries to scale will require tapping the capital markets, Kidney said.
The largest issuer this year was the European Investment Bank, which sold $1.3 billion in green bonds, followed by Washington-based IFC, a unit of the World Bank Group. The IFC plans to sell $1 billion in green bonds every year, according to Evelyn Hartwick, who heads up the IFC’s green bonds program.
Other issues include MidAmerican Solar’s $1 billion sale. The company is a subsidiary of Mid-American Energy Holdings Co., which is controlled by Warren Buffett’s Berkshire Hathaway. The bond sale, issued by Solar Star Funding LLC, will finance the company’s $2.75 billion, 579-megawatt solar project in California.
Bloomberg’s survey included bonds sold by development banks or international finance institutions, where the issuer’s funds are used to repay interest, as well as project bonds, where the bonds are repaid with revenues generated by the project.
Institutional investors are buying this debt in an effort to fund clean tech and address climate change. The debt gives investors a triple-A asset without the risk of the project, while enabling them to invest in a sector they want to develop, said Hartwick. And they would rather do that through debt than through equity right now because it means less risk, she said.
Nasser Malik, head of global structured debt at Citigroup Inc., said insurance companies, money managers and pension funds are increasingly looking for quality infrastructure and project finance projects. “The longer duration of the credits is a good match if you’re managing a liability profile,” he said.
The higher yields don’t hurt. The notes surveyed generally paid higher coupon rates than average rates of recent U.S. and European utility bonds, according to Bloomberg’s data.
Clean-energy investment actually dipped 11% last year to $268.7 billion, after governments subsidies declined. But the market has come back, and Malik at Citigroup, which was the biggest underwriter of green bonds hits year, expects the market to only “grow, deepen and broaden.”
To read the full Bloomberg article cited in this story, click here