Oecd 2015d business and finance outlook oecd

Info icon This preview shows pages 25–27. Sign up to view the full content.

View Full Document Right Arrow Icon
OECD (2015d), Business and Finance Outlook , OECD Publishing, Paris. Standard & Poor’s Ratings Services (2014), Global Infrastructure: How To Fill A $500 Billion Hole, January. UNEP/PBoC (2015), Establishing China’s Green Financing System . WEF (2013), Reducing the cost of capital for green projects . REFERENCES . 23 POLICY PERSPECTIVES Lowering the cost of capital for renewable energy is important because an estimated 50-70% of the costs of electricity generation are in the financial cost of capital 50- 70%
Image of page 25

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
24 . GREEN BONDS: MOBILISING THE DEBT CAPITAL MARKETS FOR A LOW-CARBON TRANSITION Notes 1. For instance, as of October 2015, low contracted prices for electricity generated by solar PV energy include USD 58/MWh in the UAE (IEA, 2015), and USD 38.70/MWh in Nevada, United States (PVTech, 2015). Contracted prices do not always reflect the level of current generation costs due to tax advantages or other financial advantages. 2. While nuclear energy is also a low-carbon form of energy, the focus of this analysis is on renewables. 3. As context, the global project finance market for all types of infrastructure included USD 298 billion in loans and USD 55 billion in bonds in 2013 (S&P, 2014). 4. The spread varies across regions and changes due to economic and market conditions. For instance, as of 11/2015 in the UK (broadly representative of EU and OECD markets as London is the most active project finance lending market globally) the all- in cost of a 20yr project loan compared with a project bond of a similar credit quality (e.g. BBB-) may be roughly as follows: Loan: Libor (~250 basis points (bps)) + ~250 bps credit spread (~5%). Bond: “Mid-swaps” (~150 bps) + ~300bp credit spread (~4.5%). Therefore project loans are more expensive than equivalent project bonds reflecting low yields in the mid-swap market (the benchmark for bond pricing). At the same time, demand for investment-grade project debt in the bank market has been high so credit spreads have been declining, making pricing very competitive with the bond market, but only up to 20 years of loan tenor. Typically banks are not prepared to go beyond 20 years, which is where the bond market is more competitive for project financing and re-financing (Source: S&P, interviews). 5. OECD Global Pension Statistics, Global Insurance Statistics and Institutional Investors databases, and OECD estimates. 6. i.e. those bonds that have been issued and have not reached maturity or been redeemed. 7. For instance, traditional bonds of “pure-play” wind and solar energy companies qualify as unlabelled green bonds. Reasons for not labelling bonds as green may relate to concerns of a lack of standardisation in the market, political or stakeholder sensitivities and concerns over restrictions associated with the label. 8. To tag a bond as “green”, Bloomberg examines bond documentation and official statements for clear indication of an issuer’s intention to both label a bond as green and clearly specify that the use of proceeds advances climate change mitigation or adaptation or promotes other environmental sustainability solutions (BNEF, 2015b).
Image of page 26
Image of page 27
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern