Bloomberg New Energy Finance - Week In Review

This Week In Review was sent on Tuesday 22 July.

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CLEAN ENERGY INVESTMENTS IN Q2 SIGNAL 2014 AS REBOUND YEAR

Clean energy investment continued to be on the upswing in the second quarter of the year, building on the momentum seen in the first quarter. Investment was up 9% at $63.6bn during the April-June period, with China leading the list of countries pumping money into the sector, followed by the US, according to the latest quarterly update from Bloomberg New Energy Finance.

The numbers raised expectations that this year will see an increase in investment after two years of declines. “We are expecting the full-year figures for 2014 to show a clear rebound in global investment in clean energy," said Michael Liebreich, chairman of the advisory board at Bloomberg New Energy Finance.

The stand-out deal of the quarter was the $3.8bn financing of the 600MW Gemini offshore wind farm in the North Sea, off the coast of the Netherlands, the largest investment decision ever in renewable energy (excluding large hydro-electric). The transaction involved the developer ‒ Canada’s Northland Power ‒ plus three other equity investor groups, 12 European, Canadian and Japanese commercial banks, the European Investment Bank, a Danish pension fund and three export-credit agencies.

Further details about investments during the quarter can be found in the fact pack available for download on our site, bnef.com.

Into the third quarter of 2014, and Dong Energy, the biggest developer of offshore wind farms, sold a 50% stake in a German project to four Danish pension funds led by PKA last week, making 840,000 savers co-owners of the farm. The 252MW Gode Wind 2 project is due to start construction next year and begin operating in 2016.

Offshore wind is also gaining traction in markets beyond its heartland of Europe. The US Department of the Interior announced an auction of about 344,000 acres off the coast of New Jersey for offshore wind energy development last week, an area that could host as much as 3.4GW of capacity. Companies can submit applications by 19 September.

China set out an ambitious plan in 2011 to build 5GW of offshore wind in four years, but less than 10% of that capacity is in place currently. The target for offshore wind “definitely can’t be attained,” said Li Junfeng, director general of the National Center for Climate Change Strategy and International Cooperation. 

Coming back to Europe, German development bank KfW raised EUR 1.5bn through its first ever green bond last week, and is considering further sales. The bond was sold to 90 investors following strong demand that took orders to EUR 2.65bn, the state-owned lender said in a statement. It matures in five years and will pay an annual coupon of 0.375%. The bank’s issue is the second-largest to date, only trailing GDF Suez’s EUR 2.5bn bond sale in May. 

On the buy side, Switzerland's largest insurer Zurich Insurance Group said it planned to allocate as much as $2bn for green bonds, doubling its planned investment announced earlier, citing their growing appeal in Europe. Other investors snapping them up include Nordea Bank and BlackRock. The securities offer returns and risk levels comparable to traditional debt of the same maturity and rating. 

Bloomberg New Energy Finance expects the total volume of green bonds issued to cross $40bn if the current pace is maintained, almost tripling the $14bn issued in 2013. Additional details can be found in our Green Bonds Market Outlook published last month. 

The week also saw another successful listing of a "yieldco" ‒ a company whose main purpose is to buy and hold operational assets and pass the majority of its cashflows to investors in the form of dividends. TerraForm Power ‒ which owns and operates solar farms built by SunEdison ‒ surged on its listing on Friday. It raised $501.6m in its initial public offering.

The headlines in the carbon market came from Australia. Prime Minister Tony Abbott’s government won final approval from Parliament to scrap a levy about 300 companies paid for their carbon dioxide emissions. The move leaves Australia, the largest polluter per capita among industrial nations, without a system for reducing greenhouse gas emissions. 

South Korea meanwhile plans to start carbon trading in January, but with some reduction in the penalty on companies that emit excessive greenhouse gases, news reports said, citing unnamed government officials.

The other important policy news came from India, which reinstated accelerated depreciation for wind farms. Bloomberg New Energy Finance estimates an additional 300-600MW of capacity could be installed this year as a result, and at least 800MW per year subsequently.

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Global clean energy investment surged to $63.6bn in Q2 2014, up 33% compared to Q1 2014, BNEF says

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Q&A of the week

Yieldco wannabes have 'stars in eyes'

More and more renewable energy developers are looking to sell shares in so-called yield vehicles for their power plants on the heels of several successful initial public offerings over the past year.

Recently, NextEra Energy, the biggest US operator of wind turbines, launched NextEra Energy Partners – a yield vehicle for its renewable power plants – on the New York Stock Exchange on 27 June. The vehicle, known as a yieldco, has become a popular financing mechanism among developers in North America and Europe, including NRG Energy and Abengoa. Yield companies are structured as a separate business to own and operate power plants. 

The model offers developers cheap capital to build renewable energy projects and investors high-yield dividends. “[There are] a lot of stars in a lot of people’s eyes now about doing these things,” said Greg Jenner, a Washington, DC-based partner at Stoel Rives and co-chair of the law firm’s energy team. 

Jenner told Clean Energy & Carbon Brief why the yieldco trend is still in a “boomlet” period and far from its peak.

Q: What exactly is a yieldco?

A: A yieldco is not very different than any other corporation in the United States. The difference between a yieldco and other types of corporations are the types of assets that they invest in, and the types of returns they’re promising to deliver to investors. 

Q: What are they designed to do? 

A: From a strategy point of view, they’re looking to acquire assets: renewables and even traditional energy sources that have long-term power purchase agreements associated with them. This means the investors can bank on this steady stream of cash flowing through the yieldco [from] these various investments for a long period of time. 

Q: What’s the big driver for this trend and have we seen anything like it before? 
A: [Project] developers are looking to cash out their investment not just to get out of the business, but they want to…

This is an excerpt from the Clean Energy & Carbon Brief published weekly. To subscribe to the Clean Energy & Carbon Brief, click here.

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