Alternative Capital Markets Solutions in Renewable Energy Finance

Abstract

The panel “Alternative Capital Markets Solutions in Renewable Energy Finance” was held on May 2, 2014, at IMN’s Second Annual Sunshine-Backed Bonds Conference in New York. The purpose of the panel discussion was to look beyond bank lending, tax equity, and securitization to explore alternative capital markets solutions for renewable energy financing. The panelists discussed several different kinds of vehicles. Real estate investment trusts (REITs) are tax-advantaged vehicles that would require changes to federal tax rules to implement fully for renewable-energy assets, but there are alternative approaches that involve REIT financing for real estate connected to solar installations and debt backed by certain types of renewable energy assets, as well as financing a broader range of renewable-energy assets through taxable REIT subsidiaries. “Yieldcos” are taxable corporations that own renewable and/or conventional power generation assets and raise equity capital from the public equity market or private investors. State-sponsored green banks provide some opportunities for private sector developers, but their in-state focus may limit what they can accomplish at a large scale. The “green bond” market has been primarily focused on “use of proceeds” green bonds, which are vanilla debt issued by an established bond issuer that promises to investors that it will use the issuance proceeds to pay for green energy or sustainable infrastructure projects; they have gained increasing focus from issuers, banks, and institutional investors as issuance volumes have grown dramatically to over $20 billion in 2013. Canadian income trusts are designated by the Canada Revenue Agency to operate as profit-seeking corporations but pay out all their earnings to unit holders before paying taxes.

TOPICS: ESG investing, portfolio theory, portfolio construction