It’s never been easier to finance a renewable energy project thanks to green bonds. Read ahead to learn what they are, how C&I companies are utilizing them, and why they’re a smart option for getting your solar project off the ground.
A green bond — also called an ESG bond, sustainability-linked bond, or climate bond — is a special kind of bond and income-earning tool designed to support the development of sustainability initiatives. Green bonds are ideal for companies investing in ESG (environmental, social, and governance) because they are issued exclusively to fund these types of projects. As an added bonus, green bonds issued by municipalities may be federally tax-exempt.
Given their benefits, it’s no surprise that green bonds have taken off. According to the Climate Bonds Initiative, $259 billion worth of green bonds were issued in 2019, a 51% increase from the previous year and the most since the first green bond was issued back in 2007. As IRENA reports, green bond usage is spread over a number of sustainable project types. Leading the pack is renewable energy, to which nearly one-quarter of all green bonds since 2010 has been dedicated. Energy efficiency projects accounted for 19% of green bond usage, and clean transportation rounded out the top three with 14%.
Companies are obligated to use green bonds to fund only ESG-designated projects and need to provide spending reports to investors. Over the past decade, blue-chip companies such as Unilever, Apple, and PepsiCo have all taken advantage of green bonds. PepsiCo in particular is using its bond to make its packaging more sustainable, bolster water recycling, and decrease its greenhouse emissions, which it plans to accomplish in part through solar installations. According to an SEC filing, the $1 billion fixed-rate bonds will net PepsiCo an estimated $974 million, the majority of which is slated to be spent within three years of the bond’s issuance.
While the use cases for green bonds are numerous, IRENA revealed that in 2018 alone, 90% of renewable investments involved wind and solar photovoltaic projects, and more recent findings show that solar specifically accounted for nearly half of all renewable energy investments worldwide between 2013 and 2018. Despite an expected downtick in the solar market in 2020 due to COVID-19 concerns, solar’s future remains bright. IEA’s latest World Energy Outlook projects that solar will become the “new king of electricity” over the next 20 years, and it’s safe to say green bonds are likely to facilitate that future. The Climate Bonds Initiative, which issues standards for the application of green bonds, has approved an array of solar activities for green bond use. In addition to generation and transmission, solar storage projects are also eligible for green bond funding. Storage is an important option to consider for any solar project, protecting your facility from utility blackouts and brownouts.
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