Investment in Renewable and Efficient Energies is the order of the day throughout the world. People are becoming more sensitive to their surroundings, which has resulted in more companies adopting environmentally friendly business practices and becoming sustainable green businesses. Becoming a green business has been a wake-up call for many companies and for some companies it was already a mentioned market trend that they recognized quite early on.
Following the global financial crisis, a more diverse funding market is emerging in many countries. Established investors are helping to fill the financing gap lost by the crunch in bank lending at the start of the crisis, particularly in long-term financing for infrastructure projects, and are sitting alongside banks to offer a broader pool. capital to developers.
The economic climate that overcame the financial crisis of increased regulatory oversight and a persistently low interest rate led pension funds and insurance companies to seek an alternative source for long-term stable investment.
Extensive evidence shows that renewable energy and energy efficiency are booming sectors for business. According to one report, 190 of the Fortune 500 companies collectively saved about $3.7 billion through their collective renewable energy and energy efficiency initiatives.
With the growing streak of this trend around the world, there is an increase in debt financing in the market by established investors, mainly for infrastructure project and more conventional renewable energy assets, including solar photovoltaics, onshore wind power and bioenergy. Established investors looking to match long-term investments, index-linked liabilities and safe higher returns compared to currently available bonds are attracted to the stable, long-term, index-linked asset class.
Considerable investment has been made in operating assets through which investors have assumed a greater risk capacity. However, like the banks, there seems to be very little appetite for development risk factors. Established investors are moving faster to their bank counterparties by being able to provide redemption profiles and phased withdrawal lines that are suitable for these types of financial markets.
Investments by non-bank institutions have often been made through the purchase of participation in the secondary debt trading market or in the bond markets. However, a debt market facilitates private placement (PP) which is a small group of sophisticated investors that has been slowly developing.
The private placement market will completely replace other forms of financing for renewable projects. There are already long-established private placement market groups in many countries for corporate debt. Since the financial crisis, smaller national markets have also developed. To help foster the development of the private placement market, the loan market association published a set of standardized documentation for private placements in many countries to provide an appropriate framework. These suits are expected to help increase market confidence and encourage investment by reducing the time and costs often associated with current private placements in certain countries.
Some efforts are made to simplify and make the process more transparent by using more private placements. The governments of several countries have announced a tax exemption for private placements, this will help encourage both borrowers and institutional investors to invest in the capital market.
Many countries now support the growth of the renewable energy sector and help encourage greater investment in energy infrastructure, renewable energy and fossil fuels. Attracting cross-border investment and minimizing reliance on traditional bank debt will further encourage institutional investment for the key sector, helping to spur growth and resilience in several economies.
Banks are also returning to the market, which showed a substantial increase in long-term credit lines offered by banks for renewable energy projects. In addition, many banking facilities are likely to retain an important role alongside established investors by providing ancillary facilities and depository services. This includes servicing letters of credit lines and working capital that non-bank investors are unable to provide to investors. Also, the role of the bank is to provide trustee and agency services in case the funds are ill-equipped.
The predictable sustained growth of institutional investment, coupled with the return of bank debt and other innovative financing structures, is creating a deeper impact on the capital market for renewable energy projects. Investors looking to invest in green businesses are facing increased opportunities from future prospects, which is only a matter of time. Clean energy is just the tip of the iceberg. A recent study shows that companies could earn around $12 trillion by 2030 in business revenue and savings by adopting low-carbon and sustainable business models. Investors around the world are taking note, as green bonds are increasingly seen as smart investments.
