Thirteen banks have pledged support for new guidelines on green bond issuance. The so-called “Green Bond Principles” include guidelines for the use of proceeds of green bonds, process for project evaluation and selection, management of proceeds and reporting.
Bank of America , Citigroup, Crédit Agricole, JPMorgan Chase, -- the four banks that drafted the new guidelines are joined by BNP Paribas, Daiwa, Deutsche Bank, Goldman Sachs, HSBC, Mizuho, Morgan Stanley, Rabobank and SEB.
The banks, according to a press release, defined green bonds as instruments in which the proceeds are exclusively applied (either by specifying use of proceeds, direct project exposure, or securitization) towards new and existing green projects. These are defined as projects and activities that promote climate or other environmental sustainability purposes.
Sean Kidney, CEO of the Climate Bonds Initiative said the progress made on the Green Bond Principles, is "a big development." "With even more banks expected to now sign up to the Principles they are likely to have a major impact on development of the market,” he said.
In November 2013, SolarCity securitized 54.4 million of “sunshine bonds” backed by cash flows generated from a pool of 5,033 photovoltaic (PV) systems and leased to U.S. homeowners. The deal is expected to be open the door for similar issues over 2014.
In December Hannon Armstrong Sustainable Infrastructure Capital, Inc. sold a $100 million asset-backed securitization of cash flows from over 100 individual wind, solar and energy efficiency installations, all with investment grade obligors.
Haresh Patel, CEO of Mercatus, the software solutions provider for the energy finance industry, believes securitization is likely to feature as a key financing alternative to fund commercial solar projects as manufacturers look to move away from the government subsidized, investment tax credit. The ITC is a 30% tax credit for solar systems on residential and commercial properties, set to be reduced in 2016.
Moody’s Investors Service published a research report today on commercial Property Assessed Clean Energy (PACE) loans as a potential new asset class for securitization.
These loans are issued to property owners to finance renewable energy projects and energy efficiency improvements. “PACE loans would constitute another new asset class in the growing clean energy financing sector, which already includes solar contracts, although the two differ significantly,” according to the report.