Japanese Retail Investors Fund ADB Clean Energy Projects

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Looming expiration of key renewable energy production and investment tax credits in the U.S. and reduction of Feed-in Tariffs (FiTs) in leading European markets has industry participants searching for alternative means of financing clean, renewable energy projects and installations. There are signs that there’s healthy demand on the part of retail and professional private sector investors, particularly in Japan, in helping finance the transition to clean, renewable energy.

This past week the Asian Development Bank (ADB) sold $339 million worth of a multi-currency series of Clean Energy bonds through Japan-based Nomura International to help finance its renewable energy and energy efficiency projects in the Asia-Pacific region.

Interest rates and bond yields have been very low in Japan for decades, and Japanese investment banks have been successful in selling bonds denominated in higher-yielding foreign currencies to Japan’s retail investors. Through Nomura, ADB last week sold Australian $15.3 million of Clean Energy bonds with 4-year maturities, Brazilian real 147 million of 3-year bonds and Turkish lira 452 million of 3-year bonds.

Key Players in Developing Markets for Clean Energy Finance

Supranational financial institutions such as the World Bank and its regional counterparts have played formative, critical roles in establishing new markets for financial assets that fund their economic and social development initiatives.

ADB exceeded its 2013 goal of making $2 billion a year in clean energy investments in the Asia-Pacific region last year. Its total clean energy investments totaled some $2.1 billion in 2011.

Last week’s clean energy bond issue was the second for ADB. In September 2010, ADB raised some $232 million of investment capital via its inaugural Clean Energy bond issue.

“The healthy sale of the Clean Energy bonds shows a clear desire among Japanese investors to see funds committed to clean energy projects that will help improve the environment but ensure sustainable growth in the region,” ADB’s previous treasurer Thierry de Longuemar commented upon the successful inaugural Clean Energy bond sale.

Like last week’s sale, ADB’s first series of Clean Energy bonds was denominated in a range of currencies and sold to Japanese retail investors. Four tranches of bonds were sold: 4-year Australian dollar bonds; 7-year Brazilian real bonds; and 7-year Turkish lira bonds. HSBC Securities (Japan) was the lead underwriter. More than 20 investment banks joined the underwriting syndicate and participated in selling them.

Clean Energy Transition Hinges on Developments in Asia

Rapid industrialization and population growth make Asian countries pivotal, key players in making a successful transition from carbon-based to renewable, clean energy economies. It’s demand from much faster growing developing economies that’s driving up fossil fuel use, carbon dioxide (CO2) and greenhouse gas (GHG) emissions, increasing the risks and costs of accelerating environmental degradation and climate change.

Though per-capita energy consumption in developed economies is many times that in even the fastest growing developing countries, fossil fuel demand in industrialized countries is leveling off and even declining. Energy efficiency rates in developed countries are also far higher in developed countries as compared to their developing counterparts.

“Asia needs to meet its growing energy needs in ways that don’t pollute the air we breathe or water we drink and to do that, there needs to be more investment in clean energy projects,” ADB Treasurer Mikio Kashiwagi stated upon last week’s bond sale. “The Clean Energy Bonds provide a way for investors to direct funding to clean energy projects.”

Asia accounted for about 27% of worldwide energy consumption as of 2007, and that percentage is on the rise. It’s expected to surpass 40% by 2050, according to ADB, as the region’s population grows and economies and disposable incomes rise. Even as economic development continues at a rapid pace, some 700 million people in Asia still do not have access modern sources of electricity, however, ADB notes.