Green Investment Bank May Offer U.K. Project Bonds to Spur Deals

The U.K. Green Investment Bank says it may develop project bonds to finance clean energy as it seeks ways to bolster investment in emissions-cutting ventures.

While project bonds aren’t typically used to finance wind and solar in Britain, they are tapped to fund plants in the U.S., where projects are bigger, GIB Chief Executive Officer Shaun Kingsbury said. The bank could amass debt finance of several smaller U.K. projects for sale to the bond market, spurring similar deals, he said.

“That’s the type of thing we’d like to do -- it’s innovative and it hopefully causes other folks to follow,” he said. “If we could get that away, we would end up seeing a bunch of ‘Me toos’ come out and suddenly there’s effectively an asset-backed green-bond business here in the U.K.”

His comments add impetus to the development of a U.K. project bond market still in its infancy, where $83 million have been issued since 2011 compared with $4.42 billion in the U.S., according to Bloomberg New Energy Finance. The U.K. is seeking institutional investors, typical buyers of the securities where repayments come from cash generated by the venture, to help finance the 110 billion pounds ($177 billion) it needs to build cleaner power stations.

“If you can parcel up, segregate and understand the different risks and present them into something they want to buy, they’ll buy it because it delivers the tool that they need,” Kingsbury said in London this month. “A wind farm is a great opportunity for yield. All the capital goes upfront, it runs for 25 years and you’re able to have index-linked revenue streams.”

U.S. Market

The U.S. project and infrastructure bond market is well developed, according to Fitch Ratings Ltd., which along with companies including Moody’s Corp and Standard & Poor’s Financial Services LLC has ratings for renewable project bonds. Europe, without a “functional” project-bond market, tended to fund ventures with bank lending, it said.

The GIB, based in Edinburgh with a team in London, has 3.8 billion pounds to finance offshore wind, waste and recycling, non-domestic energy efficiency as well as marine power, biomass, biofuels and carbon capture and storage.

It’s already committed about 710 million pounds, which could spur 2.6 billion pounds of additional investment, according to the bank. It supplies debt on commercial rates, can invest equity and provide guarantees.

Deals include loans for the world’s biggest operating offshore wind farm, the London Array off southern England. The bank also advised the government on its investment in the initial public offering of Greencoat U.K. Wind Plc, a company that buys operating U.K. wind farms. The Greencoat model spurred others in Britain and the U.S., Kingsbury said.

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