x Abu Dhabi, UAESaturday 22 July 2017

New investment vehicles can boost green-energy projects

Eco-Money The only way to ensure against future blockages in the green investment pipeline is the creation of new investment vehicles worldwide to enable a longer-term view of investing in the industry.

Clean-energy projects that could receive funding include the development of low- or zero-emission vehicles, such as personal-rapid transit. Duncan Chard / Bloomberg News
Clean-energy projects that could receive funding include the development of low- or zero-emission vehicles, such as personal-rapid transit. Duncan Chard / Bloomberg News

The future looks bright for clean-energy projects such as the UAE's Masdar City, with new green investment vehicles expected to generate trillions of dollars.

Although governments agree that the world has no alternative but to switch to low-carbon emissions, the clean-energy industry has been dogged by a lack of funding.

Even when funding has been forthcoming for a while, events such as the global financial crisis have shown how vulnerable the sector is to fluctuations in the world's economy.

The only way to ensure against future blockages in the green investment pipeline is the creation of new investment vehicles worldwide to enable institutions and individuals to take a longer-term view of investing in the industry.

As the Middle East tries to move towards creating a market in renewable energy, global financial institutions are preparing to launch bond investment products in some western markets, aimed at financing the development of clean technologies by attracting long-term investors.

Barclays, for example, believes that "green bonds" will help finance low-carbon technology asset-backed securities.

"Green bonds - low-carbon technology asset-backed securities - would provide access to secondary markets for €1.4 trillion [US$2.07tn] of capital required, providing new products for pension funds, individual and other institutional investors," according to a report by Barclays and Accenture.

The technology generated by this level of investment will also accelerate adoption of clean technologies in regions such as the Middle East.

A major area of investment will be the development of smart-grid and smart-metering technology.

Some of the trillions of euros of green investment cash will also go into developing technologies such as those used in the creation of "smart" buildings that monitor, control and reduce energy consumption. Another area of technological development that is expected to attract hundreds of billions of euros in green investment will be directed towards the development of electric, hybrid, biofuel and compressed natural gas commercial road vehicles and fuel-efficient freight vessels.

Once green bonds come to be traded on international markets, attracting financing for clean-energy projects such as Masdar City should start to become far easier.

Masdar City is being built by the Abu Dhabi Future Energy Company, a subsidiary of Mubadala Development, a strategic investment company owned by the Abu Dhabi Government.

Paul van Son, the chief executive of Dii GmbH, a consortium formed by a European group of companies and the Desertec Foundation, says the world's financial markets will come to recognise the hugely attractive long-term investment opportunity presented by clean-energy projects.

Dii specialises in power generation from the sun and wind in the deserts of the Middle East and Africa.

"After 10 to 15 years, desert power is likely to become profitable. This is likely to start a boom period of many years for investors in renewable energy," says Mr van Son.

He also says investing in clean-energy projects will be vastly simplified as a result of new vehicles aimed at attracting smaller investors and powerful institutions.

"As we achieve our aim, investing in energy projects, respecting the requirements of local governments, may ultimately become as simple as investing in the stock market, with a Middle Eastern market in renewable energy investment units," says Mr van Son.

"Our eventual aim is to create a market in renewable energy across North Africa and the Middle East. In the long run, this is really the only way to go because fossil fuels will end one day and nuclear [energy] does not seem to be a safe and affordable option."

But he says he believes that Masdar City will act as a major global catalyst for the development of similar large-scale energy projects in the region.

"Masdar City's role is to act as an inspiration as we are at the very start of the age of renewable energy in the deserts of the Middle East and North Africa."

As new investment vehicles start to open up new avenues of green-energy investment, developments such as Masdar City should start to benefit from new injections of capital.

pf@thenational.ae