www.green-edison.
com
Inside this issue:
EXCLUSIVE
Green Edison
VOL U M E 1,
The Art of the
Green Deal: The
market’s view of The Boxer-Kerry Senate Climate Bill
new financial
instruments to Just Not Cutting It
help develop the
The new draft of the Kerry-
new “green Boxer "Clean Energy Jobs
industry,” pg. 16 and American Power
Act" (S.1733), doesn’t incent
big enough CO2 cuts or in-
vest enough in green energy
Efficiency II: technologies, and could un-
dermine a global carbon
The 2nd and market. These policies will
final installment handicap America’s initia-
in a series, Dr. tive to be a global green en-
ergy technology leader.
Branko Terzic
Tis the winter of our discontent.
reviews how
While the introduction of the
programs can “Clean Energy Jobs & American
lower bills and Power Act (S.1722),” by Senators
reduce CO2 Kerry and Boxer was met with
much fanfare, many of the new
emissions, pg. provisions undermine the overall
12 aim of the bill to reduce CO2
emissions and incentivize new
technologies. Further, several
important provisions from the
International House version, such as a Renew-
Carbon Offsets: able Energy Standard, are no-
EcoForge
Managing Wind and Solar
Partner Sagar
Gubbi reviews Green Tech Tsunami
new legislation
Green Edison reviews two
that is getting reports from the US Depart-
India’s carbon ment of Energy and the Law-
rence Berkeley National
market set to
Laboratory on wind and so-
takeoff, pg. 14 lar, respectively, that cover
trends in manufacturing and
the new economics that po-
tential developers will need
to be aware of as a huge wave
GREEN EDISON
IS SU E 6 SP EC IAL
ticeably absent, and there is a lack
of incentives or bonus allowances
to incentivize plug-in hybrid elec-
tric vehicles, which is the best
near-term commercial technology
that could make large scale reduc-
tions in CO2. Finally, the inclu-
sion of a price collar represents a
step-back in the development of a
well functioning carbon market,
as price collars tend to distort
market fundamentals and could
delay badly needed investment in
the sector.
Furthermore, many have argued
that creating a price ceiling in the
US would also make securing a
global agreement on carbon emis-
sions more difficult as the rest of
the world would demand that
they be allowed to abandon their
emissions budgets as well.
In this analysis, Green Edison will
show how even as the new bill
of project funding moves
forward.
The Energy Information Ad-
ministration (EIA) recently
projected that, globally, the
cumulative investment in wind
turbines and solar photovoltaic
panels from now through 2030
could be $2.1 trillion and $1.5
trillion, respectively. This
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
FI NA NC E IS SU E
looks similar to the House Wax-
man-Markey bill introduced
earlier in the year, new amend-
ments and now absent provi-
sions in the proposed legislation
will put the Unites States at a
serious disadvantage in the
global effort to reduce green
house gas emissions.
Falling Behind the World
In late October, in recent hear-
ings on the bill, Department of
Energy Secretary Steven Chu,
showed how there is an enor-
mous market opportunity for
the US to lead in green energy
technologies, even as the coun-
try has fallen behind other
countries in its commitment to
green energy technology and
regulating CO2.
Cont, pg 2
would be a staggering sum for
two industries that have already
been experiencing extraordinary
growth from global climate re-
gimes, the recent US stimulus
bill and in expectation of a US
climate bill being passed in
2010.
But before any would-be devel-
oper jumps into Cont, pg 9
 www.green-edison.com

PAGE 2

Boxer-Kerry Bill, continued from Page 1

The Energy Information Ad-
ministration – an independent
statistical agency within the De-
partment of Energy – recently
estimated the market for a few
key clean technologies. It based
its analysis on a scenario derived
by the International Energy
Agency that could prevent the
worst changes to our climate.
EIA found that, globally, the
cumulative investment in wind
turbines and solar photovoltaic
panels from now through 2030
could be $2.1 trillion and $1.5
trillion, respectively. “The policy
decisions we make today will
determine the U.S. share of this
market. And many additional
dollars, jobs and opportunities
are at stake in other clean tech-
nologies,” he said. But the US is
behind the pack.
“China has already made its
choice. China is spending about
$9 billion a month on clean en-
ergy. It is also investing $44
billion by 2012 and $88 billion
by 2020 in Ultra High Voltage
transmission lines. These lines
will allow China to transmit
power from huge wind and solar
farms far from its cities. While
every country’s transmission
needs are different, this is a clear
sign of China’s commitment to
developing renewable energy.
The United States, meanwhile,
has fallen behind.”
In an Oct. 23 EPA report
(Please click on the link to see
the report) which analyzed
the economic impacts of the
Boxer-Kerry bill (S. 1733), the
study finds that impacts of S.
1733 would be similar to those
estimated for H.R. 2454, the
house bill introduced earlier
in the year, known as the
Waxman-Markey bill. But
while the costs may be simi-
lar, a recent report by the
Deutsche Bank Group’s DB
Climate Change Advisors,
finds that America’s (in fact
the world’s) proposed CO2
cuts may not be enough to
prevent catastrophic climate
change (Please click on the
link for the report).
Deutsche Bank asked the Co-
Chart 1: Deutsche Bank Analysis of World Climate Regimes
lumbia Climate Center at the
Earth Institute, Columbia Uni-
versity, to model the impact on
carbon emissions of each of the
270 climate policies the bank
had gathered around the
world, and then aggregate
them at a country, regional and
global level. According to the
report, this quantitative pic-
ture of what is currently being
done or proposed provided a
reference for policies to be
discussed in the upcoming
negotiations in Copenhagen,
please see chart 1.
According to the report, the
findings show that from an
expected Business-as-Usual
2020 emissions level of 59
gigatons of greenhouse gases,
the maximum reduction that
current policies (even includ-
ing the American Clean Energy
Security Act, or Waxman-
Markey Bill), could achieve
still overshoots a pathway
that might hold global warm-
ing to 2 degrees Celsius by 5 –
7 gigatons. Deutsche Bank
also finds that this is equiva-
lent to the annual emissions
of the US economy. “If global
growth did not slow after
2014, as the International
Energy Agency assumes it
will, we believe this could add
another 7 gigatons to the
overshoot. In order to avoid
catastrophic climate change,
more government action is
required to encourage capital
formation,” the report con-
cluded.
In fact, Green Edison suggests
the Deutsche Bank report
should serve as a wake-up call
Cont., page 4

According to Chu, “the world’s

largest turbine manufacturing
company is headquartered in
Denmark. Ninety-nine percent
of the batteries that power
America’s hybrid cars are made
in Japan.” The United States
manufactured more than 40
percent of the world’s solar cells
as recently as the mid 1990s;
today, the US produces just 7
percent, Chu said.

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON
 www.green-edison.com

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON

VOLUME 1, ISSUE
Kerry-Boxer Bill, continued from Page 2
to American legislators that they
have not gone far enough, and
have given away too much to
energy industry special interests.
Legislators in both houses of
Congress have failed to take-on
the oil lobby and incentivize
plug-in hybrid electric vehicles,
have reversed themselves on a
national renewable energy stan-
dards, backed off the number of
international offset credits
(included a damaging price col-
lar option), and have allocated
too much to carbon capture and
sequestration at the expense of
other promising technologies.
Here we review several aspects
of the Kerry Boxer bill that fall
short.
PHEVs: Where are the
Credits?
Green Edison, in its August
2009 issue, illustrated how a
significant adoption of plug-in
hybrid electric vehicles could
reduce CO2 emissions by as
much as 40 percent in the next
10-20 years. We reiterate
PHEVs are the greatest hope for
Chart 2: The Senate Bill Fails to Support Adequate Energy Tech Investment
GREEN EDISON
www.green-edison.com
6 PAGE
reducing CO2 emissions and
promoting US energy security.
Further, it is the only technology
that is a few years from commer-
cialization that could deliver
substantive, large-scale CO2
cuts.
In fact, Green Edison’s analysis
was more robust than most oth-
ers (using real new car sales
trends) than other PHEV projec-
tions that have used idealized
emission reduction data to de-
termine PHEV penetration and
thus emissions reductions. We
found, in our high growth sce-
nario, which we published in
September, utilities could reduce
over 100 million tons of CO2
annually by encouraging PHEVs
in the Eastern Interconnect
alone. Further, we found PHEVs
represent an opportunity to in-
crease sales and improve load
factors for various utilities.
More so, to create a mass elec-
tric vehicle market, we also ad-
vanced the Battery Electric Vehi-
cle (BEV) Coalitions’ proposal
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
that each BEV receive a life-
time bonus allocation of
allowances thus capturing
the entire life-cycle CO2
reduction benefits of electric
vehicles at the point-of-sale.
This measure would align
profit motives more closely
with pollution reduction
benefits under cap and trade
and would directly reduce
incremental cost, making
BEVs more affordable to
consumers.
We’ve speculated in the past
that the reason such PHEV
allowance programs have
not been advanced in legis-
lative proposals was that the
utilities industry (or even
legislators) did not want to
take on the oil lobby. In our
meeting with PG&E Corp.
CEO Peter Darbee, in late
September, confirmed as
much. When asked why
allowances to incentivize
PHEVs have not been intro-
duced, Darbee answered, “I
do not know specifically
what happened in the proc-
ess but I’m reasonably cer-
tain that [PHEV allowances
4
for utilities] would have gen-
erated a lot of opposition be-
cause presumably that would
shift cars away from the oil
companies to electric utilities.
One could make an argument
that it would shift allowances
from one to the other.”
Darbee, whose company
ranked #1 in Green Edison’s
carbon finance ranking in our
September 2009 edition, has
a vision that PHEVs will likely
be offered through the regula-
tory model where electricity
for PHEVs is subsidized
through the electric utility
rate structure. This was also
the view of Duke Energy CTO
David Mohler in our interview
with him this summer.
But Green Edison and various
other market experts believe
using the public utility com-
mission rate base structure
will serve as a disincentive to
mass adoption of PHEVs, as
utilities would not have a high
enough economic motive to
Cont., page 5

VOLUME 1, ISSUE 6
Boxer-Kerry, continued from Page 4
aggressively roll out an electric
vehicle fueling infrastructure.
Furthermore, allowances are
needed to make PHEVs more
competitive with CO2 emitting
combustion engine vehicles by
placing a value on CO2. In
2007, America spent more
than $360 billion importing
fossil fuels, with the vast ma-
jority of that money spent on
crude oil, according to Envi-
ronment America. Further-
more, the non-profit projects
that the United States is on
track to spend $1.3 trillion
annually on oil by 2030.
While Green Edison does not
believe fossil fuels will disap-
pear overnight, energy utilities
should have an economic in-
centive to be competitive with
oil and capture some of those
exported revenues to become a
primary energy resource to
support the transportation
fleet.
As many have said before, such
a policy would increase Ameri-
can energy security (reducing
our dependence on foreign oil)
and develop jobs and industry
Chart 3: Allowance Allocations Under Kerry-Boxer
GREEN EDISON
www.green-edison.com
at home.
Furthermore, moving to clean
energy – fuel efficient vehicles,
transit-oriented development,
and wind and solar power –
would save money, even ex-
cluding the additional benefits
for the environment, health,
and security. For instance, a
recent report by the Union of
Concerned Scientists found
that transitioning to clean en-
ergy would cut costs by $900
per household annually by
2030 and save consumers and
businesses a total of $1.7 tril-
lion between 2010 and 2030
Energy Technology Invest-
ment: Where’s the Beef?
Many of the nation’s leaders
have taken issue with the
amount that is being allocated
to green energy technology
investment. They say it’s not
enough.
Whether it is the nation’s lead-
ing research universities
(Association of Public and
Land-grant Universities
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
PAGE 5
(APLU) and the Association of well over a trillion dollars
American Universities (AAU), in annual revenue.
think tanks such as the Brook-
The think tank found that
ings Institution, or in recent
the energy sector's R&D
Congressional testimony by
spending as a percent of
Google’s Dan Reicher (Click on
revenues - call that figure
the Link for his testimony), they
the industry's innovation
find that the final climate legis-
intensity - is just 0.23%.
lation must invest $15 billion per
That compares to a national
year to mitigate climate change
average innovation inten-
and transition to a clean energy
sity across all industries of
economy.
2.6%, or ten-times greater
According to the Breakthrough than the energy-sector's
Institute (BI), the U.S. biomedi- innovation intensity, ac-
cal and pharmaceutical industry cording to the analysis.
invests between 10-20 percent of
“And it pales in comparison
revenues in R&D and new prod-
with the innovation inten-
uct development, spending
sity of leading technology
$58.8b on R&D in 2007. The
and innovation-intensive
U.S. government adds an addi-
sectors including biomedi-
tional $30 billion per year in-
cal technology (10-20%),
vestment in biomedical R&D
information technology (10
through the National Institutes
-15%), and semiconductors
of Health.
(16%).” The think tank has
In contrast, according to the
Article Cont., pg. 8, See
Breakthrough Institute’s analy-
Side-Bar, pg. 6-7, for a
sis, the U.S. energy sector in-
break down of the
vests well below $3 billion annu-
Kerry-Boxer Bill
ally in R&D in an industry with
Cont., page 6
 www.green-edison.com

VOLUME 1, ISSUE 6 PAGE 6

Sidebar:

The Kerry-Boxer Senate Bill: A Breakdown

There are several key differences in the Senate bill as compared with its predecessor in the
House bill. We cite some of climate organization 1 Sky for some of the legislative analysis as
we found it to be the most objective (For further analysis, Please click on the link).
2020 Near-term Targets
There are several changes in the Kerry-Boxer Senate bill over the House passed Waxman-Markey bill cli-
mate proposal. In terms of 2020 near-term targets, the bill sets a target of at least 28.5 percent below
2005 levels (17 percent below 1990 levels), from a combination of the cap and complimentary policies.
This represents a slight 0.5 percent improvement on the House Bill. Seventeen percent of these total re-
ductions below 2005 levels are from the cap (20 percent below 2005 levels over 80 percent of the econ-
omy), and the rest are required from domestic emissions cuts. Targets for cutting carbon in the Senate bill
are 3% stronger than the House-passed bill, but new rollbacks in regulations for methane and industrial
processes are equivalent to setting these targets back 2.5%, thereby gutting most of what was achieved by
strengthening them. With respect to economy-wide 2005 emissions, the Senate bill represents a net
strengthening of only 0.5% over the House-passed bill in the year 2020.
2050 Long-term Targets
According to 1 Sky, at least 75 percent below 2005 levels total via the cap and complementary policies
(71% below 1990 levels), these targets are the same as those in the House-passed bill.
International Offsets
High levels of international carbon offsets may be purchased in place of domestic emissions reductions –
up to 1.25 billion tons annually, 0.25 billion fewer than the maximum allowed in the House-passed bill.
These offsets are paired with stringent quality standards and regulatory requirements, including an offset
substitution requirement starting in 2018, in which companies need to buy 1.25 offsets for every ton of
carbon pollution they want to offset.
Domestic Offsets
High levels of domestic carbon offsets – up to 1.5 billion tons annually – may also be purchased in place of
domestic emissions reductions: 0.5 billion more than the House-passed bill allowed. The Kerry-Boxer bill
gives the President the authority to choose which agencies oversee the domestic offset program, while the
House-passed bill gives that authority to the USDA.

Clean Air Act Performance Standards for Coal

In contrast to the House-passed bill, the Senate bill maintains the Environmental Protection Agency
(EPA’s) ability to regulate dirty coal technology through the Clean Air Act. In the Senate bill, New Source
Review (NSR) and New Source Performance Standards (NSPS) can be used to ensure that we get real pol-
lution reductions from old dirty coal plants, and end investment in outdated coal technology for new and
expanded coal plants.

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON
 www.green-edison.com

VOLUME 1, ISSUE 6 PAGE 7

Sidebar, continued from page 6

The Kerry-Boxer Senate Bill: A Breakdown

Performance Standards for New Coal Plants
Any new coal plant permitted after 2009 is required to reduce 50% of their global warming pollution some-
time between 2013 and 2025 – sooner if carbon capture and storage (CCS) plants come online by 2020. These
performance standards do not apply to the expansion of existing coal plants. After 2020, performance stan-
dards require that new coal plants reduce global warming pollution at least 65%. Performance standards may
be met through biomass cofiring, natural gas retrofits, efficiency gains, or carbon capture and storage when
available at the required scale.

Ratepayer Surcharges to Fund New Coal Plants with CCS

Adds a fee to electricity bills that will help utilities pay for new coal plants with CCS. Ratepayer surcharges
amount to approximately $1 billion per year.

Renewable Energy and Efficiency Standards Not Addressed in this Bill

A Renewable Electricity Standard (RES), an Energy Efficiency Resource Standard (EERS), additional energy
efficiency standards, and smart grid planning are being dealt with in other bills, and will likely be considered
further on the Senate floor.

Carbon Market Regulation

Includes placeholder language that will eventually lead to streamlined carbon market oversight under the
Commodities Future Trading Commission (CFTC), whereas the House-passed bill has multiple regulators.

Price Collar
Creates a carbon price ceiling and floor (i.e. a “collar”) that allows for more price certainty and less potential
for speculation than in the House-passed bill: The price ceiling in each bill starts at $28, and uses an allow-
ance “reserve” to ensure price certainty without “busting” the cap. Both the House and Senate bills set a price
floor starting at $10, and rising over time.

Chart 1: Comparison between Senate and House Climate Bills

Source: EPA GE

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON

VOLUME 1, ISSUE 6
Boxer-Kerry, continued from Page 5
provided a comparison as to the
shortfall of energy technology
investment, see Chart 2, pg. 4
Allowance Allocations: Too
Few Allowances Go To In-
vestment
Depending on the value of emis-
sions allowances under the cap
and trade program, an average of
roughly $70 billion to $126 bil-
lion in emissions allowances will
be created and distributed on
each year under the first ten
years of the bill's cap and trade
program, 2012-2021, According
to the Breakthrough Institute
(See Chart 3, pg. 5).
“Of that value, by far the largest
share, roughly 64% of the total
allowances, will be distributed for
free to shield energy consumers
and industry from the higher
energy prices driven by the estab-
lishment of a price on carbon
dioxide and other greenhouse
gases under a cap and trade sys-
tem.
This includes both direct rebates
to end consumers and low-
income energy assistance, as well
as free allocations to electric and
natural gas utilities (aka
GREEN EDISON
www.green-edison.com
"distribution companies"),
which they are directed to use
"on behalf of" their custom-
ers. It also includes direct
transfers of billions of dollars
in free allowances to various
industries, ranging from the
relatively defensible (11.3% of
allowances to heavy indus-
tries vulnerable to interna-
tional competition), to the
pretty indefensible, (e.g. a
windfall-profit generating
allocation of over 3% of the
allowances -- worth at least
$2 billion annually -- to the
"merchant" operators of con-
ventional coal plants).”
By contrast, only about 13% of
the value of allowances will be
invested in various clean en-
ergy technologies, including
incentives for the deployment
of carbon capture and storage
technology (aka CCS, given
2.2% of permits on average
each year), federal, state and
local government funds to
incentivize renewable energy
and energy efficiency (6.4%),
and investments in advanced
clean vehicle technologies
(1.7%), according to the insti-
tute.
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
Further, the think tank finds
that just 1.9% of the allowances
are dedicated to critical clean
energy research and develop-
ment (R&D) efforts, which
amounts to an investment of just
about $1.4 billion annually un-
der EPA-projected (See Link)
allowance prices (in 2009 con-
stant dollars).
Overall, the "Clean Energy Jobs
and American Power Act's" in-
vestments in clean energy tech-
nologies will total under $9.5
billion per year under allowance
prices projected by the EPA,
according to the BI report.
The think tank reports that 4.5%
of the allowances will be devoted
to various other public purposes,
including efforts to adapt to the
public health, infrastructure,
wildlife and natural resource
impacts of an already-changing
climate and training programs
to expand a skilled energy effi-
ciency, renewable energy and
nuclear energy workforce, BI
finds.
“Another 7.5% of the permits
will be allocated to fund various
supplemental emissions reduc-
tion efforts, with the largest
share (4.2%) going to fund ef-
PAGE 8
forts to slow deforestation
overseas. Efforts to reduce
emissions in the U.S. agri-
culture and forestry sectors
will receive 1.2% of emis-
sions allowances and 2.1%
of the allowances will be
devoted to reducing vehicle
-miles traveled and emis-
sions in the transportation
sector (e.g. through public
transit expansion and more
proactive metropolitan area
transportation planning).”
Just over 10% of the allow-
ances will be set aside to
ensure the cap and trade
program does not increase
the federal deficit (i.e. is
"deficit neutral"). This is
the largest difference be-
tween the allocation
scheme in the Kerry-Boxer
bill and the House-passed
ACES legislation, which
dedicated just about 3.1% of
the allowances over the first
ten years to deficit reduc-
tion, the BI report con-
cluded.
GE

VOLUME 1, ISSUE 6
Green Tech Tsunami, continued from Page 1
the fray in hopes of green tech
millions, there are various eco-
nomic realities and develop-
ments in the manufacturing
sector that they would need to
be aware of. Here, Green Edi-
son reviews the salient points
from The US Department of
Energy’s 2008 Wind Technolo-
gies Report. We then turn to
the Lawrence Berkeley Na-
tional Laboratory report on
solar, “Tracking the Sun II:
The Installed Cost of Photovol-
taics in the US from 1998-
2008.”
Wind: It will get worse
before it gets better
According to the US Depart-
ment of Energy’s wind report,
“Despite enormous growth in
installed capacity in 2008, the
financial crisis has taken a toll
on the wind power industry.”
By the end of 2008, financing
for new projects and orders for
new turbines had slowed, while
turbine and component manu-
facturers began to announce
layoffs. Portions of Emergency
Economic Stability Act of 2008
(EESA 2008) and American
Recovery and Reinvestment
Act of 2009 (ARRA 2009) are
intended to alleviate the cur-
rent scarcity of project financ-
ing, and to lay the groundwork
for near- and medium-term
expansion of the wind sector.
Nonetheless, the DOE finds
expectations of a slower year in
Chart 1: Forecasts for Annual U.S. Wind Capacity Additions (MW)
GREEN EDISON
www.green-edison.com
2009 remain, in part because
implementing the 2009
stimulus policies will take
time. As shown in Chart 1, the
latest prediction from AWEA
shows more than 5,000 MW
of U.S. wind additions as
likely in 2009 (AWEA
2009a). BTM Consult, mean-
while, expects 6,000 MW of
wind to be installed in the
U.S. in 2009 (BTM 2008),
while Emerging Energy Re-
search (EER) forecasts a base
-case of 6,500 MW (Hays
2009) and New Energy Fi-
nance (NEF) predicts 4,900 –
6,800 MW (NEF 2009). The
EIA offers the most conserva-
tive forecast of 4,400 MW of
new wind in the U.S. in 2009
(EIA 2009).
Further, the DOE report finds
that after a slower year in
2009, predictions show mar-
ket resurgence in 2010 and
continuing for the immediate
future, as the policies estab-
lished in the 2009 economic
stimulus package come into
full swing, and as financing
constraints are relieved.
“From 2010 through 2012,
forecasts show annual wind
capacity additions that exceed
the total additions in 2008,
with cumulative wind addi-
tions from 2009-2012 pre-
dicted to exceed 35,000 MW.
With these wind additions
from 2009 through 2012,
more than 60% of EIA’s pro-
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
jected growth in total U.S. elec-
tricity supply over this period
would come from new wind
plants. Moreover, if predictions
hold, the United States and
China are likely to vie for top-
market status in terms of annual
capacity additions from 2009-
2012,” according to the DOE
report, (See Chart 2, page 10)
On a worldwide basis, the DOE
reported roughly 28,000 MW of
wind capacity was added in
2008, the highest volume
achieved in a single year, and up
from about 20,000 MW in 2007,
bringing the cumulative total to
approximately 122,000 MW. For
the fourth straight year, the DOE
found that United States led the
world in wind capacity addi-
tions, capturing roughly 30% of
the worldwide market, up from
27% in 2007 and 16% in 2006.
China, India, Spain, and Ger-
many rounded out the top five
countries in 2008 for annual
wind capacity additions.
GE Wind remained the number
one manufacturer of wind tur-
bines supplying the U.S. market
in 2008, with 43% of domestic
turbine installations (down
slightly from 45% in 2007 and
47% in 2006).13 Following GE
were Vestas (13%), Siemens
(9%), Suzlon (9%), Gamesa
(7%), Clipper (7%), Mitsubishi
(6%), Acciona (5%), and RE-
power (1%).
PAGE 9
Noteworthy developments
last year included the
growth in market share for
Clipper, Suzlon, and Ac-
ciona, while Siemens and
Vestas experienced the
most significant drops in
market share, in percentage
terms. Perhaps more sig-
nificantly, however, is the
growing number of turbine
vendors active in the U.S.
market. International tur-
bine manufacturers enter-
ing the U.S. market for the
first time in 2008 include
Acciona (3 projects, 410
MW), REpower (2 projects,
102 MW), Fuhrlander (1
project, 5 MW), CTC/
DeWind (2 projects, 4
MW), and AWE (2 projects,
1.8 MW).
In terms of buyers, the
DOE found investor-owned
utilities continued to be the
dominant purchasers of
wind power, with 33% of
new 2008 capacity and 47%
of cumulative capacity sell-
ing power to IOUs under
long-term contract. Pub-
licly owned utilities have
also taken an active role,
purchasing the output of
17% of new 2008 capacity
and 16% of cumulative ca-
pacity. For both IOUs and
POUs,
power Cont, pg 10

VOLUME 1, ISSUE
Green Tech Tsunami, continued from Page 9
purchase agreement (PPA) terms
for projects built in 2008 range
from 10 to 25 years, with 20
years being the most common.
“The role of power marketers –
defined here as corporate inter-
mediaries that purchase power
under contract and then re-sell
that power to others, sometimes
taking some merchant risk – in
the wind power market has
waned somewhat in recent years.
In 2008, power marketers pur-
chased the output of 7% of the
new wind power capacity, with
14% of cumulative capacity sell-
ing to power marketers. Among
projects built in 2008, PPAs with
power marketers range from 5 to
18 years in length, somewhat
shorter than the range of utility
PPAs.”
Increasingly over time, owners of
wind projects have taken on
some merchant risk, meaning
that a portion of their electricity
sales revenue is tied to short-
term contracted and/or spot
market prices (with the resulting
price risk commonly hedged over
a 5- to 10-year period via finan-
cial transactions rather than be-
ing locked in through a long-term
PPA, the DOE reported.
“The owners of 43% of the wind
power capacity added in 2008,
for example, are accepting some
merchant risk, bringing mer-
chant/quasi-merchant ownership
to 23% of total cumulative U.S.
wind capacity. The majority of
this activity exists in Texas, New
York, and several mid-Atlantic
and Midwestern states – i.e.,
states in which wholesale spot
markets exist, where wind power
has for the last several years been
able to compete with these spot
prices, and where significant
additional revenue may be possi-
ble from the sale of renewable
GREEN EDISON
www.green-edison.com
6
Chart 2: International Rankings of Wind Power Capacity
energy certificates (RECs).”
But with wholesale power
prices plummeting in late
2008 and through the first
half of 2009, however, mer-
chant activity is expected to
diminish in the immediate
future, the DOE concluded.
More importantly, and buyer
beware, the report also found
that operational product
prices though ideal (as they
have dropped), operational
performance was in decline.
The DOE found a trend where
wind project performance has
leveled off. Further, opera-
tional and maintenance ex-
penses were not uniform
across projects, and installed
project costs have continued
to rise.
“Among the sample of pro-
jects built in 2008, for exam-
ple, the capacity-weighted
average installed cost rose to
$1,915/kW, up $190/kW
(11%) from the weighted-
average cost of installed pro-
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
jects in 2007 ($1,725/kW), and
up $630/kW (49%) from the
average cost of projects installed
from 2001 through 2004. Pro-
ject costs are clearly on the rise.
Moreover, despite the recent
softening in spot wind turbine
prices, installed project costs are
likely to remain high in 2009
(and perhaps beyond), as devel-
opers continue to work their way
through a backlog of turbines
purchased in late 2007 and early
2008 at peak prices under long-
term frame agreements. For
example, the weighted-average
cost estimate for more than
3,600 MW of projects likely to
be built in 2009 is $2,120/kW,
or $205/kW higher than for our
sample of projects completed in
2008.”
Sun Power: The Price is
Right
Lawrence Berkeley National
Laboratory found the number of
photovoltaic systems installed in
the U.S. has been growing at a
rapid pace in recent years,
driven in large measure by gov-
ernment incentives. Given the
relatively high historical cost of
PV, a key goal of these policies
PAGE 10
has been to encourage cost
reductions over time, the
laboratory reported.
“Out of this goal arises the
need for reliable informa-
tion on the historical in-
stalled cost of PV. To ad-
dress this need, Lawrence
Berkeley National Labora-
tory initiated a series of
reports focused on describ-
ing trends in the installed
cost of grid-connected PV
systems in the U.S. The
present report, the second
in the series, describes in-
stalled cost trends from
1998 through 2008, based
on project-level data for
more than 52,000 grid-
connected systems de-
ployed across 16 states.
Available evidence confirms
that the installed cost of
customer-sited PV systems
has declined substantially
since 1998, though both the
pace and the source of
those cost reductions have
varied over time. Prior to
2005, installed cost reduc-
tions were associated pri-
marily with a decline in non
-module
Cont., page 11

VOLUME 1, ISSUE 6
Green Tech Tsunami, continued from Page 10
costs.”
However, the government labo-
ratory found that starting in
2005, cost reductions began to
stall, as the supply-chain and
delivery infrastructure struggled
to keep pace with rapidly ex-
panding demand. “In 2008, in-
stalled costs resumed their down-
ward trajectory, as module prices
began to fall in response to ex-
panded manufacturing capacity
and the global financial crisis,”
See Chart 3.
Preliminary evidence and indus-
try expectations suggest that
module price will continue to fall
through 2009, the laboratory
predicts. The historical trend
towards declining installed costs,
along with the narrowing of cost
distributions, suggests that PV
deployment policies have
achieved some success in foster-
ing competition within the indus-
try and in spurring improve-
ments in the cost structure and
efficiency of the PV delivery in-
frastructure, according to the
report.
“Yet, even lower average installed
costs in Japan and Germany sug-
gest that deeper near-term cost
reductions may be possible. In-
deed, further cost reductions will
be necessary if the PV industry is
Chart 3: Installed Costs over Time
GREEN EDISON
www.green-edison.com
to continue its expansion in
the customer-sited market,
given the desire of PV incen-
tive programs to ratchet down
the level of financial support
offered to PV installations.”
Looking back, the reduction
in installed costs from 2007
to 2008 marked an important
departure from the trend of
the preceding three years,
during which costs remained
flat, as rapidly expanding U.S.
and global PV markets put
upward pressure on both
module prices and non-
module costs, according to
the report. This dynamic be-
gan to shift in 2008, as ex-
pansions on the supply-side
coupled with the global finan-
cial crisis led to a decline in
wholesale module prices.
“The initial effect of this trend
on retail installed costs is
evident in the drop in in-
stalled costs from 2007 to
2008, though it is important
to note that the cost of many
projects installed in 2008
may be based on contracts
signed (and inventory
stocked) prior to the global
decline in wholesale module
prices that began in 2008.”
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
The decline in installed costs
from 2007 to 2008 appears to
be primarily attributable to a
drop in module costs, which fell
by approximately $0.5/W over
this period, the report found.
“This contrasts with the longer-
term historical trend, in which
installed cost reductions have
been associated mostly with a
decline in non-module costs.
Specifically, from 1998 to 2008,
non-module costs fell by $2.1/
W, from approximately $5.9/W
in 1998 to $3.8/W in 2008, rep-
resenting 62% of the overall
$3.4/W drop in total installed
costs over this period. In com-
parison, the module index price
dropped by $1.3/W from 1998 to
2008.”
Notwithstanding the significant
cost reductions that have already
occurred in the U.S., interna-
tional experience suggests that
greater near-term cost reduc-
tions may be possible, the report
found. In comparing average
installed costs in Germany, Ja-
pan, and the United States, fo-
cusing specifically on small resi-
dential systems installed in
2008 (and excluding sales or
value-added tax). Among this
class of systems, average in-
stalled costs were substantially
lower in Germany and Japan
($6.1/W and $6.9/W, respec-
PAGE 11
tively) than in the U.S.
($7.9/W). “These differ-
ences may be partly attrib-
utable to the much greater
cumulative grid-connected
PV capacity in Germany
and Japan (about 5,300
MW and 2,000 MW, re-
spectively, at the end of
2008), compared to just
800 MW in the U.S. That
said, larger market size,
alone, is unlikely to account
for all of the variation.”
In conclusion, green energy
tech developers will still
have to overcome inconsis-
tent project costs and un-
predictable operations and
maintenance (and a level-
ing off in operational per-
formance) for wind energy
systems. While solar devel-
opers, though enjoying cost
reductions, will have to
work harder to enjoy
greater cost reductions as
both the pace and the
source of cost reductions
have varied over time.
GE

VOLUME 1, ISSUE 6
The Green Paradox
The Irony of Efficiency II
Commentary by Dr. Branko Terzic
In part II of this series on
efficiency, the first install-
ment of which was pub-
lished in the September
2009 edition of Green Edi-
son, the author focuses on
how programs can be de-
signed and implemented
which will achieve the twin
goals of lower monthly
bills to consumers while at
the same time reducing
emissions of green house
gases.
The English expression “better
late than never” aptly applies, I
believe, to the issue of the in-
troduction of efficiency in fuel
or electricity production, deliv-
ery and conversion to end use.
The “rebound effect” or
“energy efficiency paradox”
was introduced in my earlier
GREEN EDISON column in
September as the issue of
whether energy efficiency pro-
grams savings are offset by
increasing demand arising
from ensuing energy price de-
creases.
In my earlier article I asserted
that various types of paradox
likely exist under certain sce-
narios and for certain re-
sources, but they do not make
the case that all policies which
lead to energy efficiency are
either ineffective or misguided.
Programs proposed with tax
dollars need, of course, careful
analysis and monitoring so
that goals are achieved.
My assertion was and is today
that energy efficiency pro-
grams can be designed and
implemented which will
achieve the twin goals of lower
GREEN EDISON
www.green-edison.com
monthly bills to consumers
while at the same time reduc-
ing emissions of green house
gases.
Those conclusions are not
mine alone. In 1988 Amory
Lovins, an internationally
recognized energy expert,
opined that “The concept of a
nontrivial rebound effect...is
without basis in either theory
or experience. It is, I believe,
now widely accepted to be
fallacy whose tedious repeti-
tion ill deserves rational dis-
course and sound public pol-
icy.”
That statement was made
during the period following
the first set of energy price
increases due to the oil price
shock and higher electricity
prices.
Many state regulators (public
service commission) turned,
at that time, to energy conser-
vation and efficiency pro-
grams to lower the level of
consumer’s monthly bills es-
pecially to low income con-
sumers. Lovins’ observation
that there was no foundation
for the rebound effect in
“experience” in the 1980’s
could be confirmed by review
of whether low income indi-
viduals with newly insulated
homes, for example, ended up
using more electricity after
the conservation investment
was made than before. That
would not seem to be the
case. However there is a ques-
tion of whether something
true on the microeconomic
level could be false at the
macroeconomic level.
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
Energy efficiency discussions
are, therefore, complicated by
the fact that energy efficiency
may be defined and measured in
different ways and for various
sized systems.
In that case the rebound effect is
dependent on how energy effi-
ciency is defined. The simple
“Rebound effects are important, can be
quantified, can be mitigated by policy but
raise fundamental issues regarding en-
ergy growth and sustainability.”
- Prof. Steve Sorrel, Sussex Energy
Group
ratio of output over input, with
input of energy in joules for ex-
ample, becomes complicated by
the question of whether output
is defined in physical terms
(heat, light, work) or in eco-
nomic terms ($ GPD etc).
This reminds us that some re-
searchers have observed that the
rebound effect frequently de-
pends on the type and location
of energy efficiency improve-
ment.
At the macroeconomic level,
history may show a correlation
between declining energy costs,
rising productivity and higher
energy intensity but at the level
of an individual producer the
increasing efficiency may, in-
deed, lead to reduced consump-
tion. How are these two conclu-
sions to be reconciled?
Professor Steve Sorrel and his
researchers at the Sussex Energy
Group, SPRU at the University
of Sussex have looked at the
PAGE 12
issues of the rebound effect
for some years. Sorrel’s
conclusions are that
“rebound effects are impor-
tant, can be quantified, can
be mitigated by policy but
raise fundamental issues
regarding energy growth
and sustainability.” (see
www.ukerc.ac,uk )
Terry Barker and Athana-
sios Dagounas of the Cam-
bridge Centre for Climate
Change Mitigation, in a
May 12, 2009 paper, iden-
tify three types of rebound
effects on the “global” mac-
roeconomic levels as direct,
indirect and economy wide.
Their analysis, based on
global econometric model-
ing of expected fuel price
responses, shows high re-
bound effect values. Their
models find that global
efficiency programs lead to
economic growth, higher
employment which leads to
more energy use. However
they also observe that “it
may be worth combining
energy efficiency policies
with others that lock-in the
energy savings.”
Cont., page 13
 www.green-edison.com

VOLUME 1, ISSUE 6 PAGE 13

Green Paradox II, continued from Page 12

Another researcher, Blake Al-
cott, observed at a Cambridge
conference May 14, 2009, after
a review of the rebound effect
from a historical perspective
that “Efficiency is good, for cut-
ting production costs, for higher
profits, for affluence and eco-
nomic growth, for getting the
most utility out of a given
amount of energy, for heighten-
ing political acceptance for caps
and high taxes!!” and he con-
cluded “but as rebound ap-
proaches 100%, it becomes
less environmentally effective,
and rationing or taxes are
better policy.”
This returns us to the issue of
whether “efficiency” should
be one goal of public policy in
energy. Based on past experi-
ence the benefits of improved
efficiency far outweigh the
possible negative conse-
quences. This is especially
true if the consequences can
be anticipated and mitigation
applied in the design of effi-
ciency programs. Policymak- The Hon. Branko Terzic
ers will still have to monitor is regulatory policy leader in
individual efficiency programs energy and resources at
Deloitte, a former utility
to insure they achieve eco-
CEO and FERC commis-
nomic and environmental ob-
sioner, and was elected in
jectives in a cost effective man-
2009 to the Energy Effi-
ner. However, that require-
ciency Forum Hall of fame.
ment does not mean that such
programs cannot or should not
be designed.
GE

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON

VOLUME 1, ISSUE 6 PAGE
International Carbon Offsets
India’s Market Gets Set to Takeoff
By Sagar Gubbi
Recent policy announce-
ments by the Indian Gov-
ernment provide strong
incentives for private com-
mercial investors to invest
in the Indian renewable
energy sector. The sector
is set to enter a massive
growth phase in the coun-
try.
India is a country with huge
potential for renewable energy.
Strong economic growth in the
last decade has necessitated
massive increases in demand
for energy. Since the country is
low on fossil fuel resources, it
has depended heavily on im-
ports to support this growth.
As per the recent World En-
ergy Outlook report, India will
be the third largest net im-
porter of oil by 2025, behind
the US and China.
As per recent estimations, the
GREEN EDISON
www.green-edison.com
country has an installed power
generation capacity of about
150 GW, with coal being used
for about 80% of this genera-
tion. Renewable energy
sources account for roughly
8.5% of this installed capacity,
with Wind and Small Hydro
Projects (SHPs) constituting
the majority of this installed
capacity. According to the In-
ternational Energy Agency,
India has more than double
this installed capacity to 327
GW by 2020 in order to meet
its ever-growing energy de-
mand.
India’s potential for renewable
energy generation is quite
large. As per a recent Global
Wind Energy Council (GWEC)
report, India’s total wind en-
ergy potential is about 48 GW
but the current installed capac-
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
ity is only about 9.6 GW. Simi-
larly, India’s solar energy poten-
tial is also large.
Being a tropical country, it has an
average of 250-300 clear and
sunny days in a year and it re-
ceives an average of 5000 trillion
kWh per day, which is several
hundred times more than India’s
current energy demand, even
assuming just a 10% conversion
efficiency of photovoltaics.
Thus, with low internal fossil fuel
reserves, heavy growth in energy
demand and large renewable
energy potential, adopting re-
newable energy on a large scale
seems like the obvious choice for
India to ensure its energy secu-
rity.
As with the rest of the world,
14
high cost of deployment
has prevented private in-
vestors from investing in
the Indian renewable en-
ergy sector. This, however,
is set to change with the
Government of India’s
recent policy announce-
ments, which are aimed at
bringing a massive in-
crease in the share of re-
newable energy in the
country’s energy portfolio.
Existing Policy Frame-
work
The Indian Government’s
existing policy framework
already supports renew-
able energy development.
The existing policy frame-
work includes:
Low-cost, long-term
Cont., page 15

VOLUME 1, ISSUE
International Carbon Offsets, continued from Page 14
loans from the Indian Re-
newable Energy Develop-
ment Authority (IREDA),
an agency under the Minis-
try of New and Renewable
Energy (MNRE) of Govern-
ment of India.
A generation-based incen-
tive for grid-connected re-
newable energy projects,
which was implemented
according to the Electricity
Act of 2003. According to
this policy, the Government
aimed to provide financial
assistance per unit of elec-
tricity generated from re-
newable sources, specifi-
cally for solar energy.
Subsidies and soft-loans for
renewable energy deploy-
ment.
Import tax exemption and
other tax incentives on
some renewable energy
equipment.
This policy framework, in com-
bination with the Kyoto Proto-
col’s Clean Development
Mechanism (CDM), was suc-
cessful in attracting an invest-
ment of nearly $4.1 billion to
the Indian renewable energy
sector by the end of 2008. How-
ever, the Government realized
that the policy framework needs
to be more robust in order to
bring massive increases in pri-
vate investments.
Recent Policy Announce-
ments
The Government, which was re-
elected in the General Elections
held in April-May this year, is
seen as one of the most progres-
sive ones in recent years. This
Government realized that the
existing policy framework was-
n’t enough to increase invest-
ments in renewable energy to
GREEN EDISON
www.green-edison.com
6 PAGE
the scale that is required to
meet the ever-increasing energy
demand. Thus, the Government
has made a series of policy an-
nouncements recently, which
are intended to bring huge in-
vestments into the sector.
The National Solar Mission
The National Solar Mission,
which is expected to be formally
launched in November 2009, is
aimed at increasing the installed
solar energy capacity to 200 GW
by 2050. The salient features of
this mission include:
The mission aims to in-
crease India’s installed solar
generation capacity to 20 GW
by 2020, 100 GW by 2030 and
200 GW by 2050.
Increase the installed solar
manufacturing capacity to about
5 GW by 2017.
The total funding from the
government is expected to be
between $17 billion to $21 bil-
lion. Though it isn’t clear where
this funding will come from, a
major portion of it is expected
to come from foreign sources
and private investors.
The immediate implemen-
tation plan includes scaling-up
to drive down costs in the first
phase (2009-2012), commercial
deployment of solar thermal in
the second phase (2012-2017)
and achieve tariff parity with
conventional grid power in the
third phase (2017-2020).
The mission intends to use a
policy framework combining
feed-in tariffs, tax holidays, cus-
toms and excise duty exemp-
tions and market-based price
discovery mechanism to achieve
its goals.
Even though the National Solar
Mission seems to be chasing a
utopian goal, the implementa-
tion plan and the associated
policy framework are bound to
spur tremendous investment
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
activity in the Indian Solar
Energy sector in the immediate
future.
Feed-in Tariff Regulations
The Central Electricity Regula-
tory Commission (CERC),
which is the Government body
regulating electricity tariffs
and distribution licenses in
India, made an announcement
in September 2009 to intro-
duce special feed-in tariffs for
renewable energy. Salient fea-
tures include:
The tariffs will be based on
cost of generation and
profit (ensuring a 19%
return on equity).
Unlike its Chinese coun-
terpart, which includes
tariffs only for wind en-
ergy, the Indian feed-in
tariff regulation includes
all renewable sources of
energy.
Guaranteed Power Pur-
chase Agreements (PPAs)
for 13 years for renewable
energy projects from Utili-
ties (most of which are
Government-owned).
These PPAs are guaran-
teed for 25 years for Solar
PV and Solar Thermal
projects and 35 years for
Small Hydro Projects.
Tariffs for wind energy
will be based on resource
intensity.
Several State Electricity Regu-
latory Commissions (SERCs)
have also made similar an-
nouncements in recent
months. The feed-in tariff
regulation is a major step for-
ward in promoting large-scale
renewable energy deployment
in India.
National Action Plan on Cli-
mate Change
15
The National Climate
Change Action Plan, which
has been in place for a year
now, aims to generate 5% of
the country’s energy de-
mand from renewable
sources by 2010 and in-
crease it by 1% every year
from there on. The Govern-
ment also gave a provi-
sional approval in August
this year to an energy effi-
ciency plan, which includes
a cap and trade scheme
projected to be worth $15
billion.
Thus, there has been a
spate of policy announce-
ments by the Indian Gov-
ernment recently. Even
though several of these
announcements seem to
have been timed to give the
Indian government a strong
negotiating position at the
UN COP15 Climate Change
summit in Copenhagen
later this year, they will put
the renewable energy sector
on a firm growth trajectory
in the immediate future.
There hasn’t been a better
time to invest in the Indian
renewable sector.
GE
Sagar Gubbi is a regular
contributor to Green Edi-
son. He is the Co-founder
and Managing Partner of
EcoForge
(www.ecoforge.in). Eco-
Forge Ltd is a boutique
investment advisory firm
focused on the Indian re-
newable energy and carbon
markets space. The firm
has presence in Bangalore,
India and London, UK.
Sagar has just completed
his MBA from the Univer-
sity of Oxford’s Said Busi-
ness School in the UK.
 www.green-edison.com

VOLUME 1, ISSUE 6
PAGE 16

Green Financial Instruments

The New Tools of the Trade

By Ajeet Gorkhali, Vaibhav Kapoor, Nadir Keshani, Amardeep Sharma

Bridging the gap between
funding and the renewable
energy and energy efficiency
innovations is a major hur-
dle. We present an analysis
of promising new financial
instruments that can help
develop new energy projects
in support of reducing cli-
mate change.
The debate of shifting to renew-
able energy dependent econo-
mies has been haunting policy
and regulatory board rooms for
many years. Currently, this issue
has managed to take centre stage
as leaders around the world think
of this sector as a lifeboat which
can help the economies sail
through this financial maelstrom.
The new-found affinity for this
industry is because of its poten-
tial to create jobs, generate new
sources of cash flow, and most of
all help countries achieve carbon
emission targets.
ment and private participation.
We have seen strong private
participation in the recent
past; however, global govern-
ments should demonstrate
their commitment by support-
ing financial instruments that
can be used to fund renewable
energy and energy efficiency
projects.
It has been recognized that to
achieve this vision, steps need
to be taken to promote projects
and companies that focus on
energy production through low
-carbon resources.
Bridging the gap between
funding and the renewable
energy and energy efficiency
innovations is the major hurdle
Figure 1: Comparison of Financial Instruments
that needs to be overcome to
achieve this.
The instruments discussed in
this paper represent a fairly
comprehensive list of options
that cater to this industry that is
still in its nascent stages. These
instruments include Climate
Bond, Convertible Bond, Energy
Efficiency Bond, Carbon Securi-
tized Bond, Carbon Indexed
Bond, Sukuk, and Green Invest-
ment Bank.
Industry Feedback
From our survey of industry
experts, it has been shown that a
plain vanilla Climate Bond
would be the most attractive
product for investors looking for
investments in the renewable
energy or energy efficiency
space.
Respondents mentioned
that the Climate Bond
should be country specific
and it would be better to
link it with some relevant
index such as a renewable
energy index. The proposal
to float a Convertible Bond
received mixed responses
from the interviewees, as
they believe that such bond
can only be issued by a
large corporation who
would like to benefit from
the low cost-of-capital.
The concept of a Global
Invest-
ment Cont., page 17

Climate change experts believe

that to achieve the goal of low
carbon emission levels of 2050
the renewable energy and energy
efficiency sector should grow at a
Compounded Annual Growth
Rate (CAGR) of 25% from now
onwards.

However, if we let pass the win-

dow of four years, then from
2013 onwards, the industry has
to grow by 30% CAGR. We be-
lieve it is not feasible for any in-
dustry to develop more than
CAGR 30% until 2050. To real-
ize this growth rate, capital flow
in the industry is the most vital
and the most critical factor. Such
high growth needs both govern-

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON

VOLUME 1, ISSUE 6
New Tools of the Trade, continued from Page 16
Bank, even though rife with
concerns about transaction
costs and bureaucracy was
considered to be the most ef-
fective way to incentivize the
public and the private sector to
work in tandem. There seems
to be broad consensus amongst
the respondents about its ef-
fectiveness in facilitating capi-
tal flow in the clean energy
projects.
Products like the carbon secu-
ritized bond (CSB) and carbon
indexed bond (CIB) received
criticism due to their complex
structure, but investors would
look forward to these innova-
tive products if the industry
was in a mature stage. How-
ever, CSB may have a brighter
future once the securitized
bond market bounces back.
Experts appear positive about
CSB except for the fact that
they do not perceive investors
investing in such products in
the present state of affairs.
Sukuk (financial certificates), a
very promising instrument, has
very little awareness in the
market. Respondents could
undoubtedly make out its vast
potential and believed that
capital from Muslim popula-
tion dominant nations can flow
in this industry, especially to
the renewable infrastructure
projects.
What is needed now is the gov-
ernment’s commitment to sus-
tain a dipping carbon level and
support financing in this sec-
tor. This can be accomplished
by way of providing a guaran-
tee, thus securing the interests
of the investor. Without the
government’s involvement no
viable financial product can be
established and capital flow in
GREEN EDISON
www.green-edison.com
this sector will be very lim-
ited. This will impede pro-
gress towards the carbon
emissions reductions sought
for the year 2050.
As part of the analysis, several
investment bankers, profes-
sors, policy makers, investors
(which includes pension
funds, private equity investors
etc.), and climate change ex-
perts were interviewed to
come out with products that
should solve the problem of
capital flow in the renewable
energy and energy efficiency
sector.
A pre-researched presenta-
tion was developed on the
seven different financial in-
struments. This presentation
was distributed to the inter-
viewees prior to conducting
the interviews, so that they
could familiarize themselves
with the products to be dis-
cussed.
The interview was structured
in accordance with each inter-
viewee’s area of expertise, for
Figure 2: Profile Distribution of Respondents
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
example policy related questions
were asked to get treasury feed-
back in creating the financial
instruments from policy makers,
and investment related ques-
tions from investment bankers
and investors, etc.
Our research was divided into
three phases. The first two
phases consisted of interviews
and the third phase was to ana-
lyze the responses. The first
phase of interviews was a pilot
study to provide additional di-
rection of this research project.
We conducted interviews in the
first round with Finance profes-
sors at the University of Oxford
and a small number of Industry
Experts. In the second phase,
insight was gathered from a
wide array of industry experts,
including several Climate
Change Experts, Finance Profes-
sors, Investment Bankers, Inves-
tors, and Policy Makers.
In the third phase, responses
received during the first and
second round interviews were
analyzed. Since the feedback
PAGE 17
was subjective in nature, it
was necessary to carefully
analyze it in order to objec-
tively determine whether
the respondents are posi-
tive, negative, or neutral
about the financial instru-
ment under discussion.
The views, comments, and
suggestions of each inter-
viewee are key to fully ap-
preciate the needs of this
diverse group of investors.
After a thorough analysis,
the suggestions were fac-
tored into the proposed
financial structures to
match the market.
The following section will
give a brief overview of all
seven options proposed to
the industry experts.
Climate Bond
By simple definition a bond
is in essence a loan in the
form of debt that the bor-
rower is required to pay
interest to the lender in the
form of a coupon or at a
later date
(maturity Cont., page 18
 www.green-edison.com

VOLUME 1, ISSUE 6
PAGE 18

New Tools of the Trade, continued from Page 17

date) in the case of a zero cou-
pon bond.
The size of the climate bond
envisaged is GBP 10 billion
with an expected maturity of
20 to 30 years to entice institu-
tional investors and pension
funds who have a long term
view of investments. The bond
will have a fixed rate of interest
as well as a floating element
which can be linked to the
treasury yield, London Inter-
Bank Offered Rate (LIBOR),
Gross Domestic Product
(GDP), or Inflation, etc. The
bond is expected to have gov-
ernment backing in the form of
an asset guarantee or insur-
ance.
The features of the green bond
include the following:
Guaranteed by regional
government
Customisation for institu-
tional investors (bespoke
products)
Investment in a diversi-
fied (renewable energy)
portfolio
turity is still set to 20 to 30
years, which is expected to
attract both pension funds
and institutional investors.
The conversion premium is
expected to be 25%. A sum-
mary of the convertible bond
is depicted below in Figure 4.
Energy Efficiency Bond
Energy efficiency initiatives
will be one of the largest con-
tributing factors in the reduc-
tion of carbon emissions glob-
ally.
In contrast to the Climate
Bond and the Convertible
Climate Bond, the Energy
Efficiency Bond will invest in
energy efficiency projects that
do not require long-term in-
Figure 3: Climate Bond Structure
vestment. These projects, which
are mostly of the form of retro-
fitting, have shorter life spans
than the classical renewable
energy projects. Therefore, the
investment period is envisioned
to have an eight to ten year life
span.
The size of the bond can vary
from region to region (e.g. Can-
ada is very active in this space
and thus would require larger
issues of the energy efficiency
bond than the uninitiated areas)
and the bond may either come
with or without a coupon.
Overall the process is similar to
a climate bond, except the capi-
tal will be deployed in energy
efficiency projects, See Figure 5,
pg. 19.
Carbon Securitized
Bond (CSB)
Bonds whose interest and
principal payments are
backed by the cash flows
from a portfolio or pool of
other assets are called secu-
ritized bonds. Securitiza-
tion allows for an organiza-
tion (such as a bank) to
transfer risk from its own
balance sheet to the debt
capital markets through the
sale of bonds.
CSB is a securitized debt
instrument investing in
renewable energy space. It
will be a global product,
account-
Cont., page 19

The form of a Climate bond is

depicted in Figure 3.

Convertible Bond

A convertible climate bond is

similar to the climate bond
mentioned above; however it
Figure 4: Convertible Bond Description
can be converted to shares in
the future. The convertible
climate bond will have a 10-
year hard non-call period;
therefore the bondholder will
not be able to convert this
bond for a predefined tenure.

This feature is incorporated to

allow for an appropriate dura-
tion for investment. In the
event of a soft call a 150% pre-
mium is suggested. The ma-

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON
 www.green-edison.com

VOLUME 1, ISSUE 6
PAGE 19

New Tools of the Trade, continued from Page 18

ing for renewable energy assets
from various parts of the world.
The assets are pooled in different
tranches which investors can buy
in accordance to their risk appe-
tite.
The issuer can be an Investment
Bank, Financial House, or Green
Investment Bank. Though this
bond has similar characteristics
to that of Collateralized Debt
Obligation (CDO), it has advan-
tages over the CDO structure.
Since CSB has small number of
large assets, it easier to conduct
due diligence, whereas a CDO has
large number of assets and there-
fore conducting due diligence can
be complicated.
of falling carbon prices, an
entrepreneur would like to
issue bonds which have inter-
est rates linked to the carbon
prices. With increase in car-
bon prices, the issuer will pay
higher interest to the inves-
tors and with reduction of the
carbon price; the issuer will
pay a lower interest.
However, in doing so, the
investor will bear all the risk
of the carbon price move-
Figure 5: Energy Efficiency Bond Structure
ment. Thus, to hedge their risk,
it is proposed that the govern-
ment issues a bond which works
exactly in the opposite fashion
as the one issued by the entre-
preneur.
Thus it would have the feature of
paying lower interest rates with
higher carbon prices and higher
interest rates with lower carbon
prices. It is proposed that either
the bonds can be combined and
issued as a package or each bond
should be sold separately,
so that the investors can
hedge their risk in accor-
dance to their appetite. The
idea is that the government
should support its guaran-
tee through issuing bonds.
Figure 7 below displays the
bond structure:
Cont., page 20

Since these will be long term

bonds, Pension Funds, Endow-
ment Funds, and other large In-
stitutional Investors are expected
to express interest in this prod-
uct, See Figure 6.

Carbon Indexed Bond Figure 6: Carbon Securitised Bond Structure

Entrepreneurs in the renewable
energy space, come across two
hurdles in their projects:

1) Lack of government commit-

ment

2) Fluctuating fossil fuel prices

and carbon market

Since the financial performance

of the renewable energy projects
are linked to the carbon price
movement, entrepreneurs are
interested in hedging their pro- Figure 7: Carbon Indexed Bond Structure
jects against volatile carbon
prices.

However, due to lack of govern-

ment commitment, too many
fossil fuel enabled projects are
funded by the market resulting in
the lowering of fossil fuel prices.
Hence, the carbon price also falls
making a Renewable Energy pro-
ject unviable. To hedge the risk

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON
 www.green-edison.com

VOLUME 1, ISSUE 6
PAGE 20

New Tools of the Trade, continued from Page 19

Sukuk
Instead of paying interest, Su-
kuk makes payouts derived
from underlying assets typi-
cally sold to a separate vehicle
that is the issuer of the paper.
Sukuk is structured as profit-
sharing or as a rental. Islamic
finance caters to investors who
prefer to avoid paying or earn-
ing interest, which is prohib-
ited by the Sharia (Islamic
Law), see Figure 8.
Global issuance of Sukuk has
gained much ground in the
third quarter of 2009, with the
value of offerings rising 82%
from a year earlier to USD 6.2
billion. The outlook appears
robust as the demand for capi-
tal rises together with the re-
bound in the Global economy.
tional investors and pension
funds, which are looking to
diversify their portfolios.
Sukuk’s unique selling point
is that it does not carry any
interest, that is it is Sharia
compliant, and no govern-
ment guarantee is required
other than a feed-in-tariff.
The following figure is the
proposed structure of Sukuk,
which has Izahara agreement
(similar to lease payments).
Green Investment Bank
The Green Investment Bank
(GIB) is a vehicle for originat-
ing renewable energy projects
and then subsequently pro-
Figure 8: Sukuk (Izhara) Structure
viding required funding from to play a vital role in provid-
both internal and external re- ing capital in the form of
sources. The GIB is a medium both debt and equity.
to link projects with investors,
For equity participation the
involving government agencies,
public and private sectors
see Figure 9.
will have an upper limit and
The concept is similar to what the bank will be independent
was developed in 18th century for of its shareholders’ view.
the agriculture industry by
launching Credit Agricole. Like other investment banks,
GIBs will also have Equity
Unlike traditional investment Capital Markets (ECM),
banks, the GIB will only cater to Debt Capital Markets
the projects from renewable (DCM), Corporate Finance,
energy and energy efficiency Structuring, and Origination
sectors. services.
In this case, both government
and institutional investors have Cont., page 21

Increased stability in prices of

physical assets, such as land
and buildings, should also
make it less difficult to value
underlying Sukuk assets, pav-
ing the way for more deals. By
next year Pakistan, Indonesia,
and South Korea are expected
to issue USD 2 billion of Su-
kuk, See Link.

Interestingly, Sukuk can be

used best for infrastructure
projects, and the objective here
is to test the usefulness of this
sophisticated product, while
catering to renewable energy
infrastructure projects.

Sukuk can be used by an indi-

Figure 9: Services Offered by the Green Investment Bank
vidual, company, or a specific
project, but may not be suit-
able for multiple projects. For
this instrument, investors are
targeted from the Middle East,
Malaysia, Pakistan, Indonesia,
and other Muslim population
dominated countries, where
the appetite for such product is
high. Also targeted are institu-

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON

VOLUME 1, ISSUE 6
New Tools of the Trade, continued from Page 20
As a process, the origination
team will source projects from
the market, which after being
approved by credit committee
will be packaged in such a way
that it will have either govern-
ment guarantee or the GIB guar-
antee.
The project will then be shown to
local and international banks,
which will in turn provide fund-
ing for it. The GIB can also fund
the projects either in terms of
debt or equity using its own capi-
tal.
The bank will follow a strict due
diligence process as per a set
criterion laid out by investors
and government agencies. The
board members of GIB will liaise
closely with government agencies
for the approval and getting
guarantees for the projects.
Fundraising for the GIB is an-
other important aspect, and
gradually the bank can consider
going public thus raising more
capital through public market.
A Review of Experts Feed-
back
This section consists of analysis
of the responses from the inter-
viewees. Since respondents rep-
resented different sectors, it is
vital for to take their outlook in
terms of attractiveness of the
financial instruments for inves-
tors.
Analysis of their responses has
been attempted, which were sub-
jective in nature. This section
will represent the market view
and discuss the responses in con-
nection with each financial in-
strument discussed above.
Climate Bond
GREEN EDISON
www.green-edison.com
As expected the Climate Bond
was very well received. The
structure of the climate bond,
incorporates a government
guarantee (ensuring low risk)
combined with a reasonable
rate of return. This was per-
ceived as an attractive invest-
ment proposition by all inter-
viewees. This can be seen in
the graph below, see Figure
10.
Academics, Policy Makers,
and Investment Bankers like
the simplicity of the structure
and believe that investors
who wish to diversify their
portfolio towards green in-
vestments will be keen on
investing in such a security.
Though, investors were also
of the opinion that in addition
to the simplicity of the bond,
they would also like to see the
bond linked to some index,
such as renewal energy index.
Also, 86% of climate change
experts and 67% of investors,
amongst the respondents,
Figure 10: Climate Bond Response Statistics
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
appear positive for the proposed
climate bond structure.
However, there were several
concerns with this bond struc-
ture. Financial instrument selec-
tion depends upon which stage
the project is in, and the experts
feel that there is wide gap in
financing early stage renewable
energy projects, and this prob-
lem can be better resolved by
equity funding through Venture
Capitalist (VC) or Private Equity
(PE) funds, rather than a long-
term bond.
Financing such projects should
account for technology risk that
can only be addressed by VCs.
Few investment bankers
stressed the point that more
private participation is required
for reducing the carbon emis-
sion level, and this can be done
by having more equity funds or
fund of funds rather than bonds.
In addition, climate experts also
felt that due to the current fi-
nancial crisis it is unlikely that
the government will support
PAGE 21
such an initiative. How-
ever, we are assuming that
the government will give
guarantee on climate bond,
based on which the product
has been structured.
Experts also believe that
rather than having global
bond, it should be country
or state specific and the
importance should be given
to the regions which have a
developed bond market, for
example in the USA; New
York and Michigan, are
ideal states. Conceivably
one government will not
guarantee a project devel-
oped in another country.
If this bond were to be in-
ternational in scope further
research would need to be
completed in order to cre-
ate a structure that govern-
ment guarantees would be
possible. However, bonds
of any form may have a
tough time in the develop-
Cont., page 22
 www.green-edison.com

VOLUME 1, ISSUE 6
PAGE 22

New Tools of the Trade, continued from Page 21

ing world, as even the fastest
developing economies such as
India, where there are many
renewable energy and energy
efficiency projects on the hori-
zon, the bond market is still
evolving. Also room for tech-
nical products is very small in
other parts of Asia as well. As
the market for green energy
projects in Asia is large, it is
necessary to address these
concerns sooner than later.
It appears that there is a gen-
eral consensus amongst the
respondents about the attrac-
tiveness of this financial in-
strument to fund renewal en-
ergy and energy efficiency pro-
jects. There are a few concerns
that were raised, which we
need to consider in order to
make this instrument a suc-
cess.
sector.
On the other extreme, Climate
Change Experts and Investors
expressed concern over the
attractiveness of this instru-
ment which may be water-
tight over the first few years
of the hard non call period.
However, the upside potential
of converting debt into equity
will not be enough to waive
off the need for a government
guarantee. Thus, although
this product may appear at-
Figure 11: Convertible Bond Response Statistics
tractive at first glance, the need
for additional government in-
centive is not relinquished.
Both professors and policy mak-
ers had mixed feelings. While
the obvious reduced risk bene-
fits of convertible bonds are ap-
pealing, concerns were raised
when purchasing convertible
debt in this manner.
This is due to the fact that most
investible projects will be small
private companies and will not
issue equity in this manner.
Similar comments included
that “Convertible Bonds are
very company dependent”
meaning that “Debt holders
will like to take ownership
of the company and not the
pool of projects”
This may be a valid reason
why the proposed Converti-
ble Bond structure may not
be valid in practice and
thus needs to be explored
in more detail. However, in
Cont., page 23

Convertible Bond

The Convertible Bond received

a mixed response from the
market. Though every invest-
ment banker is positive about
this instrument, only 33% of
Policy Makers and 25% of Pro-
fessors have shown interest. In
fact, none of the Climate
Change Experts and Investors
Figure 12: Energy Efficiency Response Statistics
would recommend the prod-
uct. This is graphically de-
picted, see Figure 11.

This product is suited to debt

holders who would like use this
opportunity to take ownership
of projects. Experts believe
that such products can only be
issued by the large corpora-
tions which are not going
through the high growth spiral.

Mostly such companies will

have an established product
catering to other markets, and
also ventures into the renewal
energy and energy efficiency

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON
 www.green-edison.com

VOLUME 1, ISSUE 6
PAGE 23

New Tools of the Trade, continued from Page 22

theory the Convertible Bond is of Carbon Credits, it energy space, we received the invest according to their
appealing. makes sense for corporate to responses summarized in Figure risk appetite.
undertake energy efficiency 13.
Energy Efficiency Bond Supporters have also com-
policies
The Climate Change Experts mented that a securitized
Similar to the Climate Bond, the
seem most supportive to the bond will help banks in
Energy Efficiency Bond will offer Carbon Securitized Bond
idea of a securitized product. maintaining a capital ade-
a government guarantee to inves-
The Carbon Securitized Bond Supporters argue that CSB will quacy ratio and promote
tors. Unlike the Climate Bond,
the Energy Efficiency Bond will (CSB) is an Asset backed se- help the industry in arranging further financing in this
invest in solely energy efficiency curity which will imitate the larger capital and will meet the sector, eventually increas-
projects and is of lower tenure. A Collateralized Debt Obligation objectives of investors who ing the capital flow. It is
summary of the feedback is pre- (CDO) structure. The CDO would like exposure to the clean anticipated that institu-
sented in Figure 12, page 22. model has been prevalent in energy industry. tional investors will have an
the structured finance market appetite for this product, as
Interestingly, all Investment and is the most widely traded They also believe that due to the securitized structure is
Bankers surveyed are positive security. having different tranches in the very flexible.
about this instrument and believe Carbon Securitized Bonds, the
When asked about the effi- wider investor base can be ca- However, for the majority
that it can attract investors. They
cacy of this product to finance tered for, as investors can easily
feel that the “the Energy Effi- Cont., page 24
the projects in the renewable
ciency Bond seems more lucra-
tive than the Climate Bond due to Figure 13: Carbon Securitized Bond Response Statistics
its reduced tenure and its objec-
tive of energy efficiency, which is
easier to achieve.” Climate
Change Experts on the other
hand challenged the possibility of
an energy efficiency bond gaining
government backing in the cur-
rent economic climate. Only 14%
of Climate Change Experts would
express interest in this product,
as most of them challenged the
possibility of it existing in its
current incarnation.

However, since the overall senti-

ment for this product was posi- Figure 14: Carbon Indexed Bond: Response Statistics
tive, the following characteristics
were highlighted as its strengths:

1) Longer shelf life; as retrofitting

is the biggest chunk of the initia-
tives that need to be taken in this
direction.

2) Some economies like the US

and Canada have already started
working on raising capital for
these projects. Thus this initia-
tive has already gained momen-
tum in the global market.

3) With new legislations putting

an upward pressure on the price

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON

VOLUME 1, ISSUE
New Tools of the Trade, continued from Page 23
of respondents it was not a popu-
lar choice (as is evident from the
graph in Figure 13, page 23).
Academics are the least inter-
ested followed by Investors, In-
vestment Bankers, and Policy
Makers.
The feedback received indicated
that the proposed structure is not
conducive to the liquidity of a
securitized product due to the
recent subprime crisis. One of
the key culprits of financial crisis
and global recession is thought to
be subprime credit defaults.
Most of these subprime credits
were structured as a securitized
product.
Academics were in strong view of
not issuing the CSB instrument
at present, as the investors will
not be interested in investing
using this instrument. Respon-
dents also raised the concern on
the complexity of this structure,
as they believe that for the fledg-
ling low-carbon industry, simpler
products would be preferred be-
fore choosing complex products.
They think that an overhaul of
the unfavorable characteristics of
securitized products would take
large scale changes in govern-
ment regulations and this would
take years to implement. It ap-
pears that the current taboo at-
tached to securitized products is
GREEN EDISON
www.green-edison.com
6
perceived as the major hurdle
hampering the sale of CSB.
Experts made some insightful
suggestions to overcome this
problem. They would like to
see the structure as transpar-
ent as possible.
Experts also said that govern-
ment participation by buying
tranches will give comfort to
the investors and promote
funding through this product.
Respondents believe a com-
plete due-diligence and rating
by a reputed credit rating
agency is necessary.
As far as the place of issuance
is concerned, respondents felt
that the bond should be re-
gional in nature instead of
global.
It is better to have South East
Asian Bond, Asian Bond, Pa-
cific Bond, European Bond,
American Bond, etc., rather
than having a Global Carbon
Securitized Bond.
Interviewees have even sug-
gested that the CSB should
have cash flow from larger
renewable energy infrastruc-
ture projects instead of
smaller ones; they felt that it
is easier for large projects to
demonstrate consistent cash
flow rather than that of the
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
smaller projects.
Carbon Indexed Bond
The indexed bond is an innova-
tive instrument aimed at hedg-
ing the investors risk and incen-
tivizing the Government to pro-
mote the low-carbon industry.
When asked about the attrac-
tiveness of this product in the
market, the following responses
were received, see Figure 14,
page 23.
From the graph we see that the
Academics were most positive to
the idea, however, less than 50%
of the Academics think that way.
The general apprehension about
the CIB is its complexity, which
would deter people from invest-
ing.
Some specific concerns ex-
pressed were that, there will be
political concerns about the in-
strument as it is reversely linked
to carbon price. Still there is lot
of ambiguity in the way the Gov-
ernment will support or fund
such a bond.
One of the critical concerns
brought in by the experts is that,
not many countries have a ro-
bust regulatory environment to
allow such a sophisticated in-
strument. This product may sell
in countries with developed fi-
nancial systems, but not in other
PAGE 24
parts of the world. One of
the obvious concerns is that
if the government is willing
to go ahead with such a
complex product it should
also be comfortable in giv-
ing a guarantee to the plain
climate bond, and if it does
so, we may not need any
such complex instrument.
However, those in support
of this instrument said that:
1) This would be a good
hedging tool and thus
will be supportive to
the investment strate-
gies of large investors
like pension funds etc.
2) Governments like the UK
may need to issue
around £230 billion
debt out of which £100
billion will be linked to
carbon Price.
3) Super-funds in Australia
and New Zealand tend
to be more progressive
and thus would be bet-
ter markets for such
Products.
Cont., page 25
 www.green-edison.com

VOLUME 1, ISSUE 6
PAGE 25

New Tools of the Trade, continued from Page 24

Sukuk
There is very little awareness in
the market regarding this prod-
uct. None of the Policy Makers
and Investors interviewed has
shown awareness for this prod-
uct.
Overall, their responses were
neutral and even though they
believed that there might be huge
potential for this product in the
market, they could not invest in
this product due to a lack of un-
derstanding.
The communities which ex-
pressed interest and awareness in
this product were Investment
Bankers followed by Professors.
It is evident from Figure 15 that
65% of the Investment Bankers,
25% of the Professors, and 15% of
the Climate Change Experts are
positive about this product and
believe that this can be an effec-
tive tool in attracting capital for
renewable energy projects.
It is important to note that none
of the respondents is negative for
Sukuk, and the reason for a low
positive feedback is due to a lack
of awareness and understanding
of this product. Industry Experts
expressed that Sukuk can be a
very good product in tapping
capital from the Middle East.
There is a huge appetite for such
product in the Middle East and
other Muslim dominated nations.
Besides this, non-Sharia
courts may consider the Su-
kuk holders, as having con-
tractual rights rather than as
having proprietary rights.
The status of the Sukuk hold-
ers in these courts can be as
debt holders rather than eq-
uity holders.
It is worth noting that most of
these Sukuks are asset based
and not asset backed; whereas
in the latter one has a claim
for a particular asset. Inter-
estingly, it is not clear how
the courts will interpret re-
purchase clauses which are
embedded in the Sukuk, in
the event of a default.
With all the above hurdles, it
is important to note that the
Sukuk market is USD 1 tril-
lion in size, and is growing
very fast, see link.
Figure 15: Sukuk Response Statistics
There is huge demand for this
product from Muslim popula-
tion-dominant nations such as
the Middle-Eastern countries,
Pakistan, Indonesia, and Malay-
sia. There is also an increasing
demand for this product in non-
Muslim-dominated nations.
London is one of the largest
markets for Sukuk issuance, see
link; however, the capital flows
from Middle East for most of
these Sukuk issuances.
Sukuk is mostly used for energy
and infrastructure projects,
where renewable energy infra-
structure projects correctly fit.
On analyzing the responses, we
concluded that Sukuk would be
an appealing instrument for
raising capital for the renewable
energy infrastructure projects.
Though this instrument is still
evolving in terms of structure, it
is showing robust growth year-
on-year.
Green Investment Bank
In General respondents are
very positive about the
Green Investment Bank.
The GIB was a favorite
method of supporting re-
newable energy and energy
efficiency projects globally
by the academics, as the
efficacy of this idea excited
them.
It has a promising structure
in theory with a proven
track record of similar bank
structures such as the
European Investment Bank
and Credit-Agricole. Cli-
mate Change Experts, In-
vestment Bankers, Policy
Makers, and Investors have
also responded positively to
GIB. 80% of Climate
Cont., page 26

However, experts have shown

few concerns on Sukuk issuance,
specially related to default. Ac-
cording to them, though Sukuks
are issued through an SPV
(Special Purpose Vehicle), pool-
ing the underlying assets, these
assets have not been securitized
to be sold to investors.

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON

VOLUME 1, ISSUE 6
New Tools of the Trade, continued from Page 25
Change Experts and 70% of the
rest of the respondents have
shown confidence in GIB. The
following chart displays the posi-
tive response from the respon-
dents, see Figure 16.
Academics believe that the GIB is
a very effective structure benefit-
ing the low carbon industry. The
fact that the Investment Banking
experts can originate, structure,
and execute the deals make it a
unique proposition. The ability
of Investment Bankers to arrange
funding and structuring with a
government guarantee makes it a
special and an easy way of raising
capital. This industry will get
special attention as GIB is a fo-
cused investment bank catering
to only low carbon projects.
Few Policy Makers believe that a
quasi-government organization
would be more effective. It
would be better if the market has
the capacity to support the scale
of the renewable energy projects.
Getting a government credit line
will be a good idea and that
should cater to partial credit risk
guarantee and a local risk guar-
antee.
According to a few Investment
Bankers, the GIB gives comfort to
both investors and government,
and it will also help in large capi-
tal flow to the renewable energy
and energy efficiency sector. A
strong ECM team of GIB can help
the established low carbon com-
panies to raise capital by going
public, thus providing full ser-
vices to this sector.
Given the merits of the GIB, re-
spondents have also raised con-
cerns over its establishment and
the strategy implementation.
Academics believe that the trans-
action cost of running this bank
might be too high, and may de-
feat the purpose of having GIB, if
GREEN EDISON
www.green-edison.com
the volume is not high enough
to justify it. Unlike bonds,
one has to account for Selling
General and Administrative
expenses and other Operating
Expenses of GIB.
Experts also believe that the
establishment of GIB will
depend on the government,
which is providing maximum
funding.
Many industry experts raised
their concerns for the govern-
ment role in GIB, particularly
when the GIB is global or
regional in nature than coun-
try specific. Some experts feel
that the operational concerns
may be a big factor in identi-
fying the location of the GIB
particularly when it is global
or regional. To avoid this
problem, experts suggested
having less bureaucracy and
to maintain arms-length dis-
tance from government par-
Figure 16: Green Investment Bank Response Statistics
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
PAGE 26
ticipation. respondents who have
raised questions on the
Experts also suggested that GIB
commitment level of gov-
should have a larger localized
ernment and government
coverage, specific to the country,
agencies in giving guaran-
region, or state. They are of the
tee. They would like to wait
opinion that GIB should have
for the 2009 United Na-
minimum capital of USD 10 bil-
tions Climate Change Con-
lion, as it will incentivize govern-
ference before showing
ment to provide capital and a
confidence in the govern-
guarantee to both GIB and the
ment’s support of this sec-
projects sourced by GIB.
tor.
Private participation should be
As expected, some Invest-
encouraged in GIB as in recent
ment Bankers raised con-
years it has been observed that
cerns about the GIB com-
more than 80% of the invest-
peting with the established
ments in renewable energy pro-
investment banks.
jects have come from the private
sector. Structuring the bank is an-
other concern raised by the
To reduce the role of the govern-
industry experts. Most
ment, experts suggest that the
Investment Bankers do not
private investors should be given
think that having a global
the opportunity to have maxi-
bank is a good idea, and
mum participation, especially in
they believe that a country
selecting directors and the CEO
of the bank. There are a few Cont., page 27

VOLUME 1, ISSUE 6
New Tools of the Trade, continued from Page 26
specific GIB will work better as it
can cater well to the local needs.
However, this depends a lot on
the government, regulations, and
financial sophistication in that
country, where the GIB will be
established.
GE
Credits: The authors wish to
thank and recognize the Carbon
Disclosure Project in London,
which the authors collaborated
with to develop its analysis on
green financial instruments, and
with which this paper and analy-
sis could not have been possible.
The Carbon Disclosure Pro-
ject (CDP) is an organization
based in the United Kingdom
which works with shareholders
and corporations to disclose the
greenhouse gas emissions of ma-
jor corporations.
In 2008, it published the emis-
sions data for 1550 of the world's
largest corporations, accounting
for 26% of global anthropogenic
emissions. The CDP represents
475 institutional investors, with a
combined $55 trillion under
management.
GREEN EDISON
www.green-edison.com
Author Bios:
Nadir Keshani
Nadir is currently an MBA
student at the University of
Oxford. Prior to pursuing his
MBA, Nadir was a Manager at
Ernst & Young LLP where he
provided Research & Develop-
ment tax credit evaluation ser-
vices to several large multina-
tional companies in various
industries including Oil & Gas,
Information Technology, Tele-
communications, and Mining.
Nadir holds two concurrently-
completed Bachelor of Science
degrees from McMaster Uni-
versity.
Vaibhav Kapoor
Vaibhav holds a M.Sc. in Fi-
nancial Economics from the
University of Oxford. Vaibhav
has an engineering background
from Panjab University
Chandigarh India. Prior to
pursuing his master’s degree,
Vaibhav worked as a main-
frame software developer with
Tech Mahindra Ltd.
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
Amardeep Sharma
Amardeep holds an MBA from
University of Oxford. Prior to
his MBA, he has 7 years of bank-
ing experience, where he has
worked in Investment Banking/
Corporate Finance, Loan Syndi-
cation, and Corporate Banking,
divisions. Amardeep has experi-
ence working in India, Middle
East, and South East, where his
last position was as Country
Manager for Investment Bank-
ing/Corporate finance division
of ICICI Bank Limited. Amar-
deep also holds MBA from
NMIMS, Mumbai, and Bachelor
in Science (Mathematics) from
GGD University, India.
Ajeet Gorkhali
Ajeet has recently graduated
from University of Oxford with
an MBA. He is currently work-
ing with Standard Chartered
Bank as an MBA intern. Moving
forward, Ajeet seeks to work in
the Corporate Banking sector in
Asia or Europe. Prior to his
MBA, Ajeet has worked as a Fi-
nancial Advisor in Canada.
Note: Several Investment
bankers, Professors, Policy mak-
ers, Investors (which includes
pension funds, private equity
PAGE 27
investors etc.), and Climate
Change Experts were inter-
viewed to come out with
products that should solve
the problem of capital flow
in the renewable energy
and energy efficiency sec-
tor.
The Carbon Disclosure Pro-
ject team was very helpful
in arranging the interviews
with this wide array of ex-
perts.
As displayed in our analy-
sis, almost one-third of the
respondents were climate
change experts, and 15%
were either Investors, In-
vestment Bankers or Policy
Makers, the remaining one-
fifth of interviewees were
professors from prestigious
academic institutions.
For references that
supported the article,
Cont., page 28

VOLUME 1, ISSUE
References
Holmes, Ingrid, and Nick Mabey.
Delivering Energy Efficiency
to the Residential Sector:
The case for an accelerated
national energy efficiency
scheme. Rep. 2009.
Brown, Matthew. Paying for En-
ergy Efficiency Upgrades
Through Utility Bills. Rep.
Carbon Counts 2007: The True
cost Carbon Footprint Rank-
ing of UK Investment Funds.
Rep. Trucost Plc.
Change is coming: A framework
for climate change ? a defin-
ing issue of the 21st century.
Rep. Goldman Sachs, 2009.
Eckhart, Michael. Global Devel-
opment Bond. Rep.
Edwards, Rupert. Carbon finance
for developing country
greenhouse gas emissions
mitigation from 2010 ? 2020
and the role of a Global Cli-
mate Change Fund. Rep.
Climate Change Capital,
2009.
Energy Efficiency Roundtable
Wednesday 29th April 2009.
"Environment - Climate Change-
The EU's Contribution to
Shaping A Future Global
Climate Change Regime."
EUROPA - European Com-
mission - Homepage. 28 Oct.
2009 <http://ec.europa.eu/
environment/climat/
future_action.htm>.
Financing a Global Deal on Cli-
mate Change: A Green Paper
produced by the UNEP Fi-
nance Initiative Climate
GREEN EDISON
www.green-edison.com
6
Change Working Group.
Publication. 2009.
"Forest Investment Review |
Forum For The Future."
Homepage | Forum For
The Future. 28 Oct. 2009
<http://
www.forumforthefuture.
org/projects/forest-
investment-review>.
Fuller, Merrian. ENABLING
INVESTMENTS IN EN-
ERGY EFFICIENCY: A
study of energy efficiency
programs that reduce
first-cost barriers in the
residential sector. Publi-
cation. California Insti-
tute for Energy and Envi-
ronment.
Garibaldi, Jose A., Kate
Hampton, Niklas Höhne,
and Martina Jung. SCAL-
ING UP INVESTMENT
IN CLIMATE CHANGE
MITIGATION ACTIVI-
TIES: INTERFACE
WITH THEWORLD
BANK’S CARBON PART-
NERSHIP FACILITY.
Publication. 2009.
HAMILTON, KIRSTY. EN-
ERGY EFFICIENCY &
THE FINANCE SECTOR:
A survey on lending ac-
tivities and policy issues.
Publication.
Holmes, Ingrid, and Nick
Mabey. Accelerating
Green Infrastructure
Financing: Outline Pro-
posals for UK green
bonds and infrastructure
bank.
Investor leadership on cli-
mate change: An analysis
of the investment com-
© 2009, Thomas Dwight Publishing, LLC. All rights reserved.
PAGE 28
munity’s role on climate
change, and snapshot of
2009 <http://
www.guardian.co.uk/
recent investor activity.
commentisfree/
Publication.
cifamerica/2009/
Kidney, Sean, Karl Mallon, Nick
jun/26/climate-change
Silver, and Cynthia Wil-
-bill-cost>.
liams. Financing a rapid,
global, transition to a Low-
Produced by the UNEP
Carbon Economy. Rep.
Finance Initiative Cli-
2009.
mate Change Working
Group. Green Paper on
"McKinsey Report Cites $1.2
Financing a Global
Trillion in Potential Savings
Deal on Climate
From Energy Efficiency -
Change. Issue brief.
Green Inc. Blog - NY-
Times.com." Energy and
Schröder, Michael, Frie-
Green Business - Green Inc.
drich Heinemann, Su-
Blog - NYTimes.com. 28
sanne Kruse, and Mat-
Oct. 2009 <http://
thias Meitner. GPD-
green-
linked Bonds as a Fi-
inc.blogs.nytimes.com/200
nancing Tool for De-
9/07/29/mckinsey-report-
veloping Countries and
cites-12-trillion-in-potential
Emerging Markets.
-savings-from-energy-
Tech. no. 04-64. ZEW.
efficiency/>.
Tomlinson, Shane. BREAK-
NON-Carbon Market Financing
ING THE CLIMATE
Mechanisms for Climate
DEADLOCK: TECH-
Change Mitigation and Ad-
NOLOGY FOR A LOW
aptation in Developing
CARBON FUTURE.
Countries. Rep. Institu-
Rep. The Climate
tional Investors Group on
Group.
Climate Change (IIGCC),
2009.
TOWARD AN EFFECTIVE
GLOBAL CARBON
Noyes, Thomas. Energy Savings
MARKET. Rep. Insti-
and Positive NPV: The
tutional Investors
American Clean Energy and
Group on Climate
Security Act of 2009. Tech.
Change (IIGCC), 2009.
Petley, Simon, Jon Grayson,
The Economist (Print Edi-
Nick M. Gillespie, Susannah
tion) Issues April –
Turnbull, Andrew Gaines,
September 2009
and Andreas Wackernagel.
"Forest Backed Bonds Proof
of Concept Study."
"The price of climate change |
Thomas Noyes | Comment
is free | guardian.co.uk."
Latest news, comment and
reviews from the Guardian |
guardian.co.uk. 28 Oct.
 www.green-edison.com

Thomas Dwight Publishing, LLC is the

Thomas Dwight
Thomas Dwight Publishing, LLC
2776 Arlington Mill Drive
Suite 539
Arlington, VA, 22206
Contact Us:
subscriptions@thomas-dwight.com
submissions@thomas-dwight.com
editor@thomas-dwight.com
publisher of Green Edison, the most pre-
eminent renewable, energy finance, infra-
structure and technology publication in
the world. Green Edison is for the energy
executive, banker and VC, as well as the
state or federal regulator seeking inde-
pendent research, analysis and opinion on
green technology infrastructure invest-
ments and strategy.

Intelligently Putting Green to Work.

For a Subscription, Click this link to go to our Web Site

© 2009, Thomas Dwight Publishing, LLC. All rights reserved.

GREEN EDISON