In February, Citibank announced a milestone commitment of $100 billion to lend, invest and to facilitate projects that mitigate the effects of climate change. It’s not for the first time that the global investment bank has looked to create environmental solutions. In 2007, it pledged $50 billion towards efforts to “go green”.
The target was to allocate the capital over the course of a decade, but Citibank managed to meet their goal three years earlier than was planned.
A seminal project that was designed from the Climate Initiative of eight years ago was the 579 megawatt Solar Star in California, which is expected to be the largest solar power project in the world. When completed, the plant will deliver enough electricity to provide power to 255,000 homes.
Berkshire Hathaway Renewables, an arm of Berkshire Hathaway Energy, are the owners of the project. They contracted Sunpower to provide the solar panel modules.
Recently, Sunpower CEO Tom Werner announced that the project is on track and is expected to be fully operational by the middle of 2015.
The project is co-located in Kern and Los Angeles counties. Construction began in the early part of 2013. In total, 3,200 acres will be hoovered up by the vast array of panels, which will consist approximately of 1,720,000 modules.
Berkshire Hathaway Renewables are excited by the benefits that the project will bring to the local economy, increasing the amount of prosperity to the area.
Over the construction period, they said that 650 full time jobs will be created. Additionally, there will be 15 full time site positions when the project is complete.
It is estimated that the financial impact will be more than $500 million. This will be generated by a rise in business activity, accompanied by public revenue growth because of the development.
Reviewing the environmental benefits, the vast area consumed by Solar Star 1 and 2 will make positive use of land which previously served no purpose.
Impressively, Berkshire Hathaway Renewables says that the enormity of the solar project will result in more than 570,000 tons of carbon dioxide emissions being avoided per year. This is the equivalent of removing 2 million cars from the United States’ highways, for a staggering total of 20 years.
It’s a statistic that hands the Solar Star project a huge amount of supporting evidence, over the ecological worth from the investments made.
Citibank were attracted to the project, as it was owned by BHE, who are existing clients. They had collaborated on Topaz Solar Farm, also based in California, where BHE were again the owners of the project.
When BHE acquired the Solar Star project from Sunpower, Citibank were approached for financing the project.
Citibank’s interest in solar has been palpable, as they administered the financing for the Desert Sun solar plant, which was considered the largest in the world before the creation of Solar Star.
As the Solar Star project gathered pace, Citibank facilitated a $1 billion project finance bond offering, which they say is still the largest renewable energy bond offering that has ever existed.
The bond was offered in the 144A format, enabling exemption from Securities and Exchange Commission registration.
Investors in the bond ranged from life insurance funds and asset managers, in what was a typical investment pattern for a project of this kind.
The demand for the bond was enormous, and this hunger to invest was due to the quality of the project, and the sponsorship of it, with the companies who were involved, and the structure of the financing.
As these factors were accompanied by an environment of low interest rates, the project was even more enticing to invest in, as a long term high yield project, in comparison to corporate bonds.
The bonds also received a favourable response from rating agencies. Moody’s delivered a BAA3 rating, Standard and Poor appraised the bond as BBB flat, and Fitch also confirmed the bond’s good credit quality, with a BBB rating.
Many enthusiasts of renewable energy will be hoping that many other major institutions will follow in Citibank’s footsteps, in creating a viable financial sphere for the energy sector.
Marlene Motyka, US alternative energy leader at Deloitte LLP, reviewed the latest conditions in energy investments:
“Like all renewable energy projects, it’s important to have a long term power purchase agreement of hedge agreement, and they also need a third party who can utilise tax credits if the developers cannot. A strong market exists for the financing of renewable projects in order to monetise the tax credits.”
Motyka is also optimistic that commercial banks such as Citibank, and capital market investors, are now willing to come forward and participate in energy projects.
“There isn’t much clarity regarding how the Citibank announcement will impact renewable energy investments at this time. However, it’s another sign that renewable is considered mainstream and not considered as risky as they were in the past.”
She added: “There are more and more companies that are now utilising renewable energy to meet their electricity needs. This is consistent with Deloitte’s “reSources 2014” study where more than four-in-10 businesses (44%), say they generate some portion of their electricity supply on-site. Among those who generate electricity on-site, 10% of the generation comes from renewable sources.
“Things will continue to progress. There are many Yieldcos that have emerged in the last two years. In 2013, there were three that went public and they raised $1.07 billion, and in 2014 there were six and they raised $3.2 billion. There are at least four or five more YieldCos that will emerge in 2015.”