Carbon Capital 03

Simon Whitehouse, Managing Director, Accenture Management Consulting, Financial Services
Client Executive Sponsor
Peter Lacy, Managing Director, Accenture Sustainability Services, EMEA and Latin America
Project Executive Lead
Xavier Veillard, Accenture Management Consulting, Strategy
Co-author
Justin Keeble, Accenture Sustainability Services
Co-author
Shaun Richardson, Accenture Management Consulting, Financial Services, Strategy
Co-author
Authors
Vedant Walia Barclays Corporate Affairs, Sustainability
Rupesh Madlani Barclays Capital, European Renewables and Clean Technology Equity Research
Irakli Elashvili Barclays Corporate, Strategy
Richard Myerscough Accenture Consulting Group
Key contributors
Climate change is one of the greatest challenges facing the global society today. Barclays and
Accenture have partnered to produce this study to analyse the role of corporate and investment banks
in accelerating the shift to a low carbon economy. In it, we seek to quantify the capital required to
fund the development of low carbon technology (LCT) in the building, energy and transport sectors
and the different fnancing mechanisms that could be developed to help meet the demand for capital.
The study highlights the pivotal role that corporate and investment banks can play in rolling out low
carbon technology and infrastructure on a wide scale, bridging the fnancing gap and helping to
bring about the transition to a low carbon economy.
Study objectives
› › › › › ›
Report sections
I
Sources of capital
II
Approach
III
Capital
requirements and
carbon impact
IV
Financing LCT
development and
procurement
V
Emerging financing
schemes to increase
capital flows
VI
Recommendations
I II III IV V VI
What are the
sources of
the capital
requirements
for low carbon
technologies?
How can
these capital
requirements
be quantifed?
What are
the capital
requirements
and carbon and
cost impact?
Which fnancing
streams will
provide these
capital
requirements?
What are the
emerging
fnancing
schemes to
support capital
requirements?
What actions
are required to
enable these
fnancing
schemes?
Scope Method Findings Recommendations
RepoRt StRuctuRe
04 Carbon Capital
Financing the low carbon economy
Foreword
Climate change is a critical global social and economic challenge. It is set to affect us all for
generations to come. The transition to a low carbon economy – which is essential if we are
successfully to meet this challenge – will require signifcant investment from both the public
and private sector. This report was commissioned by Barclays in order to help answer some of the
questions as to how this transition will be made.
Barclays is already an active participant in the low carbon economy. We are providing a
wide range of fnancial and risk management solutions across our core business lines. We help
renewable energy frms access fnancing from the capital markets and offer strategic advisory
services across the sector. Barclays was also the frst major bank to establish a carbon trading desk.
We are now leading intermediaries in the EU Emissions Trading Scheme and are transferring
expertise to newer emissions markets. Our Equity Research teams provide coverage of the Global
Clean Technology and Renewables sector to inform investor decision-making.
We engaged Accenture to develop a comprehensive bottom-up model to estimate the growth of
low carbon technologies in Europe over the next decade. The research estimates a capital demand
of ¤2.9trillion to fnance the development and roll-out of new technology in fve key sectors.
Barclays, and the wider banking sector, will play a key role in mobilising this capital but there
are limits to what banks alone can accomplish. Uncertain policy frameworks and technology
risk are increasing the diffculty of investing in low carbon technology. We need clear and
consistent policy frameworks to help unlock the required fow of private capital.
This research also explores some new funding models that can be used to accelerate capital
fows to the sector, particularly access to deep and liquid bond markets. These will require
effective partnerships between banks, investors, project sponsors, rating agencies and public
sector actors to increase bond market fnancing. There may also be a need to create instruments to
share risk so that initial transactions can help build a track record and build investor confdence.
We at Barclays remain committed to playing a leading role in tackling climate change and
enabling the transition to a lower carbon economy. I hope you fnd this research a helpful
contribution to the debate on how we can address the climate change challenge in both Europe
and globally.
MARCUS AGIUS
Barclays Group Chairman
“ We need clear and consistent policy
frameworks to help unlock the
required fow of private capital ”
Carbon Capital 05
The shift to a low carbon economy is leading to a remarkable development of sustainable
low carbon technologies which are transforming and reshaping core industry sectors and
infrastructures across our society.
We, Accenture, play an active role in developing and integrating low carbon technologies
in tomorrow’s society by working with industries, governments and non-governmental
organizations to reduce the global energy footprint, and ultimately achieve energy security and
climate change mitigation. Our work on intelligent cities, smart buildings and smart grids are
examples of transformational initiatives we aim to implement on a global scale.
However, we recognize that the shift to a low carbon economy requires an unprecedented level
of capital investment. Through a distinctive modelling approach, this report provides unique
insights on the sources and volume of capital required to fund a range of commercially viable low
carbon technologies and quantifes the impact these will have on energy cost and carbon savings.
With an estimated ¤2.9trillion of capital required in Europe up to 2020 to fund low carbon
technologies, this report confrms that the private sector will play a crucial role in the provision
of capital. High level of sovereign debt and maturing technology now imply that private sector
capital, primarily intermediated by banks, must be provided to accelerate the investments we need
to meet our 2020 goals.
The fnancial services industry and more particularly banks, are still facing multiple challenges
in recovering from the fnancial crisis. Financing low carbon technology represents a unique
opportunity for banks to beneft from the signifcant growth of the low carbon technology
sector whilst demonstrating a positive contribution in tackling climate change.
But this will require adaptation and innovation of core banking products and services
to address the specifc capital requirements, risk level and regulatory environment of low
carbon technologies.
Having worked with banks for over two decades, I am confdent that they have the capability
to innovate and effectively intermediate the level of capital highlighted in this report; and you
can be confdent that we will be working with industry leaders like Barclays to achieve this goal. I
hope that you enjoy reading this report and fnd the analysis insightful.
PIERRE NANTERME
Accenture Chief Executive Offcer
“ Financing low carbon technology
represents a unique opportunity for
banks to beneft from the signifcant
growth of the low carbon technology
sector whilst demonstrating a
positive contribution in tackling
climate change ”
06 Carbon Capital
Financing the low carbon economy
Advisers
ACCENTURE INTERNAL ADVISERS
Lloyd Altman Capital Markets Trading and Risk Management
Dorothy Armstrong Financial Services, Strategy
Mauricio Bermudez Neubauer Sustainability Services, Carbon Markets
Eric Clement Capital Markets, Structured Finance
Piercarlo Gera Financial Services, Strategy
Simon Giles Resources, Smart Technology
Richard Hanks Resources, Smart Metering
Jenny Hawes Resources, Smart Grid
Seb Hoyle Transport and Travel Services, Supply Chain
Frederick Jones Financial Services
Richard Kho Resources, Clean Energy
John Rhoads Sustainability Services, Smart Buildings
Melissa Stark Resources, Clean Technologies
Robert Stubbs Banking, Research
Andy Tinlin Financial Services, Strategy
James Woodhouse Financial Services
Barbara Wynne European Policy and Government Relations
Serge Younes Sustainability Services, Clean Energy
BARCLAYS INTERNAL ADVISERS
Lorraine Connell Director, Investment Banking Public Sector Team
Adam Darling Vice President, Barclays Natural Resource Investments
James McKellar Managing Director, Power, Utilities and Infrastructure,
Head of Renewables, Barclays Capital
Gareth Miller Director, Head of Renewables Project Finance,
Barclays Corporate
Theodore Roosevelt IV Managing Director & Chairman of Barclays Capital
Cleantech Initiative
Nick Salisbury Director, Barclays Corporate Real Estate
Alastair Tyler Head of Strategic Asset Finance, Barclays Corporate


Disclaimer
This report has been prepared by Accenture (UK) Limited (“Accenture”) solely for the beneft of Barclays Bank PLC (“Barclays”) for
the purposes stated in the report and shall not be used for any other purpose. This report was prepared by Accenture on instruction
from Barclays and on the basis of information provided by, or on behalf of, Barclays. Accenture has assumed all such information to be
complete and accurate and has not independently verifed such information. Each recipient of this report is entirely responsible for the
consequences of any use of the report, including any actions taken or not taken by it, based on any part of the report.
If this report or any of its contents is disclosed to or received by any other person, whether with or without our consent, that other
person must appreciate that this report was prepared on the basis of instructions and information given to us, and cannot be relied
on by any third party, whose circumstances or requirements may be different. Accordingly, Accenture and Barclays accepts no liability
of any kind, whatsoever or howsoever caused, to any third party arising from reliance in any way on any part of this report.
Barclays Bank PLC is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange.
Barclays Bank PLC is registered in England No. 1026167, registered offce: 1 Churchill Place, London E14 5HP.
Carbon Capital 07
Foreword 04
Executive summary 08
Introduction 11
The drivers of the low carbon economy
The growing capital requirement
I – Sources of capital 17
II – Approach 23
LCT applications and geographical scope
An advanced modelling approach based on an s-curve adoption method
III – Capital requirements and carbon impact 30
Overall impact for Europe
Detailed LCT applications analysis
Delivering a Smart Grid in an Intelligent City – SmartGridCity in Boulder, Colorado
IV – Financing LCT development and procurement 48
Barriers to capital provision
Development capital
Procurement capital
The role of corporate and investment banking products and services
V – Emerging fnancing schemes to increase capital fows 58
Overall applications of fnancing schemes to external capital needs

VI – Recommendations 69
Policymakers
Corporate and investment banks

Conclusions
Appendix I – Full list of initially considered LCT 72
Appendix II – Capital, emissions and cost savings sizing model 73
Appendix III – Financing streams for procurement capital model 74
Appendix IV – Financing streams for development capital model 75
Appendix V – Individual LCT models’ details and assumptions 76
Appendix VI – Power mix forecasts methodology 85
Appendix VII – Bibliography 86
Glossary of terms 88
Contents
AccentuRe
Accenture is A global management consulting, technology
services and outsourcing company, with approximately
211,000 people serving clients in more than 120 countries.
combining unparalleled experience, comprehensive
capabilities across all industries and business functions,
and extensive research on the world’s most successful
companies, Accenture collaborates with clients to help them
become high-performance businesses and governments.
the company generated net revenues of us$21.6billion for
the fscal year ended August 31, 2010. its home page is
www.accenture.com
united Kingdom registered offce:
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30 Fenchurch street
London
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england
tel: +44 (0) 20 7844 4000
Fax: +44 (0) 20 7844 4444
For more information visit: www.accenture.com/sustainability
BARclAyS
BArcLAys is A major global fnancial services provider
engaged in retail banking, credit cards, corporate and
investment banking and wealth management with an
extensive international presence in europe, the Americas,
Africa and Asia. With over 300 years of history and expertise
in banking, Barclays operates in over 50 countries and
employs nearly 147,000 people. Barclays moves, lends,
invests and protects money for 48 million customers and
clients worldwide.
For further information about Barclays, please visit our
website www.barclays.com
Social Intelligence Series
Barclays is collaborating with independent experts to
build and disseminate knowledge on key global social and
environmental issues. see: www.barclays.com/sustainability
We welcome your feedback. email: sustainability@barclays.
com or write to the address below.
Barclays PLc
1 churchill Place
London
e14 5HP
this report was published in February 2011.

08 Carbon Capital
Financing the low carbon economy
In this report we seek to:
Quantify the amount of capital needed to fund essential
Lct in the building, energy and transport sectors in europe
to 2020 and in selected countries globally up to 2020 for
the energy sector only.
Measure the cost and emissions savings that will come
from investing in Lct.
identify various fnancing streams which could potentially
provide suffcient capital to meet demand for the technology.
Outline supporting fnancing schemes and instruments
that stimulate more capital provision.
Make recommendations to banks and policymakers on how
they accelerate the provision of capital to the Lct sector.
Findings
Fifteen commercially viable Lct applications in europe
were considered in this report. these require €591billion in
development capital and €2.3trillion in procurement capital.
this would lead to savings of €261bn and 2.2 Gt cO
2
e.
rolling out this technology would bring the eu emissions
down to 83 per cent of 1990 levels by 2020. taken together
with the carbon savings expected from other sectors,
such as manufacturing or chemicals, this would make
the eu far more likely to meet its target of a 20 per cent
reduction in emissions.
scientists BrOADLy AGree that if the world is to prevent
irreversible climate change, levels of greenhouse gas emissions
must be stabilized by 2015 and reduced in the years that
follow
1
. Moving to a low carbon economy will be crucial to
achieving these reductions and will require unprecedented
levels of investment in low carbon technology (Lct): as much
as two per cent of GDP
2
according to some estimates.
At present there is not suffcient investment to fund the
transition to a low carbon economy, with the gap between
the capital needed and that available widening. if this “carbon
Executive summary
capital chasm” is not addressed, the eu will be in real danger of
missing its emissions targets. With the world barely recovered
from a severe economic downturn, public fnances tightening
and little real consensus on emissions targets, most of the
funding for the low carbon economy is expected to come from
the private sector.
How much capital will be required to fund the development
and procurement of low carbon technology? in addition,
how can banks develop fnancing schemes to support the
provision of capital?
Photovoltaic solar power is the most capital intensive within
the Lcts identifed. the technology is about fve times more
expensive than onshore wind, for example, and production
effciency remains below 20 per cent on average. it will cost
about €365bn to procure both large-scale infrastructure
and micro installations.
€2.4trillion will be required to fnance renewable energy
(wind, solar, geothermal and biomass) in europe (eu25),
china, india, usA, Japan, canada and Australia to 2020. this
investment will lead to a 6.6Gt cO
2
e reduction.
Approach
We take a unique approach to quantifying the capital
needed for the low carbon economy. Past models have
been supply driven, estimating Lct capital requirements
“top down” based on emission targets. By contrast, our
model calculates the capital needed to fnance the
development and commercialization of Lct (“development
capital”) and the amount needed to fnance the procurement
of Lct assets (“procurement capital”). this is derived from
a demand-driven model based on realistic adoption rates for a
range of Lcts.
¤2.2trillion is estimated to be fnanced
by sources external to the entity
procuring or developing the LCT.
1 IPCC, Working Group
II Report “Impacts,
Adaptation and
Vulnerability”, 2007
2 Accenture Analysis,
based on capital
requirements
presented in GIBC
and new estimates
from Lord Stern
re-evaluating
estimates presented
in “Stern Review on
the Economics of
Climate Change”,
2006
Carbon Capital 09
new sources of fnance
Out of all the capital required to fund Lct up to 2020,
€2.2trillion is estimated to be fnanced by sources external
to the entity procuring or developing the Lct. corporate and
investment banks as intermediaries have a signifcant role in
mobilizing this fnancing. However, technology risk and policy
uncertainty signifcantly increase investment risk, making it
a signifcant funding challenge. Banks will need to work with
investors and project sponsors to identify innovative solutions
which meet investor needs and enable them to deploy capital
to this space. some emerging fnancing schemes include:
unlocking access to Lct fnance through capital markets
and “green bonds”.
Financing energy-effcient and micro-generation assets
through leases.
creating new investment vehicles for Lct asset management.
investing equity in Lct assets and developers.
Developing advisory services to improve Lct sector risks
and opportunities assessments.
policymakers should:
Provide a long-term and stable commitment to incentives
that support the commercialization of Lct.
Leverage public funding to stimulate private
sector investments.
Develop standards for asset-backed securities funding
Lct assets and “green bonds”.
Recommendations
in the report we make a number of recommendations for banks and policymakers to speed up the introduction of fnancing for the
low carbon economy.
corporate and investment banks should:
Develop the capabilities to provide Lct
asset-backed securities.
set up dedicated investment funds to give investors
strategic exposure to the Lct sector.
increase primary equity and debt contributions in
Lct assets and developers.
Provide debt fnancing for energy-effcient and
micro-generation asset leases.
Develop technical, regulatory, fnancial and
commercial expertise to support the risk
assessment of Lct assets and developers.
› › › ›
Carbon Capital 11
Introduction
This section examines:
The drivers of the low carbon economy.
The growing capital requirement.
The drivers of the low carbon economy
Buildings (e.g. smart buildings).
Electricity distribution (e.g. smart grid).
Electricity production (e.g. renewable energy).
Many facTors havE emerged in the past decade that highlight the urgent need to develop low carbon and renewables
technology. Low carbon technologies (LcTs) are equipment and infrastructure that enable energy effciency or alternative energy
production and use, leading to a reduction of carbon emissions, directly or indirectly. The full range of technology considered in
this study is in appendix I and is categorized as follows:
A number of factors bolster the demand for LCT:
consumers and businesses are recognizing the case for action.
Energy security is a primary concern for governments.
LcT represents an opportunity for growth and job creation.
carbon emissions mitigation is supporting the emergence of carbon reduction targets and of carbon markets.
carbon markets are increasing cost pressure on carbon intensive industries.
Technological advances and innovation have led to signifcant cost effciencies.
DEManD for fossIL fuels has soared in developed and
developing countries in the past decade. consumers, businesses
and industry are demanding more energy, whether to power
new electrical appliances coming on to the market or to
automate business processes. The stark increase in demand for
electricity (10 per cent per capita on average between 1999 and
2009
3
in EU15) combined with rising energy prices (the price of
electricity increased by 47 per cent for domestic and 34 per cent
for industry between 1999 and 2009 in EU15
4
) have propelled
energy cost effciency up individual and corporate agendas.
Consumers and businesses are recognizing the case for action
Transport vehicles (e.g. bio-fuel vehicles).
Transport infrastructure (e.g. e-vehicle charging system).
Key players Drivers Impact Response
Energy supply security and economic growth
Environmental targets and regulations
smart buildings operational and energy cost effciency consumers and businesses
alternative transportation
renewable energy
smart grid
Energy effciency equipment new technology advancements and applications
Technology
developers and providers
D
e
m
a
n
d

f
o
r

L
c
T
s
Governments and policymakers
ThE DEManD for Low carBon TEchnoLoGIEs 1
3 accenture analysis,
derived from
Eurostat fgures for
energy consumption
in Europe
4 Eurostat average for
EU25 countries
Domestic price (mid band)
Industrial price (mid band)
2003 2005 2007 2009 2011
80%
100%
120%
140%
160%
2013
147%
134%
Domestic price (mid band)
Industrial price (mid band)
2003 2005 2007 2009 2011
80%
100%
120%
140%
160%
2013
147%
134%
Domestic price (mid band)
Industrial price (mid band)
2003 2005 2007 2009 2011
80%
100%
120%
140%
160%
2013
147%
134%
12 Carbon Capital
Financing the low carbon economy
ELEcTrIcITy rETaIL prIcE In EUropE (EU15) BETwEEn 1999 anD 2009 (100% In 1999) 2
1999 2001 2003 2000 2002 2004 2005 2006 2007 2008 2009
100%
80%
140%
147%
134%
120%
160%
2
Source:
Eurostat
Domestic price
(mid-band)
Industrial price
(mid-band)
5 IEa, derived from
country energy
balance
6 The renewable
Energy Law of the
people’s republic
of china, february
2005
7 prospectus for
London, The Low
carbon capital, E&y,
2009
8 section 22, council
of European
Union presidency
conclusions, 12
December 2008
9 annual European
Union greenhouse
gas inventory
1990-2008 and
inventory report
2010, European
Environmental
agency, June 2010
10 carbon reduction
targets not up for
re-negotiation: India,
December 2009
11 china’s carbon
intensity targets
explained, financial
Times, november
2009
Carbon emissions mitigation is supporting the
emergence of carbon reduction targets and of carbon markets
DEspITE ThE aBsEncE of a global agreement on carbon
reduction, many governments have committed to aggressive
targets in line with the Kyoto protocol and copenhagen
agreements. The EU has set a target of taking emissions down
to 20 per cent of 1990 levels
8
, with some member countries
striving for more ambitious targets: the UK wants a 34 per
cent reduction, Germany 40 per cent and france 30 per cent
compared with 1990 levels
9
. Globally, a number of countries
have also committed to reduce the carbon intensity of their
economy by 2020 with India pledging a 20-25 per cent
10
and
china pledging 40-45 per cent
11
reduction in carbon emissions
co
2
e/GDp compared with 2005 levels.
To achieve these targets, governments have begun to
tax carbon intensive industries and activities directly (e.g.
UK carbon reduction commitment, sweden carbon Tax,
france EcoTax). Emissions trading schemes brought in
by governments seek to put a price on carbon. The most
prominent scheme is the European Union Emissions Trading
scheme (EU ETs). Launched in 2005, the EU ETs was the
world’s frst operational carbon emissions market.
Energy security is a primary concern for governments
In 2007, chIna imported 47 per cent of its crude oil, the Us
imported 35 per cent and the EU 94 per cent
5
. To reduce
dependency on foreign imports, governments have developed
a range of incentives and regulations to stimulate demand for
renewable and LcT. new policies emphasize an increase in the use
of renewable energy to reduce reliance on energy imports.
one prolifc example is that of feed-in-Tariffs (fITs) which
typically guarantee a long-term premium price to clean electricity
vendors. fITs have been introduced in most major European
economies, including Germany, france, UK, Italy and spain. china,
which established an fIT in its renewables Energy Law in 2005, is
one of several other countries implementing the tariffs globally
6
.
other schemes force utilities to derive additional electricity from
renewable sources, including renewable Energy certifcates
(rEcs) in the Us or renewable obligations certifcates
(rocs) in the UK.
LCT represents an opportunity for growth and job creation
In aDDITIon To decreasing reliance on foreign energy sources,
governments are using the transition to a “green economy” as an
opportunity for economic growth, e.g. London’s proposed carbon
mitigation activities are estimated to deliver 14,000 gross jobs per
annum and £600m per annum of gross value-added opportunities
7
.
accordingly, some governments have provided fiscal incentives (Green
funds tax-based incentive scheme in the netherlands, Low carbon
network fund in the UK) to drive investment in the LcT sector.
0
5
10
15
20
25
Carbon Capital 13
carBon rEGULaTIons sUch as the EU ETs have forced
companies to bear the cost of their carbon emissions. while
some locally traded sectors such as utilities will be able to pass
on the extra cost of complying with regulations to consumers
through electricity bills for example, energy intensive sectors
producing globally traded goods such as metals, cement and
chemicals, will see the effect of stringent carbon regulations on
their balance sheets and income statements.
“Emissions levels will be a liability and any emissions
allowances an asset, and the difference between the two will
determine the net impact on company accounts
12
.”
companies covered by regulations will compare their internal
abatement cost to the market price of emissions permits
on the carbon markets (approximately €15 during august
2010
13
on the EU ETs). The caps and the amount of credits
allocated for free will decline in time, expanding the cost liability
and reducing proftability, driving demand for lower carbon
operations and therefore LcTs.
Carbon regulations are generating growing cost pressures
12 seizing the
opportunities in
the Low-carbon
Economy, accenture,
2010
13 EcX EUa futures
contract: historic
Data 2010, European
climate Exchange,
2010
14 TEchpoL
database, European
commission world
Energy Technology
outlook, 2050
15 DoE solid-state
lighting cLIpEr
program summary
of results, DoE,
february 2009
16 Enerdata power
production database
ThE rEvEnUE IncrEasE rEqUIrED for UTILITIEs To MaInTaIn a
consTanT rETUrn on capITaL facTorInG In ThE cosT of carBon EMIssIons
Cost of direct carbon emissions assumed
(US$/tonne)
R
e
v
e
n
u
e

i
n
c
r
e
a
s
e

n
e
e
d
e
d

t
o


m
a
i
n
t
a
i
n

i
n
d
u
s
t
r
y

r
e
t
u
r
n

o
n

c
a
p
i
t
a
l
Technological advances and innovation have led to significant uptake
rEcEnT aDvancEMEnTs anD developments in
cleantech have resulted in reduced procurement and
operating costs. solar pv cost per Mw-capacity has
decreased by more than 30 per cent between 2000
and 2010
14
and similarly, the cost of Light Emitting
Diodes (LEDs) is expected to drop signifcantly due
to advancements in material science
15
. The cost of
micro-chp, biodiesel vehicles, and other LcTs has also
dropped substantially. This cost-reduction trend is
expected to continue as technology matures, making
LcT more affordable and accessible to industries
and end customers.
The growing prevalence of LcT has led to a growth
in support services such as engineering, operating and
maintenance. This in turn has led to and steepened the
innovation learning curve and led countries to adopt the
technology at a faster rate. Germany’s share of wind power
as a proportion of electricity production was 6.3 per cent
in 2009, while in Denmark it was 18.6 per cent
16
. This
compares with much lower levels in 2000.
0 10 30 50 20 40 60
0%
5%
10%
15%
20%
25%
3
Source:
GS SUSTAIN, Global
Investment Research,
Goldman Sachs
0
5000
10000
15000
20000
0
10000
20000
30000
40000
50000
Procurement of LCT equipment and infrastructure requires
an increasing volume of capital
14 Carbon Capital
Financing the low carbon economy
LcT InfrasTrUcTUrE anD equipment tends to be
capital intensive, requiring signifcant capital expenditure
upfront. The average cost of building a wind farm in
Europe was €140m
21
, or €1.7m per Mw-capacity
22
between
2004-2009

. Implementing a smart grid (upgrading the
electricity distribution network through dynamic monitoring
and control) in a city of one million households is estimated
to cost about €2.6bn
23
(including substation automation
and distributed storage). funding this infrastructure will
require signifcant investment from utilities, local authorities
or other operators.
for individuals, switching to LcT is also very costly.
To mount a 2kwp solar panel on a roof would cost
approximately €11,351
24
, a signifcant outlay for
most households.
nevertheless, with more people adopting LcT despite the
high costs, the amount of capital invested soared to a record
high of $42bn in Europe in 2008 (figure 5). Despite the global
recession, the amount of capital going into LcT procurement
capital fell by only fve per cent in 2009 compared to 2008,
suggesting that the appetite for LcT equipment and
infrastructure is not diminished by economic cycles.
procUrEMEnT of LcT equipment and infrastructure requires an increasing volume of capital.
2004 2004 2006 2006 2008 2008 2005 2005 2007 2007 2009 2009
$5
$10
$10
$20
$15
$30
$40
$20 $50
$ $
I
n

$
B
n
DEvELopMEnT capITaL ($Bn) In EUropE BETwEEn 2004 anD
2009, By fInancInG sTrEaM – EUropE (EU25) onLy
4
I
n

$
B
n
capITaL raIsED To fUnD assETs ($Bn) In EUropE BETwEEn
2004 anD 2009 By fInancInG sTrEaM – EUropE (EU25) onLy
5
Source:
Bloomberg New
Energy Finance
Bond and other
Project debt
Balance sheet
Convertible and other
Secondary & PIPE
IPO
PE expansion capital
VC late stage
VC early stage
4
5
ThE aMoUnT of capital available for developing LcT
has risen sharply, yet remains vulnerable to the global
economic cycle. as the LcT sector grows, demand for early
stage capital to fund LcT developers is high. In 2009, $5.64bn
17

was invested globally in cleantech venture capital with the
majority of the technology classifed as alternative energy or
energy effciency
18
.
a signifcant shift in venture capital investment towards
cleantech is underway.
In the Us in 2002, cleantech represented less than fve
per cent of venture capital investment compared with an
estimated 25 per cent for software and 15 per cent for
biotech
17
. In 2009, cleantech venture capital investment
reached the same level as biotech at 20 per cent, ahead
as DEManD for LcT has risen, so has the need for capital to develop and deploy the technology.
of software at about 17 per cent
17
. This trend is essential
to anticipating the expected future demand in late-stage
development capital for the cleantech sector.
however, this fnancing stream is highly volatile and carries
a correlation to investor confdence and the global economic
outlook. In 2009, LcT investment in development capital
dropped by 49 per cent
19
as the global recession took hold,
while procurement capital remained at a similar level to 2008.
with more LcT companies reaching the later development
stage, demand for late- and growth-stage private and public
equity has risen sharply. LcT initial public offerings (Ipos)
totalled an estimated $6.5bn with 24 taking place around the
world between July 2009 and June 2010
20
, up 360 per cent on
the same period in 2008/09 (figure 4).
17 scaling cleantech:
corporations,
Innovation and
Imperatives for the
2010s, cleantech
Group, april 2010
18 share derived from
the composition of
the cTIUs Index
19 Bloomberg new
Energy finance
20 Bloomberg new
Energy finance,
derived from
transactions
database
21 Bloomberg new
Energy finance,
derived from
transactions
database
22 Bloomberg new
Energy finance,
derived from
transactions
database
23 accenture smart
Grid services, derived
from smart grid
components price
estimates
24 Global renewables
Demand forecast
2010-2014E, Barclays
capital Equity
research, august
2010, derived from
¤/wp cost provided
The growing capital requirement
External
procurement
capital
This section examines the scope for capital required for both the development of the LCT industry and procurement
of LCT equipment.
Key messages:
 Capital associated with fnancing the operations (R&D,
production and commercialization) of companies
developing LCT is defned as development capital.
 Capital associated with fnancing LCT asset procurement
has been defned as procurement capital.
 This distinction is essential, as both streams will need
to be stimulated differently to create market supply and
demand for LCT equipment and infrastructure.
 Average transaction sizes involved in development capital
including IPOs, bridge fnancing, mezzanine fnancing,
junior debt and senior debt are lower than those in other
sectors, creating demand for bespoke fnancial products
and services.
Carbon Capital 17
Individual and institutional investors
External
development
capital
Internal development capital Internal procurement capital
Providers and developers Buyers
LCT equipment
LCT infrastructure
Stimulate and support
LCT market demand
Stimulate and support
LCT market supply
Primary
Investments
Secondary
Investments
Primary
Investments
Secondary
Investments
Primary
Investments
Primary
Investments
€ € €

€ € €
Corporate and investment banks
Examples include: individual investors,
pension funds, insurance funds

DEvELOPmEnT CAPITAL IS necessary to drive innovation,
product enhancement and operational effciency in LCT.
In general, development capital only attracts interest
from corporate and investment banks when companies
reach growth stage, i.e. commercializing products for
the mainstream market. Earlier fnancing streams rely on
venture capital and private equity investment primarily
from dedicated companies (examples include Carbon Trust
ventures, Emerald Technologies, SET ventures, and others).
We review the main sources of external development capital
along with key fnancial characteristics of LCT transactions
in Figure 7.
Development capital
I
Sources of capital
In this report, LCT fnancing is segmented between
Development capital and Procurement capital. Development
capital includes banks providing equity and debt, for
example to a company whose products or services are
core to the LCT value chain. Procurement capital refers
to fnancing the purchase and installation of LCT assets.
Both streams address different entities and are considered
distinct for the purpose of this study (Figure 6).
Both streams will need to be stimulated and supported
differently to create supply and demand for LCT.
SOuRCES OF DEvELOPmEnT AnD PROCuREmEnT CAPITAL 6
DEvELOPmEnT CAPITAL TRAnSACTIOnS 7
18 Carbon Capital
Financing the low carbon economy
Examples of transactions include
25
:
(France, venture Capital): margeriaz Energie, France-based
operator of biogas power plants has raised €1.5m in a
Series A funding round.
(netherlands, IPO): Sensata Technologies, maker of sensor
and controls for alternative fuel vehicles and solar panels,
raised $569m from its nYSE IPO.
(united Kingdom, Secondary offering): Renewable
Energy Generation Ltd raised £43m through the placement
of new shares.
(Spain, Corporate debt): Spanish Pv manufacturer Siliken
has signed a loan worth €31m with a syndicate of 10 banks.
Ranges and averages of transactions segments were adjusted and derived from frequency and value of transactions, provided on Bloomberg
New Energy Finance. Ranges and averages values were adjusted based on interviews with subject matter experts at Barclays and Accenture.
DEVELOPMENT
STAGE
COMPANY
CONCEPTION
PRODUCT
PROTOTYPE
PRODUCT
DEMONSTRATION
PRODUCT
COMMERCIALIZATION
OPERATIONS
GROWTH
mezzanine debt
n/A
Corporate Bridge Finance
$1-10m
Avg. 2004-2010 $7m
Discovery
and R&D grants
$1-50m
Avg. 2004-2010 $33m
Guaranteed loans,
match funding
$45-115m (g. loan)
Avg. 2004-2010 $74m
Tax credits,
Demonstrating projects grants
n/A
Early Stage venture Capital
$0.6-20m
Avg. 2004-2010 $9m
Seed Capital/Angel
$0-2.3m
Avg. 2004-2010 $2m
$1-65m
Avg. 2004-2010 $22m
Late Stage
venture Capital
$1-125m
(IPO) Avg. 2004 -2010
$84m
IPO,
buyout
fINANCING
STREAMS
(ExTERNAL
ONLY)
Transactions value size in scope for corporate
and investment banks’ products and services
Increasing external fnance
DEVELOPMENT
STAGE
OPERATIONS
GROWTH
ORGANIC AND
ExTERNAL GROWTH
LONG-TERM INVESTMENT IN OPERATIONS,
R&D, INfRASTRUCTURE & ACQUISITIONS
Additional Secondary
n/A
Corporate/Senior Debt
$1-250m
Avg. 2004-2010 $210m
Secondaries & PIPE
$1-100m
Avg. 2004-2010 $39m
Convertible /Junior Debt
$1-150m
Avg. 2004-2010 $111m
fINANCING
STREAMS
(ExTERNAL
ONLY)
Transactions value size in scope for corporate and investment banks’ products and services
Increasing external fnance
25 Bloomberg new
Energy Finance
Carbon Capital 19
Procurement capital
ThE vALuE OF transactions in LCT procurement range
from small individual investments to large project fnance.
Individual applications such as alternative vehicles, household
Pv panels and smart meters require small amounts of
procurement capital compared with large renewables
infrastructure projects. however, small-scale LCT can be rolled
out in large volumes, either by service providers or equipment
manufacturers. Examples include British Gas introducing two
million smart meters between 2010 and 2012 in the uK
26
,
and TnT planning the roll-out of 200 electric freight
vehicles
27
. ultimately, the available funds of the buyer relative
to the size of the investment needed will drive the demand
for external capital.
The main sources of external procurement capital
are reviewed along with key fnancial characteristics of
transactions as they relate to the LCT sector in Figure 8
28
.
Asset lease Short-term asset lending (bridge)
Range: $1-115m
Avg. 2004-2010 $101m
Range: $10-120m
Avg. 2004-2010 $66m
Project fnance
Range: $70-400+m
Avg. 2004-2010 $175m
Bonds
Range: $80-400+m
Avg. 2004-2010 $169m
Asset fnance – term loan
Range: $1-200m
Avg. 2004-2010 $85m
fINANCING
STREAMS
(ExTERNAL
ONLY)
ASSET
PROCuREmEnT
CATEGORIES
LOW vOLumE OF
InDIvIDuAL LCT EquIPmEnT
PROCuREmEnT
LARGE vOLumE OF
InDIvIDuAL LCT EquIPmEnT
PROCuREmEnT
SmALL-SCALE LCT
InFRASTRuCTuRE
LARGE-SCALE LCT
InFRASTRuCTuRE
Examples of transactions include
29
:
(Portugal, Asset Finance): novenergia II and
Fotoparques Gest secured €32.55m in asset fnancing
for the 5.3mW Pv plant located in Fuente Alamo.
(united Kingdom, Project Finance): Dong Energy
has secured £250m in project fnance to refnance
the 630mW Phase I London Array Offshore
Wind Farm.
(Greece, Bonds): Acciona has secured €43m in bond
fnancing from Alpha Bank for the development of the
48.45mW Panachaiko Wind Farm.
Ranges and averages of transactions segments were adjusted and derived from frequency and value of transactions, provided on Bloomberg
New Energy Finance. Ranges and averages values were adjusted based on interviews with subject matter experts at Barclays and Accenture.
Increasing average capital required for LCT procurement
Transactions value size in scope for corporate
and investment banks’ products and services
26 British Gas plans
two million smart
meters in British
homes by 2012,
Centrica, march 2010
27 The “Big Orange’s”
Green Revolution,
TnT, December 2006
28 Transactions values
and examples
retrieved from
Bloomberg new
Energy Finance
29 Bloomberg new
Energy Finance
The value chain capital requirements
IT IS ImPORTAnT to recognize that development capital will
need to be supplied, not only to the primary LCT equipment
providers but also to suppliers, service providers, manufacturers
and developers which play an essential role across the LCT value
chain. Procurement capital is concentrated on the purchaser of
the LCT equipment or infrastructure.
LCT PROCuREmEnT CAPITAL TRAnSACTIOnS 8
OvERvIEW OF ThE LCT vALuE ChAIn 9
20 Carbon Capital
Financing the low carbon economy
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Adoption outlook
for low cArbon
technologies
Carbon Capital 23
estimAted
demAnd
for lct
technology
demand-driven approach
policies and
regulation
consumers
businesses
macro trends
required
supply
of lct
carbon target
supply-driven approach
renewables
target
carbon
pricing
energy
security
study approach
A detailed, quantitative, bottom-up approach has been
developed to estimate the development and procurement
capital likely to be demanded from the adoption of a range of
lct equipment or infrastructure, along with their associated
carbon and energy cost savings.
our model takes a demand-driven approach to estimate
the adoption of lct that could be achieved by 2020. this
contrasts with alternative approaches based on the supply
of capital required to achieve carbon reduction or renewables
uptake targets
30
. the supply-driven approach risks
overestimating capital requirements and may not be granular
enough to permit identifcation of fnancing streams.
II
Approach
we estimate the amount of procurement and development
capital required for the adoption of lct up to 2020, along
with the impact on carbon and cost savings based on an
s-curve adoption method.
the study uses a demand-driven model based on a realistic
adoption rate of a range of lct applied to buildings, energy
this section detAils the approach taken in estimating the capital needed to deploy a range of lct in europe between 2011
and 2020 and the associated carbon and energy savings.
Key messages:
and transport up to 2020. this is supported by a number of
existing forecasts and expert analysis.
this approach differs from existing supply-driven
approaches that estimate capital requirements based
on adoption targets which match carbon reduction or
renewables uptake targets.
30 roadmap 2050,
A practical guide
to a prosperous,
low-carbon europe,
technical Analysis,
european climate
foundation
how the approaches differ:
overview of the study’s modelling approach 10
24 Carbon Capital
Financing the low carbon economy
Analysing the capital requirements of renewables
infrastructure on a global scale is essential in order to
understand the magnitude of the challenge faced by
developers and buyers looking to secure fnancing.
nearly 40 different types of lct equipment and
infrastructure were evaluated (Appendix i) taking into
account their probable market size by 2020, capital intensity
and average number of lct units acquired by the buyer
(i.e. by the end or intermediate entity acquiring lct).
from this, 15 commercially viable and capital intensive
technologies with a high requirement for external capital,
were selected for detailed evaluation. for the purpose of this
analysis, nuclear power, carbon capture storage and other
applications not listed in Appendix i were excluded.
the detailed list is presented in figure 11.
All the lct equipment and infrastructure identifed have been investigated on a per country basis for all eu25 countries.
in addition, large-scale renewable power infrastructure (wind, solar, geothermal and biomass power) has been investigated
on a global basis for the following countries:
Geographical scope
us.
canada.
eu25.
india.
china.
Japan.
Australia.
low cArbon technologies come into many areas including power generation, manufacturing, energy production,
transport and buildings. we focus on commercially viable lct for:
Applications and geographical scope
Selected commercially viable applications
buildings.
electricity distribution.
electricity production.
transport vehicles.
transport infrastructure.
An advanced modelling approach
based on an s-curve adoption method
1. identifes a selection of commercially viable and
capital intensive lct equipment and infrastructure (list
in Appendix i).
2. identifes and segments the applicable market into
relevant sub-sectors (e.g. urban vs. rural or commercial
vs. private).
3. calibrates the 2011-2020 adoption rate of lct in its
applicable market based on historical and expected
adoption rates.
4. defnes procurement cost of lct.
5. defnes development capital associated with each
technology based on sector analysis.
the study methodology uses the following steps (additional details provided in Appendix ii):
6. identifes the energy consumption to be reduced by
the technology.
7. defnes energy effciency gains made by the technology
from benchmark analysis.
8. defnes the energy price and carbon emissions factor
for the energy source.
9. calculates the following metrics:
a. procurement capital.
b. development capital.
c. carbon savings
31
.
d. energy cost savings
31
.
10. links procurement and development capital to specifc
fnancing streams.
31 carbon and energy
cost savings may not
be applicable to all
lct applications: e.g.
e-vehicle charging
infrastructure does
not lead to direct
energy cost savings
nor carbon savings
Carbon Capital 25
b
u
i
l
d
i
n
g
s
e
l
e
c
t
r
i
c
i
t
y

d
i
s
t
r
i
b
u
t
i
o
n
e
l
e
c
t
r
i
c
i
t
y

p
r
o
d
u
c
t
i
o
n
t
r
A
n
s
p
o
r
t


i
n
f
r
A
s
t
r
u
c
t
u
r
e
t
r
A
n
s
p
o
r
t

V
e
h
i
c
l
e
s

building
equipment
retrofit
smart building –
lct equipment retroft for
commercial buildings
1.1
12.1
2.1
micro-combined heat and power units (micro-chp)
plug-in hybrid vehicles
next generation led lighting
electric vehicles
high effciency hVAc cooling & heating system
bio-ethanol vehicles
electric vehicles
electric vehicles
smart buildings (new builds)
pV electrical solar panels
monitoring & control of electricity transmission
and distribution infrastructure
offshore wind power
e-vehicle high-voltage charging stations
(mix of large stations and pylons)
distributed energy storage units to
reduce peak demand on grid loading
intelligent urban traffc system
for traffc control
onshore wind power
geothermal power
waste to energy
concentrated solar power – thermal (csp)
photovoltaic solar power (pV)
demand & supply management infrastructure for electricity
transmission and distribution automation and control
Advance metering infrastructure for electricity consumption
to optimize loading
Amm smart meter roll-out to provide advanced consumer
electricity monitoring functionalities
integrated building management systems (bms) for lighting,
heating, cooling control & automation
bio-diesel vehicles
bio-ethanol vehicles
bio-ethanol vehicles
cng fuel vehicles
bio-diesel vehicles
bio-diesel vehicles
new design and fuel-effcient container freight sea vessels
1.2
12.2
3.1
4.1
6.1
10.1
10.2
11.1
6.2
7.1
8.1
9.1
9.2
4.2
5.1
5.2
1.3
12.3
13.1
14.1
1.4
12.4
13.2
14.2
12.5
13.3
14.3
15.1
smart building –
integrated solution for
new commercial buildings
pV solar panels for
decentralized power
generation for households
smart grid infrastructure –
Advanced control
and management of
electricity grid
e-vehicle charging
infrastructure
Advance metering
infrastructure for electric
smart meters (Ami with
Amm meters)
intelligent transport
system infrastructure
Alternative fuel light
commercial vehicles
Alternative fuel public
transit vehicles
Alternative fuel
freight vehicles
new design and fuel-
effcient container freight
sea vessels
large-scale wind
power generation
large-scale
geothermal power
large-scale biomass
power generation
large-scale solar
power generation
electricity
trAnsmission &
distribution
building
construction
And design
electricity
consumption
lArge-scAle
power
infrAstructure
lArge-scAle
trAnsport
infrAstructure
commerciAl
Vehicles
public trAnsit
Vehicles
commerciAl
freight Vehicles
seA Vessels
decentrAlized
power units
lct equipment and infrastructure selected for the study 11
26 Carbon Capital
Financing the low carbon economy
Quantifying the size of the applicable market for LCT
All ApplicAble mArkets (e.g. electricity production
for renewable or vehicles sold per year for alternative
vehicles) are retrieved on a per country basis. this method
ensures that factors specifc to individual countries are
taken into account. An example is electricity prices which
differ substantially by country – e.g. france’s commercial
electricity price was 35 per cent less than the uk’s in 2009
32
.
each market is divided in as detailed a way as possible to
only retain the most relevant segments (e.g building retrofts
differs from commercial, industrial and private usage).
the growth of each market (absolute size) has been
calculated based on empirical business as usual cAgr.
this methodology is applied to each country, where all
applicable markets are country-dependent, and takes into
account a number of specifc factors such as the cost of
electricity in a particular country.
A worked example of the model for smart meters in
germany is presented in Appendix ii.
the model encompasses many factors to ensure
accurate estimates of capital requirements, carbon
abatement potential and possible cost savings between
2011 and 2020. the s-curve method is the fundamental
principle used to refect the changing adoption rates central
to demand for lct.
quantifying the size of the applicable market for lct.
defning the adoption outlook through an s-curve
calibration.
integrating the technology cost learning curve.
Anticipating the evolution of electricity grid
emissions intensity.
incorporating in-depth technology understanding.
factoring the total cost of asset procurement.
the most important characteristics and assumptions used in the model are:
32 derived from mid-
band commercial
electricty price,
eurostat
33 poles model, A
world energy model,
enerdata
34 the study model has
been calibrated using
a base case which
is an intermediate
scenario generated by
a linear combination
of the results from
the renewal (s3)
and recovery (s1)
scenarios, and which
seeks to capture
a world where
economic recovery is
confrmed, but where
there is a moderate
impact from climate
change regulations
35 global wind and
solar demand
forecast for 2010-
2014e, 2009, barclays
Defining the adoption outlook through an s-curve calibration
the rAte At which this new technology is likely to be
adopted is the most sensitive parameter in defning its
potential market. the industry experts we interviewed
agreed with a calibration of the adoption rates along with
a review of existing forecasts and of several regulatory,
technology, macro-economic and consumer drivers.
this helped shape an outlook for the lct market up
to 2020 at a european level and on a per country basis
where possible.
A standard four-point s-curve methodology (figure 12)
was used to calibrate the adoption rate of lct based on
their respective applicable markets.
for renewables, existing adoption rate forecasts were taken
from well-established sources such as enerdata’s poles
33,34

model to calibrate the 2020 adoption level. barclays’ equity
2010 level of adoption (parameter A).
2020 level of adoption (parameter b).
year where 50 per cent of the 2010-2020 adoption is achieved (parameter c).
rate of adoption at point c year (parameter d).
research short- and medium-term forecasts for wind and
solar power
35
were also used to calibrate the s-curve (e.g. up
to year 2014).
%

o
f

a
d
o
p
t
i
o
n
2010 2012 2014 2016 2018
0%
10%
20%
30%
2020
A
B
C
D
Carbon Capital 27
2010 2012 2014 2016 2018 2020
10%
20%
30%
0%
%

o
f

a
d
o
p
t
i
o
n
this approach allows the model to set an adoption rate for
each of the different lcts based on the existing forecast
and drivers (examples of different adoption rate profles are
illustrated in figure 13).
4%
0%
2009 2015 2011 2017 2013 2019
8%
12%
16%
%

o
f

a
d
o
p
t
i
o
n
Adoption 1
Adoption 2
Adoption 3
13
illustrAtiVe Adoption rAte configurAtions 13
four point s-curVe Adoption rAte cAlibrAtion methodology 12
cost-intensity of AlternAtiVe power production 14
Solar power plant
Wind offshore
Wind onshore
Biomass (gasification)
Hydrogen fuel cells
Decentralized PV
$
/
k
w

c
a
p
a
c
i
t
y
2000
12,000
10,000
8,000
6,000
4,000
2,000
2010 2020 2030 2040 2050
Solar power plant
Wind offshore
Wind onshore
Biomass (gasification)
Hydrogen fuel cells
Decentralized PV
$
/
k
w

c
a
p
a
c
i
t
y
2000
12,000
10,000
8,000
6,000
4,000
2,000
2010 2020 2030 2040 2050
Solar power plant
Wind offshore
Wind onshore
Biomass (gasification)
Hydrogen fuel cells
Decentralized PV
$
/
k
w

c
a
p
a
c
i
t
y
2000
12,000
10,000
8,000
6,000
4,000
2,000
2010 2020 2030 2040 2050
28 Carbon Capital
Financing the low carbon economy
2000
2,000
0
4,000
6,000
8,000
10,000
12,000
2010 2020 2030 2040 2050
Integrating the technology cost learning curve
As preViously discussed, the price of many technologies
is highly sensitive to the volumes being rolled out. As more
applications are produced, the unit price of the lct will fall
due to improvements in processes and other economies of
scale. As many lct products have not yet reached maturity,
their cost learning curves are likely to decrease rapidly over
the next 10 years. An example of how this might occur in
renewables energy production
36
is outlined below. this cost
reduction trend could, however, be reversed if raw materials
used in lct manufacturing were to increase substantially,
e.g. price of monocrystalline silicon, polycrystalline silicon for
solar photovoltaic.
this evolution of lct cost was integrated for renewables
and transport vehicles in the model to accurately size future
capital requirements. All other lct costs were assumed
constant as there was no consensus on future cost
evolution (more details in Appendix V).
$
/
k
w
-
c
a
p
a
c
i
t
y
A number of countries are undergoing signifcant
changes in electricity production sources (e.g. installation
of nuclear plants, decommissioning of coal plants). this
directly impacts the average carbon emissions intensity
associated with electricity consumption from the grid. for
example, the uk’s grid carbon emissions intensity
to AccurAtely price the costs of the different lcts, experts
have been engaged in each lct area to identify the technical
components of each application which determine associated
costs, energy reduction impact and adoption outlook.
is expected to decrease by 12 per cent between 2010
and 2015
37
.
the evolution of the electricity grid emissions intensity
was incorporated in the model for each country to
accurately compute the emissions savings resulting from
electricity consumption savings over time.
Accenture smart grid solutions (Asgs), Accenture smart
building solutions (Asbs), Accenture mobility services
(Ams), Accenture intelligent city network (Aicn) and
other groups provided in-depth technological expertise to
Anticipating the evolution of electricity grid emissions intensity
Incorporating in-depth technology understanding
Biomass (gasifcation)
Solar Power Plant
Hydrogen Fuel Cells
Wind Offshore
Decentralized PV
Wind Onshore
14
36 poles world energy/
technology outlook to
2030 (weto 2030)
37 Accenture Analysis,
derived from
enerdata power
mix and emissions
forecasts
Carbon Capital 29
for All the lct analysed, the full cost of purchasing the
technology was taken into account when estimating the value
of procurement capital. for smart buildings (new-builds) for
example, the premium attached to these buildings was added
to the average cost of property construction.
the procurement capital required by lct assets does
not treat the costs of all the sub-components as separate,
but simply uses the average procurement cost of the end
product, excluding operational costs.
Factoring the total cost of asset procurement
energy storage unit.
primary/secondary substation network sensing.
primary/secondary substation power factor equipment.
smart voltage control equipment.
primary/secondary substation fault current limiters.
der-based trading and risk management system.
for example, components included in the analysis of smart grid capital requirements included the following:
As many LCT products have not yet
reached maturity, their cost learning
curves are likely to decrease rapidly over
the next 10 years.
38 helping Xcel energy
Achieve high
performance with
a revolutionary
and sustainable
smart grid solution,
Accenture, 2008
calibrate the model based on empirical results taken from
existing projects and pilots.
pricing for smart grid technologies, for instance, was
based on subcomponent pricing from live projects (e.g.
smartgridcity, Xcel & Accenture in boulder, colorado)
38
.
30 Carbon Capital
Financing the low carbon economy
cumulative procurement capital: 2011-2020 (€Bn) – europe (eu25) 15
this section presents the capital requirements for lct procurement and development in europe between 2011 and
2020, along with the resulting energy cost and carbon savings. in addition, the section considers the impact of rolling out
renewables on a global scale.*
III
Capital requirements and
carbon impact
Transport
Infrastructure
e-vehicle charging
system infrastructure
intelligent urban traffc
system for traffc control
Electricity
Distribution
smart grid infrastructure
– advanced control
and management of
electricity grid
advance metering
infrastructure for electric
smart meters (ami with
amm meters)
Electricity
Production
solar large scale
power generation
• csp
• pv
Biomass and
Geothermal
large-scale
power generation
Wind large scale
power generation
• onshore
• offshore
Buildings
smart building –
lct equipment retroft
for commercial buildings
• micro-chp
• leD lighting
• hvac cooling and
heating system
• Building management
systems
smart building –
integrated solution
for new commercial
buildings
pv solar panels
for decentralized
power generation
for households
Transport
Vehicles
alternative fuel freight vehicles
• Bioethanol
• ev
• Biodiesel
alternative fuel public transit vehicles
• Bioethanol
• ev
• Biodiesel
new design and fuel effcient
container freight sea vessels
alternative fuel light
commercial vehicles
• Bioethanol
• ev and phev
• Biodiesel
• cnG
600
582
35
529
508
184
44
280
325
215
34
24
19
102
344
154
352
177
1
€2.3trillion
* Numbers on graphs may have
discrepancies due to rounding for
numbers presentation only.
Carbon Capital 31
LCT EquIPmEnT anD InfrasTruCTurE LEgEnD
(for suBsEquEnT fIgurEs)
15
Key messages:
 in europe (eu25), between 2011 and 2020, the 15
commercially viable lct applications would require a total
of €2.3trillion in procurement capital (Figure 15) and
€0.6trillion in development capital. this will enable carbon
savings equivalent to 2.2 Gt co
2
e and cost savings
equivalent to €261bn.
 solar pv power is the most expensive technology identifed,
requiring €365bn in funding for large-scale infrastructure and
micro-generation installations. this is due to the high cost of
technology (being over fve times greater than that of onshore
wind on a per mW-capacity basis), low production capacity,
premium cost of micro-generation and high expected take-up.
 the cost of introducing renewables (wind, solar, geothermal
and biomass) across europe, china, india, usa, Japan,
canada and australia will require investment of €2.4trillion in
procurement, resulting in emissions savings of 6.6 Gt co
2
e.
in europe (eu25), between 2011 and 2020, the 15
commercially viable lct applications would require a total
of €2.3trillion in procurement capital (Figure 16) and
€591bn (Figure 17) in development to be rolled out on
a wide scale. this would save 2.2 Gt co
2
e (Figure 18) of
carbon and energy cost savings of €261bn (Figure 20).
there are no energy cost savings to be derived from using
renewables to produce electricity as these are only a
substitute for other modes of electricity production.
TransPorT InfrasTruCTurE
e-vehicle charging infrastructure
Intelligent transport systems
TransPorT VEhICLEs
alternative fuel light commercial vehicles
(PhEV, EV, bioethanol, biodiesel, Cng)
alternative freight vehicles
(EV, bioethanol, biodiesel)
alternative public transit vehicles
(EV, bioethanol, biodiesel)
new design and fuel effcient
container freight sea vessels
ELECTrICITY DIsTrIBuTIon
smart grid infrastructure – advanced management
of the electricity grid
advanced infrastructure for electric smart meters
(amI with amm meters)
BuILDIngs
smart buildings – LCT equipment retroft for
commercial buildings
smart buildings – integrating LCT in new
commercial buildings
PV solar panels for decentralized
power generation for households
ELECTrICITY gEnEraTIon
Large-scale wind power generation
(onshore and offshore)
Large-scale geothermal power generation
Large-scale biomass power generation
Large-scale solar power generation
(CsP & PV)
Overall impact for Europe
The 15
technologies
analysed require
¤591bn in
development and
¤2.3trillion in
procurement
capital between
2011-2020, leading
to carbon savings
of 2.2Gt CO
2
e

and
energy cost savings
of ¤261bn.
b
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32 Carbon Capital
Financing the low carbon economy
Procurement capital
Development capital
the larGest share of capital will be given over to buildings
for retroftting lct equipment, constructing smart buildings
and decentralizing energy production. this is due to the high
cost of retroftting buildings and the fact that smart buildings
command a premium price (estimated between fve to seven
per cent of total construction costs). in addition, the cost of
generating power from decentralized solar pv is expected to
remain high, given the premium of installing roof-mounted pv
over large-scale solar projects (estimated at 25 per cent
39
of
non-roof-mounted pv) and the high per mW cost of producing
energy from solar.
solar pv is the most capital-intensive technology within
the range of lct reviewed, and will require up to €365bn
invested in procurement. this is driven from a high cost
of technology (fve times more expensive than onshore
wind), a low ratio of production to capacity and a high
adoption rate forecast (the number of solar panels in
Germany, for example, is expected to increase by 140 per
cent between 2008 and 2010
40
).
smart grids, essential for managing intermittent power
and decentralized energy production, will require €352bn in
investment. the cost of smart grid infrastructure is spread
across back-up electricity storage units, upgrading electricity
substations, implementing central information management
systems and additional network improvements.
We expect the uptake of e-vehicle charging to be
concentrated in dense urban areas and estimate that €34bn
will need to be invested to fund the infrastructure.
39 roadmap 2050,
a practical guide
to a prosperous,
low-carbon europe,
technical analysis,
european climate
Foundation
40 Derived from
accumulated capacity
(eurostat) and new
added capacity
(Global renewables
Demand Forecast
2010-2014e, Barclays
capital equity
research)
41 enel raised less than
hoped in green ipo,
reuters, 2010
BaseD on an analysis of investment in the lct sector
between 2004 and 2009 (detailed methodology in appendix
iv), alternative energy from wind and solar will require an
overwhelming 66 per cent share of all development capital
required by the sector.
large ipos of wind, solar and other diversifed
renewables companies will drive capital into this sub-sector.
the recent ipo of enel’s renewables power division, enel
Green power spa raised €2.4bn and was the largest
european ipo since 2008
41
.
in other less mature sub-sectors, development capital
will remain essential to help emerging technology to reach a
more mature stage. investment in these sectors is likely to be
dominated by venture capital, private equity and initial public
offerings (more details in section iv).
cumulative procurement capital
2011-2020 (€Bn) – europe (eu25)
16 cumulative Development capital
2011-2020 (€Bn) – europe (eu25)
17
i
n


B
n
i
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B
n
500
1000
1500
2000
2500
600
529
508
582
35 2,254
100
200
300
400
500
600
88
23
382
63
35 591
0
500
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2000
2500
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a
l Historical
BAU Projection
Projection with roll out of LCT
1990 1995 2000 2005 2015
60
70
80
90
100
2020 2010
index 100 = 1990 emissions
83
91
Carbon Capital 33
Emissions savings
Cost savings
savinG 2.2 Gt co
2
e of carbon would reduce the eu’s 2020
emissions to 83 per cent of the 1990 level, if subtracted from
europe’s Bau projection of emissions levels (Figure 19). if
additional carbon emission reductions are to be achieved in
other sectors (e.g. manufacturing, other modes of transport,
chemicals), the identifed savings would put the eu on track to
meet its 20 per cent carbon emissions reduction target.
some 49 per cent of the emissions savings we identifed are
likely to originate from substituting renewables for conventional
power. this is expected to save approximately 1.1 Gt co
2
e of
carbon emissions.
transport and electricity distribution have a smaller impact on
carbon emissions as they only infuence urban congestion and
network losses respectively. however, they are essential for rolling
out e-vehicle charging and managing an intermittent power supply.
When analysinG lct equipment and infrastructure,
the energy cost savings for the end-user or operator were
investigated in each case. For large-scale power generation
from renewables, no energy cost savings were assumed as
the use of renewables as a source of energy does not imply
any cost savings for the end-users.
Buildings will account for 42 per cent of energy cost
savings, by reducing tenants’ energy consumption or
alternative transport vehicles will require 26 per cent of the
procurement capital and create the second source of emissions
savings, with a potential abatement of 414 mt co
2
e.
Buildings represent the third largest source of emissions
savings, offering the possibility of abating 403 mt co
2
e.
this will be achieved through retroftting buildings with
energy-effcient equipment and decentralizing the
power supply to reduce the amount of energy consumed
from the grid.
Within transport, the replacement of existing freight sea
vessels by new energy-effcient ships would create signifcant
emissions savings, estimated at 182 mt co
2
e between
2011 and 2020. this saving is generated for a very small
procurement capital outlay, making it an extremely
carbon-effcient use of capital.
substituting it with an alternative, cheaper energy source.
retroftting buildings with lct equipment is expected to
save €85bn with the opportunity to use these savings to
pay back the initial cost of purchasing the equipment. this
strongly supports the business case for buildings retrofts.
smart meters offer a signifcant opportunity for cost
savings by improving people’s awareness of their electricity
consumption and motivating them to change their
i
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m
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c
o
2
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cumulative emissions savinGs
2011-2020 (mt co
2
e) – europe (eu25)
18 europe (eu25) emissions proFile 19
Historical
BAU Projection
Projection with roll out of LCT
1990 1995 2000 2005 2015
60
70
80
90
100
2020 2010
index 100 = 1990 emissions
83
91
500
1000
1500
2000
2500
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288
1,089
414
24 2,219
60
70
80
90
100
1990 2000 1995 2005 2010 2015 2020
index 100 = 1990 emissions
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34 Carbon Capital
Financing the low carbon economy
cumulative annual emissions savinGs (mt co
2
e)
– in europe (eu25)
21 cumulative annual cost savinGs (€Bn)
– in europe (eu25)
22
behaviour. We estimate smart meters could save consumers
€64bn between 2011 and 2020 in europe, 25 per cent of all
cost savings identifed.
Within the transport sector, alternative fuel vehicles
also provide scope for cost savings. however, these are
conditional on public subsidies which make alternative fuel
vehicles attractive (e.g. bonus-malus scheme in France).
removal of these subsidies could remove the possibility of
savings. For electric vehicles, the price of electricity can also
alter the energy cost savings achievable with signifcant
differences between countries (e.g. the average cost of
electricity in France was 0.1052 €/kWh in the frst semester
of 2010, compared to 0.2446 €/kWh in Germany for the
same period).
lastly, we estimate that using intelligent urban traffc
systems to control traffc would save €13bn. these savings
derive from reducing congestion and the fuel consumption
associated with it.
2011-2020 evolution of carbon and cost savings
the aDoption proFile of lct between 2011 and 2020
will determine when specifc kinds of equipment and
infrastructure begin to deliver their carbon and cost savings.
certain lct segments will begin to drive the different
savings earlier than others.
electricity production from low carbon sources is
expected to drive emissions reductions in the frst half of the
decade as uptake is growing rapidly. By contrast, the second
half of the decade is likely to see an acceleration in savings
from technological advances in alternative fuel and electric
vehicles as adoption becomes more widespread.
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B
n
50
100
150
200
250
300
109
87
52
13 261
cumulative cost savinGs on enerGy
2011-2020 (€Bn) – in europe (eu25)
20
Transport
Infrastructure
Transport
Vehicles
Electricity
Production
Electricity
Distribution &
other equipment
Buildings
21 22
2.4 trillion
6.6 Gt c0
2
e
1.7 trillion
508
762
828
112
81
28
1.1
1.8
0.04
2.8
0.4
0.2
0.1
382
552
29
567
82
60
21
Carbon Capital 35
Financing renewables: the global perspective
the expecteD aDoption of selected renewables (wind,
solar, geothermal and biomass) for the eu25 countries,
china, india, usa, Japan, canada and australia would require
€2.4trillion in procurement capital during the period 2011-
2020, and would lead to a carbon abatement of 6.6 Gt co
2
e.
the overall emissions savings are signifcant. in the
period 2011-2020 carbon emissions savings would
represent approximately 10-15 per cent of the world’s annual
carbon emissions
42
.
china and the united states are expected to invest more
than europe over the next 10 years. china is likely to dominate
the emissions savings with a 43 per cent share, owing to its
large electricity market and relatively high grid intensity (0.76
kg co
2
e/kWh in 2010). While india has a similar grid intensity,
its electricity market is only a quarter of china’s, historical
growth in electricity production is about 50 per cent to 70
per cent of china’s and the expected take-up of renewables
is lower. this reduces the country’s potential to lower carbon
emissions: india is expected to save 0.4 Gt co
2
e compared
with 2.8 Gt co
2
e for china.
Finally, the development, manufacturing and installation of
renewables technology will require an estimated €1.7trillion
in development capital. this is likely to create local gross value
added (Gva) in countries with existing strong production
capacity of lct equipment. as china produces 30 per cent
of the world’s solar photovoltaic modules
43
, major chinese
solar pv manufacturers are likely to beneft greatly from global
increase in demand for procurement capital, along with soliciting
development capital to support production scaling. overall, the
cost reduction of primary material and main components of
solar pv are likely to beneft all manufacturers on a global basis.
canada, Japan and australia will face the same challenges
in attracting investment in renewables as europe, china or
the us, although on a smaller scale in terms of the amount of
investment required.
Europe 25
United States
Canada
China
India
Australia
Japan
China and the
United States
are expected to
invest more than
Europe over the
next 10 years.
41
42 Derived from
supply chain
Decarbonization,
accenture and World
economic Forum,
January 2009
43 rising demand in
china pv market,
renewables energy
World, november
2009
23 24 25 cumulative procurement capital 2011-2020 (€Bn) 23
cumulative emissions savinGs 2011-2020 (Gt co
2
e) 24
cumulative Development capital 2011-2020 (€Bn) 25
36 Carbon Capital
Financing the low carbon economy
44 Bright forecast for
leD lighting, cnet
news, may 2010
45 smart 2020: the
climate Group, 2008
46 european union,
action plan for energy
effciency, 2007
low carbon technology overview application
adoption indicator*
2011 2020
smart building –
lct equipment retrofts for
commercial buildings
smart building – integrated solution for
new commercial buildings
pv solar panels – Decentralized power
generation for households
installing smart building technologies to reduce energy consumption including:
micro combined heat and power units (micro-chp).
next generation leD lighting.
high effciency hvac cooling and heating system.
integrated building management systems (Bms) for lighting, heating,
cooling control and automation.
construction of smart commercial buildings (new-builds) which integrate Bms,
high effciency hvac, new insulation material, leD lighting, optimal design for
natural air circulation and heat convection, green roofs (where appropriate) and
other embedded lct.
installing solar photovoltaic panels on existing building exteriors to generate
electricity, some of which is used by the building and the rest sold to the grid.
0-5%
5-10%
0-5%
20-25%
50-55%
5-10%
Buildings will require the greatest amount of procurement capital: €600bn by 2020 (27 per cent of the overall total).
the carbon emissions saved by retroftting buildings are consistent with the level of investment required, representing 13 per cent of total emissions
savings or 293 mt co
2
e.
of the energy effciency equipment to be retroftted in buildings, leD lighting is expected to undergo rapid adoption with an expected 46 per cent of
commercial buildings to be covered in 2020
44
. this is largely due to a high-cost recovery ratio and moderate capital expenditure requirements.
We anticipate that building management systems (Bms) will also be retroftted in many commercial properties to improve the control and integration of
new energy appliances, with penetration set to reach 25 per cent by 2020
45
.
smart design specifcations for new buildings include using eco-effcient materials, optimized hvac air circulation systems, and a range of lct
equipment (leD, micro-generation, Bms). We anticipate that these technologies will represent more than half of all commercial new-build
properties past 2020, as new regulations on construction specifcations are enforced across the eu
46
. ¤344bn procurement capital includes the total
capital cost for smart buildings, not just the “green” premium.
Fit incentives and a sharp drop in the cost of technology (on a per kW capacity basis) will lead to widespread adoption of solar pv panels. Given the
cost of roof-top panels – €11,351 for a 2 kWp household installation, solar pv for buildings represents €154bn in procurement capital – this is likely to be
limited to high-income private home owners who plan to stay in their homes long-term.
signifcant energy cost savings of about €85bn will be generated from the integration of lct retrofts in buildings. these will be achieved through
reducing energy consumption from more effcient equipment and also by substituting energy sources with micro-generation. cost savings will,
however, be widely dependent on energy consumption and calibration of building management systems.
carbon emissions savings are expected to differ signifcantly by country. For example, the low carbon grid intensity of France (0.04kg co
2
e/kWh) is
expected to result in a relatively low carbon emissions reduction of eight mt. this compares to Germany where 83 mt of savings is expected from a
carbon emissions grid with a higher intensity (0.42kg co
2
e/kWh).
to achieve its carbon reduction targets, the london Development authority created the Building energy effciency program (Beep) to focus on
integrating lct, such as energy-effcient condensing boilers, water recuperation systems, intelligent lighting and energy monitoring systems in public
buildings in london (e.g. metropolitan police, universities, etc).
Key FindingS:
Selected example – building retroFitS
BuilDinGs
Buildings
France
Germany
Italy
Spain
United
Kingdom
0
20 40 60 80 100 120
France
Germany
Italy
Spain
United
Kingdom
0
20 40 60 80 100
83 8
77 49
103 83
68 35
77 49
600 bn 403 mt c0
2
e
600
102
344
154
293
44
403
66
Carbon Capital 37
total procurement capital (€Bn) total emissions savinGs (mt co
2
e)
ToTaL DEVELoPmEnT CaPITaL 2011-2020, EuroPE: €88Bn
ToTaL CosT saVIngs 2011-2020, EuroPE: €109Bn
* PEnETraTIon of LCT as a PErCEnTagE of ThE aPPLICaBLE marKET – morE DETaILs In aPPEnDIx V
total procurement capital, BuilDinGs, 2011-2020,
europe (€Bn)
total emissions savinGs, BuilDinGs, 2011-2020,
europe (mt co
2
e)
38 Carbon Capital
Financing the low carbon economy
low carbon technology overview application
adoption indicator*
2011 2020
smart grid infrastructure –
advanced control and management of
electricity grid
advance metering infrastructure for electric
smart meters (ami with amm meters)
upgrade of the electricity transmission and distribution network to automate
monitoring and control of grids infrastructure equipment, including substations
or power storage facilities. this in turn optimizes electricity loading, reduces
network losses, better manages intermittent power sources and allows effcient
integration of micro-generation.
monitoring of electricity consumption through amm smart meters. it allows
utility companies to anticipate electricity demand based on consumption data
retrieved to optimize grid loading (e.g. consumption patterns, correlation with
external factors such as weather).
amm smart meters also enable the end-user to optimize its electricity
consumption behaviour and adjust daily consumption usage through a variable
electricity tariff (if applicable) and interconnectivity between the meter and a
number of smart appliances.
0-5%
5-10%
40-45%
80-85%
electricity distribution will require an investment of €529bn in procurement, potentially saving 288 mt co
2
e in carbon, 13 per cent of all identifed
emissions savings.
rolling out smart grid infrastructure will be capital intensive, requiring an estimated €352bn investment in europe up to 2020, even though over only 40
per cent of the electricity grid is expected to be covered (i.e. in terms of number of substations included). the high capital intensity is explained by the
large range of equipment that needs to be integrated into the smart grid. this includes energy storage units, primary substation network sensors, active
network management systems and hardware.
implementing smart grid infrastructure is expected to reduce network losses (seven per cent of electricity consumption on average in eu25)
through load optimization which implies carbon emissions savings of 77 mt co
2
e. “a smart grid enables calculation and minimization of line losses
by redistributing power fow and balancing current to maintain optimal balance between voltage, frequency, and reactive power” (xcel energy
smartGridcity™, Benefts hypothesis summary, 2008).
take-up of smart metering is currently strong in europe. italy is expected to reach full smart metering implementation by 2012 and consequently has
a smaller capital requirement from 2011 through 2020. the eu directive on smart meter specifcations and roll out
47
implies a compulsory roll-out of
smart meters in all member states by 2022, with 80 per cent coverage to be reached by 2020. this is the primary driver for the large implementation
plans and resulting high level of capital investment.
implementing smart meters allows the consumer to reduce his or her energy consumption by monitoring energy use and adapting it based on a
variable tariff (tou – time-of-use tariffs are used in a number of eu countries), as well as automatically through smart appliances. smart meters are
expected to save 211 mt co
2
e in carbon emissions overall.
smart grids play a pivotal role in the lct sector as they enable renewables to be rolled out on a broad scale, as well as facilitating micro-generation and
e-vehicle charging. this makes smart grids responsible for a far greater share of emissions reductions than those they save directly. smart grids will
ensure stability of the grid by dynamically managing both intermittent power and abrupt peak consumption.
xcel energy, with accenture, has developed the smartGridcity pilot in colorado, us, to explore smart grid tools. xcel energy has implemented digital
capabilities across the grid using two-way, high-speed communications. this has helped to automate the grid and, because the utility can now sense
and predict energy conditions, it can proactively monitor the state of the grid and detect power outages before they occur
48
.
British Gas is planning to roll out two million smart meters by the end of 2012 to improve customer interaction, reduce feld engineering and
maintenance, and enable consumers to change their energy consumption behaviour
49
.
Key FindingS:
Selected example – Smart grid
Selected example – Smart meter
47 eu Derivatives
2009/72/ec and
2009/73/ec
48 smart Grid city,
smartgridcity.
xcelenergy.com
49 British Gas plans 2
million smart meters
in British homes by
2012, press release,
march 2010
electricity DistriBution
Electricity Distribution
France
Germany
Italy
Spain
United
Kingdom
0
20 40 60 80 100
France
Germany
Italy
Spain
United
Kingdom
0
10 20 30 40 50 60 70 80
84 8
60 11
95 64
61 25
69 43
529BN 288MTC0
2
e
529
177
352
288
77
211
Carbon Capital 39
ToTaL DEVELoPmEnT CaPITaL 2011-2020, EuroPE: €23Bn
ToTaL CosT saVIngs 2011-2020, EuroPE: €87Bn
* PEnETraTIon of LCT as a PErCEnTagE of ThE aPPLICaBLE marKET – morE DETaILs In aPPEnDIx V
total procurement capital (€Bn) total emissions savinGs (mt co
2
e)
total procurement capital 2011-2020,
europe (€Bn)
total emissions savinGs 2011-2020,
europe (mt co
2
e)
40 Carbon Capital
Financing the low carbon economy
low carbon technology overview application
adoption indicator*
2011 2020
large-scale wind power generation
large-scale geothermal power generation
large-scale biomass power generation
large-scale solar power generation
onshore and offshore wind power on sites with installed capacity of greater
than 1 mW.
production of geothermal power on sites with capacity greater than 1 mW.
Geothermal power refers to extracting heat from the earth to produce electricity
or heating.
production of biomass power on sites with capacity greater than 1 mW.
Biomass power results mainly from the combustion of items such as wood or
food, which sequester carbon during their lifecycle, directly or indirectly.
production of both concentrated solar power and solar power pv on sites with
capacity greater than 1 mW.
0-5%
0-5%
0-5%
0-5%
10-15%
0-5%
5-10%
0-5%
electricity production from renewables is estimated to require €508bn in procurement capital between 2011 and 2020 whilst generating the largest
share of identifed carbon savings with 1,089 mt co
2
e (49 per cent of all lct carbon savings identifed).
the relatively high cost of solar pv and csp power – greater than onshore wind power on a per mW-capacity basis – means it will require the greatest
investment to purchase: an estimated €280bn or 55 per cent of all renewables procurement capital. the difference in cost per installed mW-capacity is
also the result of pv solar’s lower capacity factor of 5-15 per cent compared with wind 15-25 per cent.
however, pv solar power’s relatively small share of total electricity production and small capacity factor implies it will only substitute
conventional power production in low volumes. this results in low carbon emission savings, 11 per cent of total identifed savings from
renewables. although this is greatly disproportionate to the high procurement cost, pv solar power has unique operational benefts which
facilitate adoption in a variety of geographical areas.
onshore and offshore wind power will have the biggest impact on carbon reduction, largely due to a positive outlook for adoption in a number of
european countries. projected emissions savings are 718 mt co
2
e, 32 per cent of all lct carbon savings, more than any other technology analysed.
Biomass power is increasingly attracting investment and its production capacity is expected to grow rapidly in the next 10 years, although it will remain
marginal compared with wind power. similarly, geothermal power is expected to remain small requiring about £1bn in procurement capital although
the potential for this energy source may increase beyond 2020.
With rapid developments in technology and strong demand for renewable energy, investment of €382bn will need to be put into r&D, production
scaling, 65 per cent of all development capital required.
the procurement capital required for renewable power production across the large european geographies, excluding the uK ranges from €70bn-110bn
per country. in contrast, the uK is expected to undertake a relatively modest roll-out of renewables for power production (three per cent for onshore
wind, three to four per cent for offshore wind and less than 0.5 per cent for solar in terms of the share of total electricity production in 2020).
in terms of carbon impact, Germany is likely to beneft the most from the substitution of its conventional coal and gas power production with
renewables. this is expected to lead to signifcant carbon emissions savings: 289 mt co
2
e between 2011 and 2020, approximately 12 per cent
of all lct carbon savings identifed.
most european countries have targets for generating renewable energy for 2020, and action plans and incentives to achieve these targets (e.g. Fit,
roc). Below are some of the targets set out by selected eu countries: Denmark: 30 per cent, France: 23 per cent, Germany: 18 per cent, italy: 17 per
cent, netherlands: 14 per cent, uK: 15 per cent (“unlocking investment to deliver Britain’s low carbon future”, GiBc).
Key FindingS:
Selected example – renewableS adoption targetS
electricity proDuction (eu only)
Electricity Production
France
Germany
Italy
Spain
United
Kingdom
0
20 40 60 80 100 120
France
Germany
Italy
Spain
United
Kingdom
0
50 100 150 200 250 300
72 18
88 146
109 289
93 110
40 99
1,089 mt c0
2
e 508 bn
280
43
1
184
508
1,089
120
232
19
718
Carbon Capital 41
ToTaL DEVELoPmEnT CaPITaL 2011-2020, EuroPE: €382Bn
ToTaL CosT saVIngs 2011-2020, EuroPE: n/a
* PEnETraTIon of LCT as a PErCEnTagE of ThE aPPLICaBLE marKET – morE DETaILs In aPPEnDIx V
total procurement capital (€Bn) total emissions savinGs (mt co
2
e)
total procurement capital 2011-2020,
europe (€Bn)
total emissions savinGs 2011-2020,
europe (mt co
2
e)
42 Carbon Capital
Financing the low carbon economy
transport vehicles
low carbon technology overview application
adoption indicator*
2011 2020
alternative light commercial vehicles
alternative freight vehicles
alternative public transit vehicles
new design and fuel effcient container
freight sea vessels
substituting conventional internal combustion engine light commercial vehicles
(diesel and petrol) with cnG, plug-in hybrid, bioethanol, biodiesel and electric
vehicles. this is limited to light commercial vehicles with useful capacity of less
than 1.5 tonnes.
substituting conventional internal combustion engine freight vehicles (diesel
and petrol) with bioethanol, biodiesel and electric vehicles. this is limited to
freight vehicles with useful capacity greater than 1.5 tonnes.
substituting public transit buses with bioethanol, biodiesel and electric buses.
substituting existing container and roro
50
vessels with an average of 15+ years
in service with a new generation of fuel effcient vessels.
0-5%
0-5%
0-5%
10-15%
20-30%
10-20%
15-20%
40-50%
alternative fuel transport vehicles (commercial and public) are expected to require €582bn in procurement capital, with expected carbon emission
reductions of 414 mt co
2
e between 2011 and 2020 in europe.
alternative light commercial vehicles will require the greatest share of procurement capital of all lct transport (56 per cent) as they make up the largest
volume of vehicles. adoption of compressed natural gas (cnG), electric and bioethanol vehicles is expected to remain low while take-up of biodiesel and
plug-in hybrid vehicles is expected to grow at non-negligible rates over the next 10 years, representing approximately 25 per cent and 10 per cent of light
commercial vehicles sales respectively in europe in 2020.
use of alternative vehicles in public transport and freight is expected to remain low. although a number of pilot projects have been launched, these
will continue to face barriers preventing wide scale adoption such as the cost of integration, maintaining feets and operational diffculties arising from
technology (e.g. battery life limiting freight routes, downtime requirements).
replacing ageing sea freight vessels such as container and bulk vessels with new vessels that meet energy effciency and design standards (electric
propellers, combined heat and power systems, optimal energy management systems) will require relatively little investment in procurement – €24bn
– and will save 182 mt co
2
e, or 7.5 mt co
2
e in emissions for every billion euros invested. although application of new design and fuel-effcient vessels
in europe is limited (the model is based on the location of ship production), replacing sea freight vessels elsewhere in the world represents a signifcant
opportunity to make savings. the extension of environmental regulations to shipping will accelerate take-up of energy-effcient technology by ships.
France and Germany, with their large transport sectors and high sales of freight and light commercial vehicles, represent important markets for
alternative transport vehicle providers – their combined market is expected to be worth €104bn between 2011 and 2020.
public incentives for low carbon vehicles will help to create cost savings of €52bn. removing these incentives (e.g. tax-rebate on biofuels or cnG) will
substantially lower these cost savings and, in the worst case, remove the benefts completely.
ups, the american freight and logistics company already has 25 hybrid diesel electric commercial vehicles in operation. ups will expand its feet of
alternative vehicles after ordering an additional 300 cnG vehicles from Daimler’s Freightliner custom chassis corporation (Fccc)
51
, thereby making ups
one of the world’s largest operators of alternative vehicles.
Key FindingS:
Selected example – alternative road tranSport vehicleS – cng
50 roro: roll on, roll
off ships
51 www.responsibility.
ups.com
Transport vehicles
France
Germany
Italy
Spain
United
Kingdom
0
10 20 30 40 50 60 70 80
65
39
39
52
38
France
Germany
Italy
Spain
United
Kingdom
0
10 20 30 40 50 60 70 80
66
21
75
24
20
582 bn
582
215
19
325
24
414 mt c0
2
e
414
182
8
107
116
Carbon Capital 43
total procurement capital (€Bn) total emissions savinGs (mt co
2
e)
total procurement capital 2011-2020,
europe (€Bn)
total emissions savinGs 2011-2020,
europe (mt co
2
e)
ToTaL DEVELoPmEnT CaPITaL 2011-2020, EuroPE: €63Bn
ToTaL CosT saVIngs 2011-2020, EuroPE: €52Bn
* PEnETraTIon of LCT as a PErCEnTagE of ThE aPPLICaBLE marKET – morE DETaILs In aPPEnDIx V
44 Carbon Capital
Financing the low carbon economy
transport inFrastructure
low carbon technology overview application
adoption indicator*
2011 2020
e-vehicle charging infrastructure
intelligent transport system infrastructure
high voltage charging stations that allow e-vehicles to be recharged in urban
areas. this includes charging poles, battery replacement sites and electricity
storage units to manage peak demand.
Dynamic control of traffc routing (through traffc lights, notifcation boards),
helps to optimize traffc and reduce congestion. this is done through traffc
monitoring equipment installed along urban roads, which is connected to a
traffc management platform.
0-5%
0-5%
35-40%
25-30%
the roll-out of e-vehicle charging infrastructure and intelligent transport systems is estimated to require €35bn in procurement capital between 2011
and 2020 for eu25.
With its (intelligent traffc system) only enabling emissions savings through vehicle route and speed optimization, this transport infrastructure would
lead to a modest saving of 24 mt co
2
e in carbon emissions, with most of the benefts being operational (e.g. route or journey length). as only a small
incremental improvement in vehicles’ speed was taken into account, emissions savings for its are marginal. this could be re-assessed if additional
benchmark data from large-scale implementation of its becomes available, which implies higher speed improvements.
it is important to note that the increase in traffc fuidity resulting from the implementation of its may incentivize additional use of vehicles and lead to
what is often referred to as “a rebound effect”.
e-vehicle charging infrastructure is expected to require investment of €34bn to cover 35-40 per cent of urban areas. this will comprise both high-voltage
power supply stations and electricity storage infrastructure.
With e-vehicle charging stations being introduced in large european cities (seville has 75 stations, Barcelona 191 and madrid 280
52
) , demand for
e-vehicle charging is likely to increase drastically in the next decade. this will allow plug-in hybrid and regular electric vehicles to be adopted more widely.
France is expected to generate the greatest investment in e-vehicle charging, as it has the largest urban area and large pilot programs in development
(autolib). Funding the procurement of e-vehicle charging systems is expected to cost €10bn.
emissions savings achieved by its are linked to the number of passenger-km’s covered by vehicles each year. this leads to a similar range of energy and
carbon savings for the fve major european geographies: between two and four mt co
2
e.

Dutch grid companies created the e-laad initiative to roll-out e-vehicle charging stations in the netherlands with the aim of creating
10,000 charging points
53
.
the foundation will own the network of stations and assume the following responsibilities:
electricity procurement.
managing access to charging stations.
o&m oversight.
the cost of installing 10,000 charging stations is estimated to be between €10m and €30m.
Key FindingS:
Selected example – e-vehicle charging large-Scale roll-out
52 source: Bloomberg
new energy Finance
53 information session,
r&D projects,
Foundation e-laad.nl
Transport infrastructure
France
Germany
Italy
Spain
United
Kingdom
0 2
4 6 8 10
10
1
3
1
5
France
Germany
Italy
Spain
United
Kingdom
0.0
0.5
1.0
1.5
2.0
2.5 3.0 3.5 4.0
3
3
4
2
3
24 mt c0
2
e
24
24
35 bn
35
34
1 0

Carbon Capital 45
total procurement capital (€Bn)
ToTaL DEVELoPmEnT CaPITaL 2011-2020, EuroPE: €35Bn
ToTaL CosT saVIngs 2011-2020, EuroPE: €13Bn
* PEnETraTIon of LCT as a PErCEnTagE of ThE aPPLICaBLE marKET – morE DETaILs In aPPEnDIx V
total emissions savinGs (mt co
2
e)
total procurement capital 2011-2020,
europe (€Bn)
total emissions savinGs 2011-2020,
europe (mt co
2
e)
› › ›
smart
meter amr
A Smart grid allows for more efficient use of energy, enables
micro-generation and much more

Carbon Capital 47
the smart grid went live in the summer of 2009 and is
connected to nearly 47,000 premises throughout the city.
xcel partnered with accenture to help it manage the high
volumes of data arising from the smart grid and integrate all
the technological components into one infrastructure.
accenture’s role is to manage complex data
extracted from the electricity grid to allow both
xcel and the end-customer to beneft fully from
the range of smart grid technology in a real-time
environment.
Power generation Power Transmission Power Distribution Power Consumption
active demand
and supply management
active display
of variable
tariff
active control
& monitoring
of stations
Dual fow load control
synchronization
active control
& monitoring
of stations
smart
appliances smart
meter amm
Grid load optimization
electricity
suBstation suBstation suBstation
BuilDinG
area netWorK
(home anD
Businesses)
heatinG
Green electricity
proDuction
DecentralizeD
proDuction
BacKhaul GriD inFrastructure automation
transFormers
DistriButers
DistriButeD
storaGe
capacitors
Batteries
remote fault identifcation
Green electricity sourcing through smart meter interface
intermittent power management
micro-generation
from renewables
Delivering a smart grid in an Intelligent City –
SmartGridCity in Boulder, Colorado
provide for real-time, two-way communications of
electricity consumption and production data between the
end-customer and utility provider.
enable greater monitoring and automation of the electricity
transmission and distribution networks.
Deliver real-time information on electricity sources, tariffs
and consumption to customers.
in march 2008, xcel energy, a us-based utility company, announced its plan to create the us frst smartGridcity
in Boulder, colorado, representing the highest concentration of smart grid technology to date. xcel energy formed a
consortium with developers, integrators and operators to bring together the best expertise available and deliver one of the
world’s most advanced smart grids
54
.
enable remote fault identifcation on the network and mend
faults automatically.
provide data on the environmental impact of electricity
consumption.
integrate different sources of electricity generation (wind,
solar, plug-in hybrid electric vehicles).
The objectives of the smart grid are to:
54 xcel energy
smartGridcity
tm
, xcel
energy, accenture
overvieW oF smart GriD 26
this pilot represents the frst time that integrated smart technologies have been introduced on a broad scale, helping
utilities, equipment and systems providers and customers assess the challenges and benefts of a smart grid. most
importantly, it provides a strong foundation for smart grid technology to be introduced in other cities around the world.
48 Carbon Capital
Financing the low carbon economy
IV
Financing LCT
development and
procurement
This secTion invesTigaTes the different fnancing streams that will support the provision of development and
procurement capital for low carbon technologies considered in the report.
Key messages:
of the €2.3trillion of procurement capital required, an
estimated 73 per cent will be funded externally by entities
purchasing LcT equipment or infrastructure, with most
of this external funding being provided by corporate and
investment banks, either directly or acting as intermediaries.
The provision of primary debt through asset leases,
asset fnance – term loans and project fnance debt will
apply to an estimated €1.4trillion of procurement capital,
representing 61 per cent of the total investment required for
purchasing LcT.
equity provision to support the growth and development of
LcT providers, originating from public equity initial Public
offerings (iPo), Private investments in Public equity (PiPe),
expansion capital and venture capital equity is expected to
provide €348bn in development capital – 59 per cent of the
total development capital required. Remaining development
capital will originate from debt, mainly composed from
mezzanine, junior and senior corporate debt.
Both equity and debt underwriting (iPos and bonds
respectively), intermediated by banks, would provide
public market access to capital estimated at €97bn and
€147bn respectively.
channelling €2.3trillion of procurement capital and €0.6trillion
of development capital in europe between 2011 and 2020,
represents a major fnancing challenge as well as a signifcant
opportunity if supportive policy frameworks, reduced technology
risk and investor appetite combine to create a favourable
environment for deploying capital to this space.
Financing the procurement of LcT infrastructure and
equipment will be taken from both internal sources (on balance
sheet) as well as external sources. Development capital, excluding
capital re-invested from a company into R&D, will be provided only
by external sources.
in an attempt to provide a more granular view of the
different capital fows into the sector, we have analysed existing
transactions derived from the database owned by Bloomberg
new energy Finance, one of the most comprehensive available.
Details on the methodology used to provide the analysis here
can be found in appendix iii and iv. Based on this approach,
this section provides an analysis of the expected split between
different equity and debt funding sources over the next decade.
With the caveat that future capital fows will depend on a range
of factors including policy frameworks, technology development
and the macroeconomic environment, the analysis here provides
an illustration of how the european low carbon transition could
potentially be fnanced over the next decade.
Analysing existing capital fows to forecast
future growth
54 stern Review on the
economics of climate
change, 2006
55 Unlocking investment
to deliver Britain’s low
carbon future, green
investment Bank
commission,
June 2010
Barriers to capital provision
The inFLoW oF capital to the LcT sector, while signifcant,
remains markedly below the minimum level we expect will be
necessary to achieve wide-scale adoption of LcT in europe.
The stern report
54
had estimated that one per cent of global
gDP would be required annually to address climate change.
This value is expected to be higher for developed countries
but, taking this as a minimum requirement, it represents
€164bn annually for europe or approximately €1.6trillion
between 2010 and 2020. in contrast, the green investment
Bank commission estimates that £550bn
55
would be required
by the UK only to achieve its 2020 carbon reduction targets,
implying higher investment requirements.
Carbon Capital 49
The PUBLic secToR has invested heavily in LcT at both local
and national levels. in the $537bn european stimulus package
set out in 2009, $54bn, or 10 per cent, was allocated to “green”
initiatives and infrastructure
59
.
governments around the world are increasing their budgets
for environmental and climate change mitigation measures. in
the Us, $12.3bn of the american Recovery & Reinvestment act
has been allocated to energy effciency initiatives in cities, and
support innovative technology
60
. in india, a new coal levy aims to
raise $535m a year to fund a national clean energy Fund
61
.
china has set aside an impressive 34 per cent share
of its $649bn stimulus package to “green” investments,
demonstrating an increasing commitment to environmental
measures
62
. The international Monetary Fund intends to create
a $100bn “green fund” by 2020 to meet the fnancial needs
identifed at the coP15 conference in copenhagen
63
.
Local governments have also pushed for faster procurement
of LcT by rolling out schemes. examples include The
amsterdam smart city initiative in the netherlands or the Re:FiT
program developed by London
64
.
however, stability and long-term public commitment of
LcT incentives (FiT, guaranteed loans, tax-credits) and carbon
policies (carbon tax, and emissions reduction commitments),
whilst critical, are yet to be achieved.
national governments are under pressure to reduce sovereign
debt, which has led to drastic cutbacks in public spending,
impacting on LcT investments.
Following very rapid growth in solar investment, the spanish
government reduced subsidies by 20 per cent in 2008 on solar
power, and introduced a cap on the maximum total capacity
to be installed per year. The results were a sharp drop in solar
Pv investments in spain in 2009 compared to 2008
65
. This
illustrates how policy and incentive frameworks must be carefully
designed to manage demand for renewables power without
creating market instability.
Faced with increasing budget constraints, spain had
considered further reductions in subsidies for future investments,
and unsettled the market by discussing retroactive change to
existing subsidies, which were factored into fnancing for solar
panels in previous years. however, the government decided not
to implement retroactive reductions to previous fxed Feed-in-
Tariffs. in 2011, the tariff regime will be adjusted quarterly based
on demand in the previous quarter. With investment payback
calculated on periods of 15 to 20 years, retroactive changes
of subsidies or policy instability more generally can present a
signifcant risk for renewable investments, and increase the
perceptions of policy risk amongst investors.
in the short-term, incentives are essential to ensure
investment in LcT is viable, although the sector will become less
dependent on incentives in the medium- to long-term. FiTs in
France have been set up to provide an eight per cent iRR over
15 to 20 years for investments in solar-Pv
66
. Without the FiT,
the high cost of investing in Pv solar panels would not make it
commercially viable.
Furthermore, the recent economic downturn reduced the
demand for carbon permits in regions with emissions trading
schemes (eTs). Recent drops in the carbon allowance (eUa)
price to €13 in March 2010
67
on the eU eTs have provided poor
incentives for large industries and the power sector to fund
alternative energy infrastructure or equipment. as investments
often have long-term pay-back periods, the absence of a view on
the long-term carbon price further limits LcT investments.
Policy uncertainty
56 Resources: The
power bill arrives, FT,
February 2010
57 Renewable energy
Roadmap, eU
commission,
January 2007
58 section 22, council
of european
Union Presidency
conclusions, 12
December 2008
59 From green stimulus
to green austerity?,
hsBc global
Research, april 2010
60 The stimulus Plan:
how to spend $787
Billion, The new York
Times, February 2010
61 india to Raise
$535 Million From
carbon Tax on
coal, Bloomberg
Businessweek,
august, 2010
62 From green stimulus
to green austerity?,
hsBc global
Research, april 2010
63 Financing the
Response to climate
change, iMF, March
2010
64 Re:FiT, London
Development agency
65 spain keeps subsidies
for existing solar
power plants,
Bloomberg news,
november 2010
66 investing in climate
change 2009,
Deutsche Bank,
october 2008
67 ecX eUa Futures
contract: historic
Data 2010, european
climate exchange,
2010
The Financial Times recently estimated that about
€1trillion would be required from utilities to meet eU targets
for renewables only, up to 2020
56
(the eU has a 20 per
cent target for renewables roll-out which includes biomass,
hydro, wind and solar
57
). This would need to be added to
investments in transport, heavy industries and buildings to
achieve the desired eU 20 per cent carbon reduction target
in 2020
58
.
The investment required to effect energy diversifcation
towards a lower carbon energy mix and increase energy
effciency is enormous due to the high capital intensity of
many low carbon technologies.
currently, many of the energy alternatives are not
competitive on a cost basis with fossil fuels. as a result,
government policies will need to continue to provide incentive
frameworks until technology costs drop and become cost
competitive. in europe, feed-in-tariffs have been used
successfully to grow domestic clean energy markets in
countries like germany, but as we discuss later, spain’s recent
changes to its incentive regime provide a clear reminder of
the importance of policy stability in driving investment.
venture capital has invested in some potentially
transformative technologies which have not obtained the
large level of funding necessary to develop on a commercial
scale. This funding gap is sometimes referred to as the “the
valley of death”, and also needs to be addressed in order to
bring these emerging technologies to market.
There are signifcant barriers that are preventing capital
provision at the levels required across the whole spectrum
of fnancing sources, from early-stage company developing
innovative technology, through to large infrastructure assets
with mature technologies such as onshore wind. Three of the
most signifcant barriers are reviewed here:
 Policy uncertainty.
 Restrictions on capital lending.
 Technology uncertainty.
50 Carbon Capital
Financing the low carbon economy
68 Dodd-Frank Wall
street Reform and
consumer Protection
act, The Library of
congress, February
2009
69 as presented on
Figure 5: capital
raised to fund LcT
assets ($bn) in
europe between
2004 and 2009 by
fnancing stream
70 Fitch downgrades
Breeze Finance
sa’s notes; outlook
negative, Dow Jones,
april 2010
71 capacity factor
defned as: MWh
produced/MW-
capacity x number of
days per year x 24h
72 eurostat, derived
from installed
capacity and
production output
73 geographical
information system
(gis) software,
Pvgis, JRc, european
commission
74 international
Performance
Measurement &
verifcation Protocol,
iPMvP.org, March
2002
75 TechPoL
database, european
commission World
energy Technology
outlook – 2050
Restrictions on capital lending
goveRnMenTs have Been encouraging aggressive lending
targets for banks to support economic growth, e.g. sMe
lending targets. however, at the same time, banks are also
under intense pressure to reduce risk and build their deposit
base in order to ensure there is enough capital to satisfy new
or anticipated regulations.
The requirement for banks to improve Tier 1 capital, which
will increase under Basel iii, is likely to limit balance sheet
lending further (e.g. primary junior or senior debt, leases).
new regulations may also prevent banks from investing
directly in private equity and numerous other types of privately
offered funds. This is likely to restrict banks’ ability to fund the
development of early stage LcT companies. in the Us, the
Dodd-Frank Wall street Reform and consumer Protection
act will restrict investment in private equity and venture
capital funds
68
.
in addition, the absence of secondary markets for LcT
project fnance debt has restricted the capital provision from
private investors and institutions (excluding direct lenders
such as corporate and investment banks). For example, asset-
backed securities or bonds, which allow investors to access
secondary markets, make up less than three per cent of LcT
asset fnancing
69
.
The roll-out of LcT is often fragmented and unstructured,
with many small-scale projects each requiring funding,
rather than a small number of large-scale projects. This means
that it is often not viable for large corporate and investment
banks to provide fnance. however, transactions involved
in both large and small projects require similar resources
to conduct regulatory, technical, commercial and fnancial
due diligence. This has fltered out a number of proposals.
Financing the retroftting of energy-effcient and micro-
generation equipment in buildings, for example, is often
highly fragmented with the additional diffculty of the assets
being often attached to the properties in which they are
installed. several european cities are struggling to achieve
suffcient critical mass in their retroft programmes to attract
private sector fnance.
Technology uncertainty
The coMPLeXiTY anD relative immaturity of LcT increase
the risk attached to investing in it. investors require
the fnancial return on investment (from, for example,
Power Purchase agreements (PPas), reduction in energy
consumption) to be guaranteed over the often long
timeframe required to match anticipated pay-back periods.
The revenue streams associated with LcT are more
complex to estimate than those of traditional technologies.
This increases uncertainty of the assets’ performance and
so heightens the risk associated with long-term cash fows.
general intermittent power output from renewables makes
revenue streams more uncertain, which in turn increases
the investment risk. onshore and offshore wind power, for
example, is highly affected by weather conditions. Fitch
recently downgraded the Breeze Finance bond which
fnances a number of wind farms in germany. This was
the result of actual performance being lower than original
forecasts: energy production during 2009 was 12 per cent
and 19 per cent lower than the P90 and P50 forecasts initially
made
70
. similarly, the power generated by solar Pv can fall
below estimates: the average capacity factor
71
of installed
solar Pv in italy was 5.1 per cent in 2008
72
, less than a third of
the 14 per cent theoretically achievable for the country under
normal conditions
73
.
The projected energy savings from installing LeD lighting or
building management systems are also diffcult to guarantee
(e.g. they can be affected by the behaviour of the building’s
occupants and lead to a “rebound” effect as costs are
reduced). Uncertainty in energy-saving measurements has
been addressed through protocols such as the international
Performance Measurement & verifcation Protocol (iPMvP)
74
.
Uncertainty around revenue generation and cost reduction
of LcT will increase the risk in investing.
LcT is a largely maturing sector. accordingly, it is diffcult
to estimate the future asset value solely based on the asset’s
lifespan and its performance. The rapid change of LcT
procurement and implementation cost over time
compared to its useful output (e.g. €/kWh for renewables,
€/km for vehicles, €/hours-in-operations for building retrofts
applications) can drastically reduce over time. This will add
further uncertainty to the future value, further complicating
asset-based fnancing decisions. The extreme example is
fuel-cell-enabled power (€/kW) which is expected to drop by
more than 55 per cent between 2010 and 2020
75
.
The complexity and relative
immaturity of LCT increase the risk
attached to investing in it.
› ›
Carbon Capital 51
Limited investments
in LcT companies
and infrastructure
Limited access
of private investors
to LcT capital
investments
increased risk
associated with
LcT assets impacting
on RWas
Limited bank
lending to LcT
companies and assets
Limited shift to low
carbon activities
LCT fnancing requirements Barriers Impact
 increased cost of
carbon-intensive activities
 early-stage R&D public
incentives
 Large-scale public
infrastructure fnancing

 Public incentives for selected
LcT investments
 increased return on LcT
investments through public
incentives leverage
 Private investors access to
ciB primary investments
 Low restrictions on ciB lending
for large-scale asset fnancing
 Low restrictions on
early and growth stage
companies fnancing
 Transaction critical mass
 Low risk associated with
long-term LcT asset fnancing
 expected asset future value
 expected future energy
cost savings achievable
 expected future revenue
generation achievable
 absence of long-term view and
stability of carbon price on eTs
 Diffculty to identify public incentives
which maximizes local gross-value-
added generation
 increasing pressure on government public
funding and sovereign debt


 absence of long-term stability of
public incentives
 absence of secondary markets to transfer
ciB debt liability to private investors
 increasing pressure to improve Tier 1
ratio limiting ciB lending
 Regulatory limitations on venture capital
and private equity ciB investments
 Resources-intensity of small-size transactions
 Uncertainty on future value of LcT assets
(on a per unit basis: e.g. €/kWp, €/vehicle)
 Diffculty in quantifying energy-effciency
cost savings given uncertainty in benchmarks
 Uncertainty in future revenues of
renewables due to impact of weather and
public incentives
T
e
c
h
n
o
l
o
g
y

u
n
c
e
r
t
a
i
n
t
y
R
e
s
t
r
i
c
t
i
o
n
s

o
n

c
a
p
i
t
a
l

l
e
n
d
i
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g
P
o
l
i
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y

u
n
c
e
r
t
a
i
n
t
y
s
t
a
b
l
e
The BaRRieRs oF LcT Financing 27
LCT is a largely maturing sector.
Accordingly, it is diffcult to estimate
the future asset value solely based on the
asset’s lifespan and its performance; a
key requirement to secure fnancing.
buildings
electricity
distribution
electricity
production
transport
vehicles
transport
infrastructure
52 Carbon Capital
Financing the low carbon economy
88Bn
23Bn
382Bn
63Bn
35Bn
cUMULaTive DeveLoPMenT caPiTaL PeR LcT segMenT – 2011-2020 (in €Bn) (eU25) 28
|n|¹|a| |u|||c
O[[er|no (||O) and
secondar|es
Seed and
ear|y- s¹aoe
ven¹ure cao|¹a|
|a¹e and orov¹|-
s¹aoe ven¹ure
cao|¹a|
|r|va¹e eou|¹y
(exoans|on cao|¹a|)
|un|or and sen|or
coroora¹e de|¹
Me..an|ne de|¹
Coroora¹e cred|¹
[ac|||¹y
|r|va¹e o|acenen¹
and |||F
28
0% 25% 50% 75% 100%
The sTUDY qUanTiFies the development capital raised
by companies that produce and develop the 15 low
carbon technologies analysed in the report (details on
the methodology in appendix iv)
76
. it then identifes and
quantifes the fnancing streams relating to development
capital, based on the demand for LcT in europe between
2011 and 2020.
Primary equity provision from early and growth stage
venture capital to PiPe, iPo and private equity can be
expected to raise €348bn, the largest share of development
capital required and 59 per cent of the total. as the
majority of LcT companies are still at growth stage, most
investments will be in the form of equity, not debt.
Debt fnance represents €243bn (41 per cent of
total development capital) and is composed of junior
(subordinated) debt, senior debt, mezzanine debt
and corporate credit facilities. corporate debt makes
up the largest share of debt fnancing, representing €182bn
(76 per cent of total) which will mainly be used to fund
capital spending on logistics, manufacturing and sales for
LcT developers.
Development capital
as the sector grows, more companies will look to public
markets to raise equity from investors. Between 2008
and 2010, more than 40 LcT companies foated on the
stockmarkets. Most of them were small, with an average
transaction size of $84m
77
, and most listed on secondary
markets such as the London aiM stock exchange (most
iPos valued under $100m are foated on secondary stock
exchanges). access to public markets remains essential for
growing LcT providers to reach the public equity stage, with
€97bn (16 per cent of total) in funding predicted to come
from iPos on these markets.
as an alternative to secured corporate debt (which often
results in a high capital cost) or primary issuance of public
equity (which can result in important dilution of current
equity holders if public equity is traded at low price),
companies have also been relying on convertible bonds to
secure development capital. q-ceLLs, the german solar
cell manufacturers, issued guaranteed convertible bonds
to “expand the production capacity in its core business”
78
.
These bonds will mature after fve years and be converted
into equity upon maturity.
76 Bloomberg new
energy Finance – over
1,200 transactions
retrieved to support
the development
capital model
(appendix v)
77 Derived from
Bloomberg new
energy Finance
78 q-cells will issue
guaranteed
convertible bonds
due 2012 to
institutional investors;
the book building
for the offering will
commence today
(7 February 2007),
q-ceLLs, February
2007
transport
infrastructure
transport
vehicles
electricity
production
electricity
distribution
buildings
cUMULaTive PRocUReMenT caPiTaL PeR LcT segMenT – 2011-2020 (in €Bn) (eU25) 30
600Bn
529Bn
508Bn
582Bn
35Bn
0% 25% 50% 75% 100%
Eonds or|nary
|ssuance
|ro|ec¹
[nance-de|¹
Asse¹ [nance-¹ern
|oan
Asse¹ |ease
|ro|ec¹ [nance
eou|¹y
|n¹erna| [nanc|no
(orocur|no en¹|¹y)
S|or¹-¹ern
asse¹ |end|no (|r|doe)
30
P
r
i
m
a
r
y
c
a
p
i
t
a
l
p
r
o
v
i
s
i
o
n
-
p
r
i
v
a
t
e
d
e
b
t
Primary capital
p
ro
v
is
io
n
-
p
r
i
v
a
t
e
e
q
u
i
t
y
P
rim
a
r
y
c
a
p
it
a
l
p
r
o
v
i
s
i
o
n
-
p
u
b
l
i
c
e
q
u
i
t
y
243
182
47
14
97
74
25
51
100
177
171
Initial public offering (IPO) & secondaries
Private placement & PIPE
Seed and early stage venture capital
Late and growth-stage venture capital
Private equity (expansion capital)
Junior and senior corporate debt
Mezzanine debt
Corporate credit facility
Carbon Capital 53
Equity investors
will provide the
majority of
development
capital,
particularly for
smaller
companies.
cUMULaTive DeveLoPMenT caPiTaL PeR Financing sTReaM
– 2011-2020 (in €Bn) (eU25)
29
|n|¹|a| |u|||c
O[[er|no (||O) and
secondar|es
Seed- and
ear|y-s¹aoe
ven¹ure cao|¹a|
|a¹e- and
orov¹|-s¹aoe
ven¹ure cao|¹a|
|r|va¹e eou|¹y
(exoans|on cao|¹a|)
|un|or and sen|or
coroora¹e de|¹
Me..an|ne de|¹
Coroora¹e cred|¹
[ac|||¹y
|r|va¹e o|acenen¹
and |||F
29
€0.6trillion
Procurement capital
oF The €2.3TRiLLion required for purchasing LcT in the
eU25 to 2020, €1.65trillion (73 per cent) will be needed in
external funding (details on the methodology in appendix
iii). This is based on an analysis of more than 650 LcT asset
fnancing transactions over the past two years, combined with
the average cost of procuring assets and the corresponding
cost curves. The remaining 27 per cent is expected to come
directly from the balance sheet of technology buyers.
some types of LcT equipment can be purchased for less
than €100m (for example, aggregated building retrofts
and smaller scale solar Pv plants). This means that fnance
through secured term loans of less than €100m is likely
to become the main source of debt, making up 25 per
cent of external funding for procurement. stand-alone
equipment such as vehicles, or infrastructure, such as
wind farms owned by a single entity, are ideal collateral for
asset-backed loans. By contrast, it is more diffcult to secure
fnance against individual assets or equipment integrated
1436
Primary cap
ita
l p
r
o
v
is
io
n

-

p
r
i
v
a
t
e

a
s
s
e
t

d
e
b
t

I
n
t
e
r
n
a
l

f
in
a
n
c
in
g
604
147
68
147
338
564
482
604
68
51
54 Carbon Capital
Financing the low carbon economy
coRPoRaTe anD invesTMenT banks will act as intermediaries, allowing access to fnancing streams through their
products and services. This will provide LcT investors with access to both primary and secondary markets.
The role of corporate and investment banks can be broken down into four areas:
Primary capital provision.
capital markets.
advisory services.
asset management.
79 Barclays specialist
interviews
80 applied to both
individual and
aggregated LcT
equipment purchase
81 Derived from model
results analysis:
on a per year basis
the cost recovery
ratio of LcT retroft
equipment is
estimated at 14 per
cent which suggests
that only between
seven and eight years
would be required
to pay back the
equipment purchase
Based on an
analysis of
650 existing
transactions, we
estimate that
technology buyers
will need to raise
¤1.65trillion from
external sources.

€2.3trillion
Primary capital provision
– public asset debt
Primary capital provision
– private asset equity
More interestingly, lease schemes where the generated cost
savings apply to the lease payments are possible, as pay
back periods of 10 years or less are expected
81
. This payback
period includes the purchase price of the asset itself, along
with interest and administration fees. over a 10-year period
this could mean repayment of a fully depreciated lease with
no impact on the purchasing entity’s cash fow.
Project fnance, which is the most suitable solution for
large-scale renewables, transport and grid infrastructure
generating a constant cash-fow and costing more than
€100m, is estimated to contribute €405bn in combined debt
and equity, 18 per cent of procurement capital.
Bonds are increasingly becoming a viable alternative
to project fnance as bank balance sheet capacity
may be restricted due to regulatory requirements. The
model estimates that €147bn worth of bonds will be issued
to support LcT procurement between 2011 and 2020.
The role of banks in issuing bonds is limited to underwriting
and placements and so does not require direct funding,
unless the bank is associated with the conversion of a
loan into a bond – construction loans, for example. Placing
bonds with investors will therefore have minimal impact
on banks’ balance sheets and will not affect their Tier 1
capital ratios.
The role of corporate and
investment banking products and services
Eonds or|nary
|ssuance
|ro|ec¹
[nance-de|¹
Asse¹ [nance-¹ern
|oan
Asse¹ |ease
|ro|ec¹ [nance
eou|¹y
|n¹erna| [nanc|no
(orocur|no en¹|¹y)
S|or¹ ¹ern asse¹
|end|no (|r|doe)
31
cUMULaTive PRocUReMenT caPiTaL PeR Financing sTReaM
– 2011-2020 (in €Bn) (eU25)
31
in properties, such as building retrofts or large-scale
infrastructure, such as smart grids.
asset leasing will form the second largest source of
external capital and is expected to contribute €482bn
in funding. asset leases have proved to be suitable for
purchasing LcT small-scale equipment, including vehicles
and solar Pv. Most assets cost between €10m and €50m
79

to procure, within the range of conventional leases
80
.
› › ›
Carbon Capital 55
Primary capital provision covers all direct fnancing, whether
directed at procurement or development, and delivers capital
from the bank directly to the developer or buyer.
Capital market products, both equity and debt, provide a
liquid marketplace where fnancial instruments issued within
the primary capital can be exchanged between investors.
Ultimately, the existence of secondary markets supports the
issuing of primary capital. These two areas are pivotal for
allowing LcT developers access to funding.
Advisory services are essential to provide expertise
around technology, regulatory, fnancial and commercial due
diligence issues for LcT transactions. These services can be
applied across a number of areas including asset fnance,
project fnance and equity investments. accordingly, advisory
services are critical for both banks and investors to understand
this maturing and complex sector. Understanding product
complexities, maturity and related regulations is critical in
order to identify investment risks, trends and strategies.
corporate and investment banks typically engage third
party expert consultants to provide technical support for
due diligence, and therefore a broader group of such service
porviders will be critical in helping to expand the capital
markets for LcT fnancing.
Asset management helps to defne the most effective
investment strategies while tax incentives drive demand for
specialized LcT investment vehicles.
LCT capital
impact
Examples of LCT sector
specifc products and services
General corporate and investment bank products and services*
coRPoRaTe anD invesTMenT BanK PRoDUcTs anD seRvices (1/2) 32
asseT
Financing
PRiMaRY caPiTaL
PRovision
coRPoRaTe DeBT
Financing
eqUiTY Financing
(invesTMenT
BanKing)
eqUiTY secURiTies
UnDeRWRiTing anD
PLaceMenTs
DeBT secURiTies
UnDeRWRiTing anD
PLaceMenTs
Project fnance (debt
and equity/balance
sheet and syndication)
Private debt
and equity for
procurement capital
€1,503bn
“Partnership for
renewables” Joint venture
between carbon Trust
and hsBc for renewables
project fnance
Rabo ventures, venture
capital fund of Rabobank
which invests in early- and
growth-stage cleantech
companies
Barclays natural
Resources investments
(BnRi) fund invests private
equity in renewables and
smart grid developers
Barclays capital
alternative energy group,
focused on providing
fnancing solutions to
cleantech developers
Private debt for
development capital
€243bn
Private equity for
development capital
€177bn
Public equity for
development capital
€171bn
Public debt for
procurement capital
€147bn
asset-secured debt
and loan (balance
sheet and syndication)
initial Public offering
(iPo) and secondaries
notes primary
issuance
Private Placement
and PiPe
Bonds primary
issuance
asset-secured lease
Junior and senior
debt (balance sheet
and syndication)
Mezzanine debt
company
credit facility
seed and early-stage
venture capital
Late- and growth-
stage venture capital
Private equity
short-term asset
lending (bridge)
* non-exhaustive list of ciB
products and services
Lending,
investments,
underwriting
› › ›
56 Carbon Capital
Financing the low carbon economy
caPiTaL
MaRKeTs
secondary market
securities for
development capital
secondary market
securities for
procurement capital
ishares s&P global clean
energy eTF which tracks the
performance of equity held
in renewables providers
 Barclays capital environmental
Markets team provides carbon
trading services for corporates,
government and investors
Barclays capital
securitization of renewables
assets using pass-through
trust certifcates (alta Wind)
coMMoDiTies
commodities futures
carbon market
allowance futures
eqUiTY
exchange traded
fund (eTF)
common, preferred
and convertible
stocks
FiXeD incoMe
asset-back securities
Fixed and indexed
bonds or notes,
convertibles
exposure, coverage,
hedging of
procurement and
development capital
goldman sachs weather
derivatives securities and
trading used for hedging the
future income of renewables
DeRivaTives anD
sTRUcTUReD
PRoDUcTs
options, Warrants
custom hedging
solutions
swaps
Trade,
securitization,
structuring
aDvisoRY
seRvices
consolidation
and acquisition of
development capital
analysis of
technology, regulatory,
commercial, fnancial
trends impacting
development and
procurement capital
indices used to track
the performance of
equity development
capital
Risk assessment of
development and
procurement capital
 Barclays capital alternative
energy group, focused on
providing fnancing solutions
to cleantech developers
Barclays capital equity
Research on renewables
provides market analysis
for the solar and wind
industry sectors
credit suisse global
Warming TR index
Barclays capital european
Renewables index Family
provides exposure to the
renewables industry
goldman sachs gs
sustain which analyses the
sustainability of corporate
performance
invesTMenT
BanKing seRvices
Merger and
acquisition advisory
services
strategic alliance
and Jv
caRBon
ManageMenT
aDvisoRY seRvices
carbon fnancing
services
ReseaRch
investment and
portfolio strategy
research
industry sector
research across
different securities
BenchMaRK
inDeX
RisK
ManageMenT
carbon and energy
commodities
benchmark index
Debt and equity
benchmark index
Regulatory,
technology,
commercial and
fnancial risk analysis
Risk and opportunities
assessment and tools
asseT
ManageMenT
investment
strategies in
development and
procurement capital
Deutsche Bank DWs
invest climate change Lc
fund invests in companies
active in sectors involving
carbon- or energy-effcient
technologies, or renewable
or alternative energy
invesTMenT
vehicLes
WeaLTh
ManageMenT
Mutual fund –
active and passive
high-net-worth
individuals
investment advisory
Fund of funds
Fund structuring and
investment strategy
investment
solutions
LCT capital
impact
Examples of LCT sector
specifc products and services
General corporate and investment bank products and services*
coRPoRaTe anD invesTMenT BanK PRoDUcTs anD seRvices (2/2) 33
* non-exhaustive list of ciB
products and services
58 Carbon Capital
Financing the low carbon economy
This secTion oUTLines emerging schemes expected to provide funding for the LcT sector using the fnancing
streams outlined in Part iv. in it we investigate the functions, benefts and barriers of each scheme and offer examples of
implementation.
Key messages:
an estimated €1.4trillion of procurement capital could be
securitized in “green bonds” (in the sense of asset-backed
securities) across europe between 2011 and 2020, making
this the largest single fnancing instrument by value for the
purchase of low carbon technology (expected to be 84 per
cent of total external procurement capital).
Banks could provide primary debt, securitize it into “green
bonds” and place the securities on the mainstream public
markets with minimal impact on their balance sheets. This
would also avoid harming their Tier 1 capital ratios and risk
weighted assets (RWas).
energy-effcient equipment leases will fund an estimated
€140bn of investment, eight per cent of total external
procurement capital. This type of scheme is very attractive
as it requires minimal to no capital expenditure from the
purchaser of the technology and is highly suitable for
building retrofts and decentralized power production
equipment. energy-effcient equipment leases also have
the potential to aggregate large volumes of individual
leases through partnerships between banks and utility or
equipment providers.
Tax equity/debt schemes, specialist investment vehicles
and low carbon technology eTFs will boost investment
in the sector. These schemes require banks to act as
intermediaries and could beneft from tax incentives that
leverage private investment.
Banks require sector-specifc expertise on technology,
regulations and commercial dynamics to develop
low carbon technology. Building up this expertise
will allow banks to tailor their offerings to improve
access to research on iPos, M&a and equity for the
LcT sector.
The study identifes €1.65trillion required in external capital
for LcT procurement and €591bn required for development
(Figure 34). This demand for capital is likely to lead to an
important adaptation of corporate and investment banking
products and services, combined with the support of public
incentives. Financial sector innovation and prudent risk
management can be used to support this adaptation.
globally, fnancing schemes have emerged to incentivize
and support investment in LcT. This has led to the
development of specifc banking products and services to
address the need for capital.
V
Emerging financing schemes
to increase capital flows
Unlocking access to LcT fnance through capital markets.
Financing energy-effcient and micro-generation assets
through leases.
creating new investment vehicles for LcT asset
management.
investing equity in low carbon technology assets
and developers.
Developing advisory services to improve LcT sector risks
and opportunities assessments.
Capital markets will need to play a more
important role in fnancing low carbon
technologies, particularly through bond
markets for low carbon assets.
eXTeRnaL Financing sTReaMs FoR LcT DeveLoPMenT anD PRocUReMenT caPiTaL (cUMULaTive 2011-2020, eU25) 34
cLiMaTe BonDs – The sPecTRUM 35
Bonds primary issuance
Short-term asset lending (bridge)
Project finance - debt
Initial Public Offering
(IPO) and secondaries
Project finance equity
Private Placement and PIPE
Seed- and early-stage venture capital
Late- and growth-stage venture capital
Private equity (expansion capital)
Junior and senior corporate debt
Mezzanine debt
D
e
v
e
l
o
p
m
e
n
t
c
a
p
it
a
l
P
r
o
c
u
r
e
m
e
n
t
c
a
p
i
t
a
l
€1.6
trillio
n
*

0
.
6
t
r
illio
n
Ass
e
t
f
in
a
n
c
e
t
e
r
m
l
o
a
n
A
s
s
e
t
le
a
s
e
External capital need
€2.2trillion
Corporate debt facility
Carbon Capital 59
The aPPeTiTe oF institutional investors for low carbon
technology has grown substantially over the past few years,
primarily through investing in public and private equity.
however, access to capital markets for fnancing LcT assets
has been limited. Bonds secured on mature onshore wind
or solar assets were issued before 2007, but the further
development of liquid bond markets was restricted during
the fnancial crisis.
at the end of 2008, pension funds were estimated to hold
$25trillion of assets under management globally with 24-40
per cent of portfolios dedicated to fxed-income, including
asset-backed securities
82
. however, the ability of institutions
such as pension funds and insurance providers to access
LcT investments has been limited, given small secondary
Unlocking access to LCT fnance
through capital markets
debt markets and the absence of liquid, investment grade
(Figure 35) asset-backed securities.
securitization of the long-term LcT loans and leases as
asset-backed securities, which we refer to as “green bonds”,
will signifcantly increase their liquidity. We estimate that this
could unlock €1.4trillion
83
in fnance that can be used to fund
LcT equipment and infrastructure. This represents 84 per
cent of all identifed external capital required for purchasing
LcT technology. These asset-backed securities would be
similar to primary bonds in terms of the underlying LcT
assets they would fnance.
By unlocking access to 84 per cent of all external capital
required for purchasing LcT, capital market products could
form a signifcant share of institutional investments by 2020.
hIGhEr rIsK
bbb
LowEr rIsK
aaa
rATInG/rIsK
a
Project backed bonds with no credit
enhancement
Most existing project bonds fall
within this range (e.g Breeze Finance,
alta Wind)
Bonds backed by government or
multilateral guarantees
World Bank/ iFc and eiB climate
Bonds are all on balance sheet and
achieve the aaa rating of the issuer
Private or public credit
enhancement is needed
to create project-backed
bonds with an a rating
indicative credit Rating
82 The euromoney
environmental
Finance handbook
2010, WesT LB
83 Derived from the sum
of project fnance –
debt, asset fnance –
term loan, asset lease
and bonds
* note: Financing originating from the entity procuring
the LCT is not included in this fgure (only external capital presented)
The “gReen BonD” seconDaRY MaRKeT (cUMULaTive 2011-2020, eU25) 36
-
d
e
b
t
Ass
e
t
f
in
a
n
c
e
-
t
e
r
m
l
o
a
n
A
s
s
e
t
le
a
s
e
P
r
o
je
c
t
f
i
n
a
n
c
e
Bonds primary issuance
G
r
e
e
n
b
o
n
d
s
e
c
u
r
i
t
i
z
a
t
i
o
n
G
r
e
e
n
b
o
n
d
s
e
c
u
r
it
iz
a
tio
n
Bonds placem
e
n
t
G
r
e
e
n
b
o
n
d
s
e
c
u
r
t
i
i
z
a
t
i
o
n
S
e
c
uritized green bon
d
s
m
a
r
k
e
t
2
0
1
1
-
2
0
2
0
(
E
U
2
5
)
:

1
.
4
t
r
i
l
l
i
o
n
Primary green bonds market
2011-2020 (EU25): €0.1trillion
Corporate and inve stment banks:
Primary financing, securitization
and placement
Institutional and individual investors:
Securities acquisition and trading
Liquid and uniformed
securities - exchanged
on capital markets
Liquid and uniformed
securities - exchanged
on capital markets
LTC equipment and infr astructure
external financing
Secondary market Primary market Primary market Secondary market LCT capital demand
Pension funds
Insurance funds
Iinvestment funds
Individual investors
LCT capital demand
60 Carbon Capital
Financing the low carbon economy
84 Press release: Fitch
Downgrades Breeze
Finance s.a.’s notes;
outlook negative, 01
april 2010
ThRee Main FUnDing models for bond fnancing of
low carbon assets are currently used for the majority of
existing transactions.
1. Project bonds – These are mainly issued for mature
renewable energy generating assets (large-scale
onshore wind and utility scale solar) that have limited
construction risk and are at a suffcient scale to
justify bond fnancing. institutional investors require
investment grade credit ratings, but project bonds
have not achieved ratings over BBB at the moment due
to high risk and diffculty in reliably forecasting how
much energy the project will generate, as wind and
solar assets are intermittent. The key will be securing
adequate credit enhancement to achieve the kind of
investment grade profle that institutional investors
might be looking to buy as the senior notes. initially, any
residual funding requirement might be met by multi-
lateral institutions, such as the eiB or export credit
agencies taking the subordinated/frst loss notes to
enable institutional investors to purchase the bonds as
part of their investment grade portfolios. some existing
wind securitizations such as the Breeze 3 portfolio,
which issued three classes of notes in 2007 for an
aggregate amount of €455m to fnance the acquisition
Examples of supporting schemes
and completion of a portfolio of wind farms located
in germany and France, were downgraded in 2010 by
Fitch Ratings and placed on a negative outlook. Fitch
noted that the downgrades “refect Fitch’s opinion that
the original energy production forecasts somewhat
overestimated the portfolio’s actually achievable energy
yield. This marks a shift from previous reviews as, after
approximately three years of operation, Fitch’s projections
are now primarily based on actual performance rather
than on the original forecasts”
84
. however, some recent
transactions, such as the alta Wind pass-through
certifcates issued in June 2010, might point to some
market appetite for a range of risk-return profles for low
carbon assets. Using a leveraged lease structure, alta
Wind was the frst private placement bond issuance for
wind assets since 2005 (refer to case study on alta Wind
on page 68 in this report). aggregation vehicles may also
become more important in bundling a range of smaller-
scale projects into a pool that is div ersifed and at the
scale necessary to access bond markets.
2. supranational issuance – some multilateral development
banks have issued climate bonds that are secured on
their balance sheets and can therefore be rated aaa.
These bonds are not linked to specifc projects but the
Carbon Capital 61
85 Unlocking investment
to deliver Britain’s low
carbon future, giBc,
June 2010
86 european investment
Bank issues latest
green bonds,
Responsible investors,
May 2010
87 Bonds and the
Recovery act, good
Jobs new York,
January 2010
88 Database of state
incentives for
Renewables and
effciency. www.
dsireusa.org/
incentives/
incentive.cfm?
incentive_
code=Us45F
&re=1&ee=1
issuers have committed to match bond proceeds with
their lending to the low carbon sector. Most of the bonds
are issued for retail investors, with Japan the main market
for these types of products. The World Bank and others
have issued more than £1bn in climate bonds
to back funding for carbon reduction projects
85
. eiB
has an estimated £750m worth of “green bonds”
outstanding, with aaa rating to fnance a broad range
of projects from climate change adaptation to mitigation.
it recently launched a new €300m issue to Japanese
retail investors
86
.
3. Us Municipal Bonds – Municipal authorities in the Us
can also access dedicated bond issuance schemes.
The cReB (clean and Renewable energy Bonds) and
qecB (qualifed energy conservation Bonds) are the
main schemes available. cReB is a tax-credit bond
program expanded under the U.s. Recovery act from
a national limit of $800m to $2.4bn. Funds are used
to fnance programs that reduce ghgs as well as for
energy conservation purposes
87
. cReBs may be used by
issuers primarily in the public sector. cReBs are issued,
theoretically, with a 0 per cent interest rate, the borrower
pays back only the principal of the bond, and the buyer
receives federal tax credits instead of interest payments.
however, in practice, bonds have been issued at a
discount or with additional interest payments in order
to attract buyers
88
.
“gReen BonDs” DePenD on banks to act as
intermediaries between investors and purchasers. Banks
provide the initial debt (construction loans, term-loans,
lease), structured according to investment grade and
convert the debt into asset-backed securities. These
FoR This Financing scheme to grow, “green bond”
securities will need to become more liquid and uniform.
a single set of standards is needed to specify and grade
the characteristics of underlying investments. The role
of risk sharing instruments to de-risk initial transactions
will help build investor confdence and effective partnerships
between banks, investors, project sponsors, rating agencies
Financing eneRgY-eFFicienT or micro-generation
equipment can be expensive. To reduce the impact on
cash-fow, a leasing scheme – “energy-effcient and
micro-generation leases” – could be developed so that
principal and interest repayments on the equipment are
calculated based on the estimated amount of energy saved
(Figure 37). our analysis shows that principal and interest
repayments for a number of building retrofts could be met
solely by savings on energy costs over a period of seven to 10
years (see buildings section).
The role of banks as enablers
Additional requirements
Financing energy-effcient and micro-generation
assets through leases
securities are then placed with individual or institutional
investors through the capital markets (Figure 36). The
impact on banks’ balance sheets is therefore limited to the
interval between the initial fnancing of the project and the
securities being placed.
and public agencies. achieving this uniformity would reduce
the investment risk and lead to a progressive increase in
issuing “green bonds”, as investors become more
comfortable with the new asset class. This would lead
to greater investment in “green bonds”, ultimately creating
liquidity on capital markets.
With demand for building retrofts and decentralized power
estimated to require €140bn in leases and loans (equivalent
to fully depreciated leases), the market is considerable
and has the potential to grow far beyond this conservative
estimate. indeed, if equipment is provided without the need
for capital upfront, take-up is likely to increase signifcantly as
the end-user would beneft immediately from savings.
energy-effcient leases would support €140bn in
procurement capital while leading to savings estimated to be
in excess of 350 Mt co
2
e.

62 Carbon Capital
Financing the low carbon economy
PRoviDing inDiviDUaL Leases for energy-effcient or
micro-generation equipment is not viable from a bank’s
perspective due to the small scale. To make these types
of leases possible, a large-scale debt facility of the type
Using DeBT Finance to purchase equipment will have an
impact on the balance sheet of both service providers and the
bank providing the debt (if the special Purpose vehicle (sPv)
which holds the assets is consolidated). This is a major barrier
The role of corporate and investment banks
Additional requirements
corporate and investment banks could provide is critical.
Large equipment providers or utilities could use these debt
facilities to offer energy-effcient or micro-generation leasing
schemes to their customers (Figure 38).
as it would infuence the credit rating and debt ratio of the
service provider whilst affecting the risk-weighted assets of
banks. alternative structuring of the sPv or securitization of the
debt onto public markets could provide alternatives.
eneRgY-eFFicienT anD micro-generation equipment leases
are at present only used for small, individual projects. a number
of pilot programs have already been launched to demonstrate
the viability of such schemes. These leases are often backed by
public incentives for energy effciency:
in the UK, the carbon Trust is fnancing retrofts of LcT
equipment in new buildings using loans of between
£3,000 and £100,000 per loan
89
, with more than £70m
Examples of supporting schemes
provided in 2010
90
. Loans are interest-free with anticipated
savings expected to offset the loan repayments. The
carbon Trust bears the full cost of administration and loan
management fees.
companies have begun to develop leasing schemes which
require no capital upfront. sungevity in the Us and the green
home company in the UK have designed solar electricity leases
that eliminate upfront investment and lower energy bills
91
.
89 The carbon Trust,
www.carbontrust.
co.uk
90 The carbon Trust,
stakeholder interview
91 sungevity, green
home company
CAGr
3%*
Illustrative Cost of retail electricity
purchase and lease
repayment (€)
*Average retail electricity CAGr In EU25 for past 10 years (source: Eurostat)
Lease repayment period
(approximately 10 years for retrofts, approximately
20 years for micro-generation)
Post lease
period
retail electricity costs
Lease repayment
(fully depreciated)
Energy
cost savings
iMPacT on eLecTRiciTY cosT savings FRoM ReLiance on an eneRgY eFFiciencY anD PRoDUcTion Lease 37
Carbon Capital 63
as DeMonsTRaTeD, DeManD for investment in LcT is
growing and the emergence of new providers of products
and services tailored to the sector will accelerate to meet
demand. as this occurs, more investors are likely to seek
exposure to fast-growing segments of the LcT sector.
Fund managers will require an in-depth knowledge of
the sector, specifcally aspects around technology,
regulations, commercial and fnancial due diligence to
ensure they are able to structure investment vehicles
appropriately and are mitigating risks.
additional tax incentives on LcT funds further stimulate the return on private investment whilst strongly leveraging public
subsidies. existing public incentives schemes include:
The green Funds scheme in the netherlands allows
individual investors to buy bonds or shares in the “green
Fund”, accepting a lower interest rate in exchange for 2.5
per cent tax advantage. individuals in the netherlands
can offset up to €55,000 per year against their annual
wealth tax liability for specifc investments, including
green business, social, cultural and seed capital.
 BlackRock – new energy Fund.
Deutsche Bank – DWs invest climate change Lc fund.
Rabobank – new Power Fund.
LcT sPeciFic FUnDs provided by corporate and investment banks have emerged, for example:
Creating new investment vehicles for LCT
asset management
Examples of investment vehicles and supporting schemes
an estimated €171bn in public equity is expected
to be raised through iPos or PiPe between 2011 and
2020 in eU25. equity investment vehicles would
support the demand for LcT equity common stocks
by providing a tailored instrument to access these
markets. investment vehicles could also be formed to
invest in LcT private equity, asset-backed securities
(i.e. “green bonds”), regular bonds or liquid corporate
debt. This is likely to stimulate the demand for a broad
range of LcT securities.
The enterprise investment scheme (eis) in the UK allows
investors to offset 20 per cent of the cost of buying shares
against their individual income tax liability. This includes:
capital gains tax exemption on disposal.
capital gains tax deferral by reinvestment.
capital losses can be offset against income rather
than capital gains.
eneRgY-eFFicienT
oR PRoDUcTion
eqUiPMenT
sPv
eneRgY-eFFiciencY
eqUiPMenT seRvice
PRoviDeR
(e.g. UTiLiTY)
enD-UseR
eqUiPMenT
oeM
Potential
securitization of
asset-secured
term loans into
green bonds
secondary market
Principal and
interest payments
(€)
asset-secured
term loan (€)
estimated market
size : €140bn
equipment cost (€)
equipment provision
aggregated
lease
aggregate
lease
payments (€)
Lease
payments (€)
individual
lease
coRPoRaTe anD
invesTMenT BanK
eneRgY-eFFicienT anD MicRo-geneRaTion asseTs Leases Financing scheMe 38
Source E|oon|ero
64 Carbon Capital
Financing the low carbon economy
inDices ThaT MeasURe LcT sector performance,
such as Bloomberg Wind energy index or FTse impax
eT50 index, can be tracked by eTF investment products
which in turn need to purchase underlying securities
(mostly common stocks) (Figure 39). eTFs could also track
“green bonds” or corporate bonds if enough liquid
securities were available on the market (this is unlikely
for LcT corporate debt as most of the companies
are small).
ETFs to provide liquid securities for broad sector exposure
eTFs will ultimately reinforce demand for common
stocks and bonds in the LcT sector. considering equity
and debt raised through iPo and bond issues, the study
estimates LcT-specifc eTFs could be formed of new
underlying securities worth up to €244bn in public equity
or bonds. as the investment profle of companies varies
due to technology or regulatory risks, eTFs provide an easy
and liquid way for investors to gain exposure to the sector
without the risks of investing in one individual company.
invesTMenT vehicLes ThaT rely on public incentives
(e.g. tax benefts) to provide returns that satisfy investor
expectations, run the risk of having the incentive removed.
Additional requirements
if the tax incentives are necessary to make the return
competitive, governments need to commit to the scheme
long-term to provide stability and support investment.
DiRecT BanKing secToR investments in a number of LcT
developers and large asset fnancing vehicles are essential to
Investing equity in low carbon technology
assets and developers
provide stability and security to the underlying investments.
n
o
R
M
a
L
i
s
e
D

i
n
D
e
X
0
200
50
250
100
300
150
350
400
01/2004 12/2005 11/2007 10/2009
FTSF FT¯0
MSC| \or|d
S&| C|o|a|
C|ean Fneroy
LcT anD cLeanTech BenchMaRK inDices 39
39
› › › ›
Carbon Capital 65
TaX-eqUiTY/DeBT schemes, often used in the Us to
stimulate equity participation of private investors, would
enable fnancial institutions to participate in the equity or
debt fnancing of large scale LcT infrastructure projects.
These schemes stimulate investments by allowing a
write-off of a share of reported pre-proft taxes
corresponding to investments in the LcT project.
given the strong expected take-up of large-scale
projects, such as transport infrastructure or smart grids,
these schemes would help to raise equity investment. This
would lower the debt–to-equity ratio and risks associated
with the investment, while artifcially increasing returns
Tax-equity/debt schemes for large-scale asset financing
through tax write-offs. a number of transactions have
demonstrated high demand for tax-equity investments in
the past. For example:
ge energy Financial services and Wachovia invested
$387m in tax equity to refnance Babcock & Brown’s
Us06 wind portfolio
92
.
Fortis, the investment bank, invested $26m in tax equity
in spanish wind developer iberdola
93
.
Demand for an additional €68bn in project fnance equity
was identifed for the LcT infrastructure we considered
between 2011 and 2020 in europe.
Us – Tax-equity schemes: tax credits support the
introduction of renewables by allowing companies
seveRaL coUnTRies have developed tax-equity schemes aimed at renewables to stimulate asset fnance:
Examples of tax-equity schemes
investing in the sector to write-off their investment
against profts from other operations.
BecaUse TaX-eqUiTY/debt schemes are mainly used by
institutions to offset their tax liabilities, any fall in proft typically
leads to the investment being withdrawn. This creates volatility
and instability for companies seeking equity for large infrastructure
projects. Long-term commitment from governments is vital to
provide stability for tax-equity or tax loss schemes.
BanKs can PLaY a signifcant role in fnancing early and
growth stage LcT, potentially supported by match funding
from public institutions. This will enable LcT companies to build
stable levels of equity allowing them to attract new investors.
Banks will then be able to share in the returns as the
company matures (Figure 40). For example, banks would
generate returns should the company go through an iPo
Additional requirements
Venture capital investment vehicle
at present, schemes only focus on investing equity
in projects. extending tax-equity schemes to cover debt
investments would artifcially increase interest payments
earned on the debt and lower the fnancial strain on the
project to deliver returns when drafting new legislation.
or require mezzanine fnance, bridge fnancing or additional
capital. €177bn in additional venture capital and private equity
expansion capital is likely to be required by the eU25 between
2011 and 2020 to fund the growth of LcT developers. Morgan
stanley’s acquisition of clean Technology venture investor
ngen Partners
94
demonstrates the desire of banks to play a
more active role in early-stage frms.
Early stage Growth stage Maturity stage Further development
coRPoRaTe anD invesTMenT BanK PRoDUcTs anD seRvices
venture
capital joint-
venture fund
LcT company
development
stage
Mezzanine
Bridge
iPo
secondaries
M&a advisory
services
corporate debt
92 Bloomberg new
energy Finance
93 Bloomberg new
energy Finance
94 Morgan stanley
acquires stake in
clean Technology
venture investor
ngen Partners, LLc,
Morgan stanley,
January 2008
venTURe caPiTaL invesTMenTs PosiTioning FoR coRPoRaTe anD invesTMenT BanKs 40
66 Carbon Capital
Financing the low carbon economy
eXaMPLes oF coRPoRaTe and investment bank venture
capital investments in LcT include:
Barclays natural Resource investments
(active in renewables).
Morgan stanley ventures Partners
(active in cleantech growth capital).
Rabo ventures
(Focused on cleantech early capital).
coRPoRaTe anD invesTMenT banking research into LcT
provides technical, regulatory, fnancial and commercial
expertise on the sector. This works to de-risk investments by
improving upfront risk and opportunity assessment in the
development of low carbon technologies and infrastructure.
Building this capability is essential for banks to
understand the complex dynamics of the LcT sector, which
include a strong interdependency on public incentives,
evolving regulations, and rapid technological developments.
This in turn supports a broad range of horizontal capabilities
Examples of corporate and investment bank venture capital vehicles
Developing advisory services to improve
LCT sector risks and opportunities assessments
additionally, public schemes are in place to incentivize
equity contribution for venture capital investments further.
Below is an example of a scheme in place in the UK:
The innovation investment Fund (iiF) in the UK
committed £125m in equity funding for early-stage LcT
businesses. Private funds have matched public equity
contributions and helped bridge with venture capital private
investments. Recent announcements suggest the iiF will be
increased by £200m in 2010
95
.
for the banking sector to provide external capital by
improving investors’ understanding of the risk factors
involved in both debt and equity-based LcT investments.
examples of internal expertise or research capabilities
developed by corporate and investment banks in the LcT
sector include:
Barclays capital cleantech and renewables
equity research
96
.
credit suisse electric vehicles equity research
97
.
neW RegULaTions aRe emerging that prevent banking
entities from investing in private equity funds and numerous
other types of privately offered funds, which may include
venture capital funds (§ 619 of the Dodd-Frank Wall street
Reform and consumer Protection act). as early-stage
Additional requirements
LcT developers play an essential role in driving research,
innovation and growth, it is important that governments
recognize the positive contribution corporate and
investment banks can achieve in this fnancing segment.
95 global investment
conference, UKTi,
February 2010
96 global Renewables
Demand Forecast
2010-2014e, Barclays
capital equity
Research, august
2010
97 equity Research,
energy Technology/
auto Parts and
equipment, electric
vehicles, credit
suisse, october
2009
A wide range of different debt and
equity fnancing solutions will be
required to mobilise capital across the
LCT value chain. Banks, investors and
project sponsors will need to work in
partnership to explore and create
effective funding models.
aPPLicaTion oF Financing scheMes To The DeveLoPMenT anD PRocUReMenT caPiTaL neeDs iDenTiFieD 41
E
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Short-term asset
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Initial Public Offering
(IPO) and secondaries
Project finance equity
Private Placement and PIPE
Seed- and early-stage
venture capital
Late- and growth-stage
venture capital
Private equity
(expansion capital)
Junior and senior
corporate debt
€1
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Mezzanine debt
e
External capital need
€2.2trillion
Corporate debt facility
* study applied to building retrofts
and decentralized energy production
Carbon Capital 67
BeLoW We MaP the fnancing schemes examined against the external LcT capital requirements (Figure 41).
Overall application of fnancing schemes to
external capital needs
68 Carbon Capital
Financing the low carbon economy
in JULY 2010, Terra-gen secured $1.2bn for the development
of the 570MW alta Wind energy center Phase ii
98
.
alta Windpower Development, a special purpose vehicle
(sPv), was set up to develop the 3gW wind project. The
570MW Phase ii wind farm consists of four wind farms: alta
Wind ii, alta Wind iii, alta Wind iv and alta Wind v.
Phase ii fnancing consists of a total of $1.2bn, including
$580m of pass-through bond certifcates, bridge loans of
$499m and $127m in other credit facilities.
alta Wind holdings, a subsidiary of Terra-gen Power,
will sell the $580m in bonds maturing in 2035 to individual
and institutional investors, to cover the construction of the
wind farm. The offering was met with strong demand due
to investors’ desire to purchase renewable energy project
bonds. Ultimately, alta was able to raise the value of the
deal from $412m to $580m by including an additional
Case study: Innovation in fnancing renewables
– the example of Alta Wind
phase of the alta Wind energy center. The fnal order book
included high-quality insurance companies and money-
managers and was signifcantly oversubscribed. This
confrmed the strong market demand for clean energy.
alta Wind ii, iii, iv and v are all accountable to a single
unit called the alta Wind 2010 Pass-Through Trust, which
issues the certifcates. The permanent fnancing will be a
leveraged lease under which citigroup had committed to
buy the four projects once commissioned and lease them
back to Terra-gen, which would operate them under
long-term agreements.
citibank, Barclays capital and credit suisse group ag
led the issuing of the pass-through certifcates. Mitsubishi
UFJ securities, credit agricole securities, ing and Rabo
securities acted as co-managers. citibank, Barclays and
Bank of Montreal provided the credit facilities.
98 Barclays, Bloomberg
new energy Finance
CAPITAL dEMAnd PrIMAry MArKET sECondAry MArKET
aLTa WinD FaRM Financing scheMe 42
|ns¹|¹u¹|ona| and
|nd|v|dua| |nves¹ors
|ens|on [unds
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|over ourc|ase
aoreenen¹ (€)
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V1
Recommendations
The MaRKeT FoR low carbon technology has emerged in the
past decade, thanks to the increased cost of carbon intensive
activities, a reduction in technology costs, a large number
of fscal incentives and a favourable regulatory environment.
These incentives stem from a long-term commitment on the
Policymakers
part of governments to improve energy security and reduce
carbon emissions.
a long-term agreement on carbon reduction targets
and a global fnancing framework is still needed to provide
long-term visibility on emissions regulations.
99 Derived from
enerdata power mix
database
DiRecT MeasURes, sUch as FiTs and subsidies, and indirect
measures, such as emissions trading schemes, that lower
the return of carbon-intensive industries, should be carefully
balanced. in the absence of stability and clarity on carbon
markets (such as the expected long-term cost of emissions
allowances), direct subsidies are necessary to encourage
investment in LcT.
Direct subsidies, such as FiTs or public equity are essential
in promoting the technologies that best satisfy environmental
and energy security strategies. For example, the absence of
incentives for renewables and the presence of a moderate
carbon price may result simply in a shift from coal to gas power.
This will increase exposure to foreign energy imports and lead
to only a partial reduction in carbon emissions (the shift from
Policy stability is a priority
coal to gas power reduces emissions by approximately 40-50
per cent on a per MW basis
99
).
These measures must be both stable and adaptable if
they are to support the LcT sector in becoming mature and
commercially viable. FiTs should be adjusted based on installed
capacity, effciency gains and procurement cost reduction,
perhaps more than once a year, as is currently seen in germany.
This is preferred to an overly generous tariff, which is likely to
subsequently require a hard cap on installations as a corrective
measure. adaptation of the incentives would progressively lead
the technology to be commercially viable without any public
support on the medium- and long-term.
Policymakers can take additional measures to support the
initiatives highlighted in this study.
Long-TeRM coMMiTMenT to public incentives is vital to prevent any retroactive modifcation of incentives, for a period of
time commensurate with the expected investment pay-back periods (i.e. 15-25 years).
General policy on tax incentives
PoLicYMaKeRs neeD To set a range of fscal incentives
and subsidies which improve returns on LcT-focused
investment and make use of public funds to leverage
private investment, through, for example:
Leveraging public funding
- capital gains tax credits (direct equity or funds).
- Tax-equity/debt schemes.
- Matching participation in venture capital equity
investments.
- Feed-in-Tariffs (FiTs).
- alternative or low-carbon vehicle subsidies.
 sUPPoRT scheMes TaRgeTing the roll-out of emerging low carbon technologies not yet commercially viable such as:
Support the introduction of emerging low carbon technologies
- Tax deductible interest on fnance for energy-effcient
equipment purchase.
- Direct regulation of the sale of green energy.
Carbon Capital 69
70 Carbon Capital
Financing the low carbon economy
DeveLoP LaRge-scaLe LcT infrastructure programs for e-vehicle charging systems, building retrofts, decentralized
electricity production and others to stimulate the demand for LcT equipment.
Local government infrastructure initiatives
DeFine sTanDaRDs FoR “green bond” securities and enforce compliance for securities that beneft from public incentives.
This can be achieved privately through an auditing frm or publicly through a dedicated organization.
Standardisation of “green bonds”
requirements and barriers:
- global and national standards will be necessary to defne
“green bonds” as a security class.
- high volume of debt will be required to conduct securitization.
requirements and barriers:
- a high volume of LcT equipment fnancing will be
necessary for leases to be aggregated into a single, large
debt facility.
BanKs neeD To develop capabilities for securitizing debt backed by LcT assets. This will require banks to fnd
appropriate projects, then structure, underwrite and place securities with a range of investors.
BanKs WiLL neeD to develop partnerships with energy-effcient or micro-generation equipment providers (e.g. utility
or any large service providers) to fund aggregated large equipment purchases. This equipment will ultimately be leased
to consumers.
Green bond securitization
Providing debt finance for energy-efficient and micro-generation asset leases
The LcT MaRKeT will require €2.9trillion in investment over
the next 10 years, presenting corporate and investment
banks with an unprecedented opportunity as the fnance
will derive primarily from banking products and services.
There will be leaders and laggards in the emerging low
carbon economy. corporate and investment banks can take
a leading role by unlocking primary and secondary capital
Corporate and investment banks
markets, and so providing access to funds supporting the
introduction of low carbon technology. This will require
them to develop tailored products and expertise in LcT.
our study details a number of initiatives which could be
considered in order to achieve this, along with the barriers
that would need to be overcome.
- Long-term tax incentives or guarantees may be needed
to improve returns on securities.
- Public or private risk-sharing instruments.
- Banks can use secondary markets for asset-backed leases
and loans to reduce the impact on their balance sheets.
Carbon Capital 71
requirements and barriers:
- internal eTF and investment fund product structuring and
commercialization capability is required.
- LcT sector benchmark indices are required for eTFs to
track a representative benchmark index of the sector.
- in-depth expertise of publicly listed LcT companies would
be required to form benchmark indices.
 BanKs coULD PRoviDe bespoke eTFs to support the demand for securities, creating a more liquid marketplace and broad
sector exposure for investors. They could set up dedicated investment funds (based around public or private equity, or debt)
to provide investors with strategic LcT sector exposure and access to tax-credits for qualifying investments.
Structured LCT investment products
- LcT securities would need to be liquid to allow funds to
adapt to sector dynamics and changes such as emerging
technologies or regulations impacting current LcT
developers or operators.
- securing long-term public commitment to tax-incentives
targeting LcT-focused investments would be a crucial factor.
requirements and barriers:
- Tier 1 risk-based capital ratio requirements associated with
debt provision would drastically increase with LcT equity
participation and limit investment from banks.
- integration of insurance coverage will be necessary to
mitigate the increased risk profle associated with equity
 This eXTenDs PRoJecT fnance for LcT infrastructure projects to include equity rather than simply debt. Banks will beneft
from the synergies offered by carrying out due diligence across both fnancing streams.
Integrated project finance
investment. This will secure long-term return and protect
against volatile incomes (for example, intermittent power
from adverse weather). Products to achieve this include
weather derivatives or other types of hedging products
indexed on a production indicator of the LcT infrastructure.
requirements and barriers:
- Regulations governing banks’ private equity and venture
capital investments in strategic industry sectors, such as
LcT, present barriers to speculative investments (e.g. Dodd-
Frank Wall street Reform and consumer Protection act).
- increasing investment in equity will require internal
 BanKs WiLL neeD to increase equity investment in small and medium-sized LcT companies through partnerships with
existing venture capital or private equity frms.
Using equity to provide capital for development
expertise on technology, regulations and commercial
dynamics or partnerships with sector specialists.
- Pe and vc LcT investments are small and complex
transactions which can lead to a resource intensive due
diligence process.
72 Carbon Capital
Financing the low carbon economy
Appendix I
Full list of initially considered LCT
1. High-effciencycondensingboilers
2. Micro-combinedheatandpowerunits(CHP)
3. Retroftofhigh-effciencyinsulationmaterial
4. RetroftofnextgenerationLEDlighting
5. High-effciencyHVACcoolingandheatingsystemforcommercialbuildings
6. Smartappliancesin“connectedhomes”(refrigerator/washers)
7. Integratedbuildingmanagementsystems(BMS)forlighting,heating,coolingcontrolandautomation
8. Smartbuildingsnewbuilds–integratedsmartbuildingsolution(equipmentanddesign)
9. Decentralizedenergyproduction–SolarPVpanelsforelectricitygeneration
10. Decentralizedenergyproduction–Solarthermalpanelsforheatingand‘cooling’generation
11. Decentralizedenergyproduction–Geothermalpowerforheatingand‘cooling’generation

12. Smartgridinfrastructure–Advancedcontrolandmanagementofelectricitygrid
13. Advancemeteringsysteminfrastructureforelectricsmartmeters(AMIwithAMMmeters)
14. Distributedstorageinhouseholdstosupportdecentralizedintermittentpowergenerationande-vehiclescharging
15. Virtualpowerplantinfrastructuresystemandtomanagelargevolumeofurbandecentralizedpower

16. Carboncaptureandstorage
17. Offshorewindpower
18. Onshorewindpower
19. Wavepower
20. Tidalpower
21. Geothermalpower
22. Wastetoenergy
23. PVsolarpower
24. CSPsolarpower

25. Plug-inhybridvehicles(private/commercial/freight/public)
26. Electricvehicles(private/commercial/freight/public)
27. Bio-ethanolvehicles(private/commercial/freight/public)
28. Bio-dieselvehicles(private/commercial/freight/public)
29. CNGfuelvehicles(private/commercial/freight/public)
30. Biofuelprovision
31. Telecommutingsysteminfrastructureforlargeorganizations
32. Telepresencesysteminfrastructureforlargeorganizations
33. Telematics-enablednavigationsystemretroftinvehiclestosupportenergyeffciencyapplications
34. Telematics-enablednavigationsystemretroftinfreightandlogisticsvehiclesfornetworkoptimization
35. Newdesignandfuel-effcientcontainerfreightseavessels

36. e-vehiclecharginginfrastructurewithdistributedbatteriesandchargingstations
37. Intelligenturbantraffcsystem
38. LEDlightinginfrastructuretocoverroadnetwork
B
u
I
L
D
I
N
G
S
E
L
E
C
T
R
I
C
I
T
y

D
I
S
T
R
I
B
u
T
I
O
N
E
L
E
C
T
R
I
C
I
T
y

P
R
O
D
u
C
T
I
O
N
T
R
A
N
S
P
O
R
T

I
N
F
R
A
S
T
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C
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u
R
E
T
R
A
N
S
P
O
R
T

V
E
H
I
C
L
E
S

Carbon Capital 73
Maininput1

Maininput2

Maininput3

Mainoutput1

Mainoutput2

Mainoutput3

LowCarbonTechnology(LCT)
considered
Consideredgeography
Applicablemarketwheretheselected
LCTiscommerciallyapplicable
Applicablemarketsegmentation
Applicablemarketgrowth
2011-2020adoptionratedefnitionfor
LCTapplicablemarketpenetration

ConsideredyearforLCTroll-out
IncrementalLCTmarketin
consideredyear

CostofLCTequipmentandassociated
infrastructure
Procurementcapital

Applicableenergyconsumptionand
productiontobeimpacted

Energyeffciencygainstobeachieved

Energyprice
Energycostsavings
Energycarbonintensity

Carbonsavings
1 Advancemeteringinfrastructureforelectricity(AMI
withAMM)meters
2 Germany
3 Totalnumberofelectricitymetersinstalled
4 Commercialsegment
5 Residentialsegment
6 2004-2008CAGRoftotalnumberofmeters(%)
7 2010marketpenetration(%ofsmartmeters)
8 Mid-2010-2020adoptionyear
9 Strengthofadoptionatmid-year(%changed)
10 2020marketpenetration(%ofsmartmeters)
11 2012
12 2011applicablemarket(numberofmeters)
13 2011marketpenetration(%ofsmartmeters)
14 2012applicablemarket(numberofmeters)
15 2012marketpenetration(%ofsmartmeters)
16 Incremental2011-2012LCTmarket(numberof
smartmeters)
17 CostpermeterofAMIinfrastructurewithAMMsmart
metercomponents(e.g.AMRfunctionalities,Enterprise
system,IHD,HAN,directloadcontrolequipment)(€)
18 2012procurementcapitalrequiredbyaddedsmart
meters(€)
19 Electricityconsumption–Commercialsegment(kWh)
20 Electricityconsumption–Residentialsegment(kWh)
21 Electricitydistribution–Transmissiondistribution
losses(kWh)
22 Commercialpropertiesloadcontrolandoperation
effciencygains(%)
23 Privateconsumerbehaviouralchangeandloadcontrol
effciencygains(%)
24 Optimaltransmissionanddistributionnetworkloading
effciencygains(%)
25 Priceofelectricity(€/kWh)
26 2012costsavingsenabledbyaddedsmartmeters(€)
27 Electricitygridcarbonemissionsintensity
(kgCO
2
e/kWh)
28 2012carbonsavingsenabledbyaddedsmartmeters(€)
Appendix II
Capital, emissions and cost savings sizing model
THESIzINGMODELdevelopedisillustratedbelow.It
estimatestheprocurementcapitalandcarbonandcost
savingsbetween2011and2020inEuropeforallLCTsand
globallyforrenewables.Theexampleofsmartmetering
infrastructureforelectricsmartmeters(AMIwithAMM
meters)inGermanyin2012isusedtoillustratethe
calculationsstepsofthemodel.
Thekeystepspresentedintheexampleareasgenericas
possibletodemonstratethemodel’sapplicabilitytoother
LCTs.However,somestepsarenotrequiredforallLCTs,e.g.
therearenoenergyeffcienciesachievedbyend-consumers
orutilitiesfromsourcingwindpowerversusgaspower.
Generickeymodelsteps Exampleofmodelparametersforsmartmeteringin
Germanyin2012
74 Carbon Capital
Financing the low carbon economy
Appendix III
Financing streams for procurement capital model
THEBELOWSCHEMATICillustratestheprocessofallocatingfnancingstreamstotheprocurementcapitalidentifedinthe
Capital,emissionsandcostsavingssizingmodel:
Capitalsplitbetweenexternalfnancingstreamsandinternal
Externalfnancingstreams Internalfnancing
Costperunit
(Acquisitioncapital)
Short-termasset
lending(bridge)
(€m)
Assetsleases
(€m)
Assetsfnance
termloans
(€m)
Projectfnance
(equityanddebt)
(€m)
Bondsprimary
issuance
(€m)
Internal
Financing
(€m)
Sizingmodel
output1:
Volumeofunitsacquired
bythepurchasingentity
R
a
n
g
e

o
f

a
p
p
l
i
c
a
b
i
l
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y

o
f

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e
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n
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l

s
t
r
e
a
m
s

p
e
r

L
C
T

s
e
g
m
e
n
t
LCTequipmentfor
infrastructure
(eg.Onshorewindfarm,biodieselvehicles)
(eg.€perwindfarmprojectconstruction,€perbiodieselvehiclesinfeet)
Methodology:AnalysisbasedoncapitalintensityofLCTequipmentandinfrastructure,
natureoftheLCTandcurrentapplicabilityofexternalfnancingstreamsforLCT
procurementfnancing
Methodology:AllocationoffnancingstreamsbasedontheLCT’scapitalintensity,natureoftheLCT
(infrastructurevs.equipment,etc)andvaluerangeoffnancingstreams
(eg.€/MW-capacity,
€/transportvehicle)
(eg.MW-capacity/
project,numberof
vehiclesacquired)
CapitalintenstityofLCTapplicationacquisition(€m)
Methodology:
Rangeand
averagesof
fnancing
streamsforLCT
applications
derivedfrom
analysisofLCT
transactionson
BloombergNew
EnergyFinance
Rangesand
averagesvary
forthedifferent
LCTsegments
considered
Rangeand
averages
valueswere
adjustedbased
oninterviews
withsubject
matterexperts
atBarclaysand
Accenture
Avg. €50-60m
€10-120mAssetlease
Avg. €80-90m
€50-190mAssetfnancetermloans
Avg. €120-130m
Avg. €140-150
€70-400+mProjectfnance-debt/equity
€80-400+mBondsPrimaryIssuance
Avg. €70-80m
€1-200mShort-termassetlending
(bridge)
Values displayed are in the range of
average transaction values for the
different LCT segments considered.
Carbon Capital 75
Appendix IV
Financing streams for development capital model
THEBELOWSCHEMATICillustratestheprocessofestimatingdevelopmentcapitalforLCTapplicationsandofallocating
fnancingstreams:
IPO&
secondaries
(€m)
Private
Placement&
PIPE(€m)
Privateequity
expansion
capital(€m)
Seed-and
early-stageVC
(€m)
Late-and
growth-stage
VC(€m)
Junior&senior
corporatedebt
(€m)
Mezzanine
debt
(€m)
Corporate
creditfacility
(€m)
Development capital fnancing streams
Methodology:Allocationbasedonanalysisof2004-2009breakdownofdevelopmentcapitalfnancing
streams’share(in%)byLCTsegment
E
q
u
i
t
y
D
e
b
t
B
r
e
a
k
d
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o
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t

c
a
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f
n
a
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i
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g

s
t
r
e
a
m
s

b
y

L
C
T

i

s
e
g
m
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n
t
E
q
u
i
t
y
%
%
%
%
%
%
%
%
D
e
b
t
LCTequipmentor
infrastructure
Sizingmodel
output1
2004-2009Total
developmentcapital
2004-2009Total
acquisitioncapital
(eg.Onshorewindfarm,biodieselvehicles)
Methodology:

Breakdownoffnancingstreamswas
derivedbasedon2004-2009total
investmentsinventurecapital,private
equity,corporatedebt,IPOand
secondariesprovidedonBloomberg
NewEnergyFinancebyLCTsegment
Breakdownoffnancingstreamswere
adjustedbasedoninterviewswith
subjectmatterexpertsatBarclaysand
Accenture
Forsegmentsandfnancingstreams
wherecapturedinvestmentswere
low,alternativeLCTsegmentsor
fnancingstreamscloselycorrelated
wereusedasproxiesandadjusted
basedonthematurityofthesegment
Derivedfromtotalinvestmentsinventurecapital,privateequity,corporate
debt,IPOandsecondariesprovidedonBloombergNewEnergyFinancebyLCT
segmentbetween2004and2009
Totalinvestmentfguresadjustedforsectorwithlowvolumeofdataavailable
basedoninterviewswithsubjectmatterexpertsatBarclaysandAccenture
2009levelofacquisitioncapitalretrievedthroughthecapital,emissionsand
costsavingssizingmodel
2004levelofacquisitioncapitalassumedtobebetween10and20%of2009level
Totalacquisitioncapitalbetween2004and2009computedusingalinear
growthbetweenbothyears
Averagedevelopmentto
acquisitioncapitalratio
Acquisitioncapital
(€m)
InitialPublicOffering(IPO)&secondaries
PrivatePlacement&PIPE
Privateequity(expansioncapital)
Late-andgrowth-stageventurecapital
Seed-andearly-stageventurecapital
Junior&seniorcorporatedebt
Mezzaninedebt
Corporatecreditfacility
Developmentcapital(€m)
Developmentcapitalfnancingstreams
76 Carbon Capital
Financing the low carbon economy
Appendix V
Individual LCT models’ details and assumptions
THISAPPENDIxPRESENTSthekeyparameterswhichareincludedinthecalculationstepsoftheLCTmodelsalongwithkey
assumptionsusedandrangeofadoptionrateused.
Global assumptions (applies to all models):
Gridcarbonemissionsintensitiesarederivedfrom
Enerdata’spowermixforecasts(AppendixVI).
Thecostofelectricitywasassumedfxedintime(average
July-December2009).
EmissionsfactorsonlyaccountforGHGScope1and
2emissionsoftheapplicationanalysed,i.e.emissions
associatedwithproduction,commercializationor
decommissioningoftheLCTapplicationarenotincludedin
theanalysis(exceptionappliestobiodieselandbioethanol
vehicleswhereacarbonemissionscreditisincludedbased
onthecarbonsequestratedbybiofuelcrop).
Global sources (applies to all models):
Eurostatistheprimarysourceofdataforapplicable
marketsandspecifcsegments.
IEAandEnerdataaretheprimarysourcesofdatafor
powerproductionandconsumptionfgures.
Eurostatistheprimarysourceofdataforenergy
costfgures.
DEFRAistheprimarysourceofdataforfuel
emissionsfactors.
Smart building –
LCT equipment retroft
for commercial buildings
Microcombinedheatandpowerunits(micro-CHP)
NextgenerationLEDlighting
High-effciencyHVACcoolingandheatingsystem
Integratedbuildingmanagementsystems(BMS)forlighting,heating,cooling
controlandautomation
Applicable
Market
Buildingfoor
space
Specifc
Segments
Buildingtype
Commercial
Floorspacesize
Large
Medium
Small
AdoptionRate
Outlook*
Adoptionraterange:
2010:0-5%
2020:20-25%
MainSources:
 Internalsubject
matterexperts
analysis
SecondarySources:
“EnergyEffcient
Lightingfor
Commercial
Markets”,Pike
Research
“SMART2020:
Enablingthelow
carboneconomy
intheinformation
age”,TheClimate
Group
uSEnergy
Information
Administration:
“Commercial
BuildingsEnergy
Consumption
Survey”
Calculation
Factors
Generalfactors
Averagenumber
ofretroftted
applicationsper
building
Averagebuilding
foorspace
Capitalfactors
Costperretroftted
application
Energyfactors
Benchmarkenergy
consumptionper
buildingfoorspace
Effciencypremium
forapplication
Costandcarbonfactors
Gridcarbon
emissionsfactors
Costofelectricity
Key
Assumptions
Applicablemarket
growsataverageCAGR
of2005-2008yearrange
Splitoftotalfoor
spaceaccordingtosize
andtypeofbuildings
Costofretroftted
applicationsisfxed
intime
Costandcarbon
savingscomputed
onthebasisof
effciencypremiums
foreachapplication
* Adoption rate outlook note: sources listed in tables are non-exhaustive and only the range of adoption is provided
Carbon Capital 77
Smart building
– Integrated solution for
new commercial buildings
PV solar panels for
decentralized power
generation for households
Construction(new-builds)ofsmartcommercialbuildingswhichintegrates
BMS,high-effciencyHVAC,newinsulationmaterial,LEDlighting,optimal
designfornaturalaircirculationandheatconvection,greenroof(where
appropriate)andadditionalembeddedLCTapplications
PVsolarpanels
Applicable
Market
Applicable
Market
Newbuildingfoor
spaceconstructed
peryear
Numberof
households
Specifc
Segments
Specifc
Segments
Buildingtype
Commercial
Floorspacesize
Large
Medium
Small
Buildingtype
Households
only
AdoptionRate
Outlook*
AdoptionRate
Outlook*
Adoptionraterange:
2010:5-10%
2020:50-55%
MainSources:
 Internalsubject
matterexperts
analysis
SecondarySources:
“SMART2020:
Enablingthelow
carboneconomy
intheinformation
age”,TheClimate
Group
“EnergyEffciency
inBuildings”,World
BusinessCouncil
forSustainable
Development
Adoptionraterange:
2010:0-5%
2020:5-10%
MainSources:
 Internalsubject
matterexperts
analysis
SecondarySources:
“Roadmap2050,
Apracticalguide
toaprosperous,
low-carbonEurope”,
EuropeanClimate
Foundation
“PayingFor
RenewableEnergy
–TLCattheRight
Price”,DeutscheBank
Calculation
Factors
Calculation
Factors
Capitalfactors
Costof
constructionof
smartbuilding
Energyfactors
Benchmarkenergy
consumptionper
buildingfoorspace
 Effciencypremium
forsmartbuildings
newbuilds
Costandcarbonfactors
Gridcarbon
emissionsfactors
Costofelectricity
Generalfactors
Averagesurface
ofsolarpanels
coverageon
households
Powerintensity
ofsolarpanelsper
surfaceunit
Capacityfactor
(production/
capacityratio–
onapercountry
basis)
Capitalfactors
CostperkW
ofsolar
powercapacity
Energyfactors
Shareofenergy
usedbyhouseholds
Shareofenergysold
togrid
Costandcarbonfactors
Gridcarbon
emissionsfactors
Costofelectricity
Key
Assumptions
Key
Assumptions
Applicablemarket
growsataverageCAGR
of2005-2008yearrange
Costofconstruction
included–premium
costofembeddingLCT
estimatedat5-7%of
conventionalconstruction
costs
Costandcarbonsavings
computedonthebasisof
effciencypremiumsfor
smartbuildingrelativeto
conventionalbuilding
Applicablemarket
growsataverageCAGR
of2004-2007yearrange
Assumedhalfofelectricity
issoldbacktogridand
otherhalfissubstituting
conventionalelectricity
supply(essentiallydueto
timeofuse)
Costsavingsare
calculatedbasedon
substitutedpower
consumption
RooftopPVsareassumed
tohavea25%higher
costcomparedto
ground-mountedPVs
Acostsavingspremium
wasaddedforcountries
withaFITtoaccount
foradditionalrevenues
generatedfrom
installationofsolarpower
78 Carbon Capital
Financing the low carbon economy
Smart grid infrastructure
– Advanced control and
management of electricity grid
Advance metering infrastructure
for electric smart meters (AMI
with AMM meters)
Monitoringandcontrolofelectricitydistributioninfrastructure
DemandandSupplyManagementinfrastructureforelectricitydistribution
automationandcontrol
Advancemeteringinfrastructureforelectricityconsumptiontooptimize
loading
AMMSmartMeterroll-outtoprovideadvancedconsumerelectricity
monitoringfunctionalities
Applicable
Market
Applicable
Market
Numberofprimary
substations
Number
ofmeters
Specifc
Segments
Specifc
Segments
Gridlocation
urban
Non-urban
Meteruse
Household
Commercial
AdoptionRate
Outlook*
AdoptionRate
Outlook*
Adoptionraterange:
2010:0-5%
2020:40-45%
MainSources:
 Internalsubject
matterexperts
analysis
SecondarySources:
“Carbon
Connections”
report,Accenture
andVodafone
“Deliveringsmart
meteringintheuK
market”,Accenture
“Thejourneyto
smartgrid
communications
infrastructure”,
Accenture
Adoptionraterange:
2010:5-10%
2020:80-85%
MainSources:
 Internalsubject
matterexperts
analysis
SecondarySources:
“Smartmetering
–areviewof
experienceand
potentialacross
multiple
geographies”,
Datamonitor
“Deliveringsmart
meteringintheuK
market”,Accenture
“AnnualReport
ontheProgressin
SmartMetering”,
EuropeanSmart
meteringAlliance,
January2010
Calculation
Factors
Calculation
Factors
Capitalfactors
Costofsmartgrid
infrastructureper
eachsubcomponent
(back-up,substation,
ITinfrastructure)–
basedonAccenture
SmartGridServices
data
Energyfactors
Totalelectricity
production
Transmissionand
distributionlosses
Reductioninlosses
fromoptimalloading
Costandcarbonfactors
Gridcarbon
emissionsfactors
fromEnerdata
Costofelectricity
Capitalfactors
Costofsmart
meterinfrastructure
pereach
subcomponent
(AMMsmart
meter,AMI
infrastructure,
loadcontrol
system,etc)
Energyfactors
Totalelectricity
consumption
Totalelectricity
production
Transmissionand
distributionlosses
Changeinconsumer
behaviour(AMM)
Operationaleffciency
gainsforbusinesses
Networkloading
optimization
Costandcarbonfactors
Gridcarbon
emissionsfactors
fromEnerdata
Costofelectricity
Key
Assumptions
Key
Assumptions
Applicablemarket
growsataverageCAGR
of2004-2007yearrange
Numberofprimary
substationsdirectly
relatedtonumberof
householdsingrid
location
Reductioninlosses
onlyimpacts
non-physicallosses
Costofelectricity
fxedintime
Costofsmart
gridinfrastructure
equipmentis
assumedfxedintime
Applicablemarket
growsataverageCAGR
of2004-2007yearrange
Numberofprivate
metersdirectlyrelated
tonumberofhouseholds
Numberofcommercial
metersderivedfrom
“TheEuropeanWireless
M2MMarket”,Berg
Insight
Costofequipment
andeffciencysavings
derivedfrompilotand
implementationprojects–
AccentureSmartMetering
expertsreviewed
Carbon Capital 79
Large-scale wind power generation
Large-scale geothermal
power generation
Offshorewindpower
Onshorewindpower
Large-scalegeothermalpower
Applicable
Market
Applicable
Market
Grosselectricity
productionper
year(kWh)
Grosselectricity
productionper
year(kWh)
Specifc
Segments
Specifc
Segments
Electricity
production
sources
Offshore
windpower
Onshore
windpower
Electricity
production
sources
N/A
AdoptionRate
Outlook*
AdoptionRate
Outlook*
Adoptionraterange
(Onshore):
2010:0-5%
2020:10-15%
Adoptionraterange
(Offshore):
2010:0-5%
2020:0-5%
MainSources:
 Enerdata2020
powermixforecasts,
POLESmodel
 BarclaysCapital
Renewables2015
Outlook
 EurostatandIEA
database
Adoptionraterange:
2010:0-5%
2020:0-5%
MainSources:
 Enerdata2020
powermixforecasts,
POLESmodel
EurostatandIEA
database
Calculation
Factors
Calculation
Factors
Generalfactors
Percentageof
usefulpowerof
capacity,i.e.
capacityfactor
(production/
capacity)
Capitalfactors
Costoftechnology
perkWofcapacity
asafunctionofyear
(projectionsfrom
TECHPOL)
Energyfactors
Totalelectricity
consumption
Totalelectricity
production
Costandcarbonfactors
Gridcarbon
emissionsfactors
Generalfactors
Percentageof
usefulpowerof
capacity,i.e.
capacityfactor
(production/
capacity)
Capitalfactors
Costoftechnology
perkWofcapacity
asafunctionofyear
(projectionsfrom
TECHPOL)
Energyfactors
Totalelectricity
consumption
Totalelectricity
production
Costandcarbonfactors
Gridcarbon
emissionsfactors
Key
Assumptions
Key
Assumptions
Applicablemarket
growsataverageCAGR
of2005-2008yearrange
Operationofrenewable
electricitygeneration
produceszerocarbon
emissions
Assumelinear
decreaseoftechnology
costbetweenyear
datapointsprovidedin
TECHPOL
Applicablemarket
growsataverageCAGR
of2005-2008yearrange
Operationofrenewable
electricitygeneration
produceszerocarbon
emissions
Assumelineardecrease
oftechnologycost
betweenyeardatapoints
providedinTECHPOL
80 Carbon Capital
Financing the low carbon economy
Large-scale biomass
power generation
Large-scale solar power
generation
Large-scalebiomasspowergeneration
Concentratedsolarpower–thermal(CSP)
Photovoltaicsolarpower(PV)
Applicable
Market
Applicable
Market
Grosselectricity
productionper
year(kWh)
Grosselectricity
productionper
year(kWh)
Specifc
Segments
Specifc
Segments
Electricity
production
sources
N/A
Electricity
production
sources
CSP
PV
AdoptionRate
Outlook*
AdoptionRate
Outlook*
Adoptionraterange
(Onshore):
2010:0-5%
2020:5-10%
MainSources:
 Enerdata2020
powermixforecasts,
POLESmodel
 EurostatandIEA
database
Adoptionraterange:
2010:0-5%
2020:
CSP:0-5%
PV:0-5%
MainSources:
 Enerdata2020
powermixforecasts,
POLESmodel
EurostatandIEA
database
BarclaysCapital
Renewables2015
Outlook
Calculation
Factors
Calculation
Factors
Generalfactors
Percentageof
usefulpowerof
capacity,i.e.
capacityfactor
(production/
capacity)
Capitalfactors
Costoftechnology
perkWofcapacity
asafunctionofyear
(projectionsfrom
TECHPOL)
Energyfactors
Totalelectricity
consumption
Totalelectricity
production
Costandcarbonfactors
Gridcarbon
emissionsfactors
Generalfactors
Percentageof
usefulpowerof
capacity,i.e.
capacityfactor
(production/
capacity)
Capitalfactors
Costoftechnology
perkWofcapacity
asafunctionofyear
(projectionsfrom
TECHPOL)
Energyfactors
Totalelectricity
consumption
Totalelectricity
production
Costandcarbonfactors
Gridcarbon
emissionsfactors
Key
Assumptions
Key
Assumptions
Applicablemarket
growsataverageCAGR
of2005-2008yearrange
Operationofrenewable
electricitygeneration
produceszerocarbon
emissions
Assumelinear
decreaseoftechnology
costbetweenyear
datapointsprovidedin
TECHPOL
Applicablemarket
growsataverageCAGR
of2005-2008yearrange
Operationofrenewable
electricitygeneration
produceszerocarbon
emissions
Assumelineardecrease
oftechnologycost
betweenyeardatapoints
providedinTECHPOL
Carbon Capital 81
Alternative fuel light
commercial vehicles
Plug-inhybridvehicles–PHEV
Electricvehicles–EV
Bio-ethanolvehicles–BE
Bio-dieselvehicles–BD
CNGfuelvehicles–CNG
Applicable
Market
Newregistration
oflorries
Specifc
Segments
Lorriescapacity
<1,500kg
>1,500kg
Enginetype
Plug-inhybrid
Electric
Bio-ethanol
Bio-diesel
CNGfuel
AdoptionRate
Outlook*
Adoptionraterange
(Onshore):
2010:0-5%
2020:
PHEV:5-10%
EV:0-5%
BE:0-5%
BD:20-25%
MainSources:
 Internalsubject
matterexperts
analysis
SecondarySources:
 “CarbonConnections”
report,Accentureand
Vodafone
 “SupplyChain
Decarbonization”,
AccentureandWorld
EconomicForum
 “Roadmap2050,A
practicalguidetoa
prosperous,low-
carbonEurope”,
EuropeanClimate
Foundation
 “EquityResearch,
EnergyTechnology
/AutoPartsand
Equipment,Electric
Vehicles”,CreditSuisse
Calculation
Factors
Generalfactors
Averagedistance
travelledpervehicle
peryear
Capitalfactors
Costpremiumfor
alternativefuel
vehiclescompared
tostandarddiesel
commerciallight
vehicleaddedto
standardvehiclecost

Energyfactors
Priceoffuelper
typeoffuel(or
alternativeenergy
supply–i.e.electricity)
Fuelconsumption
pervehicletype(for
thevehicle’sfuelof
alternativeenergy
supply)
Costandcarbonfactors
Costoffuelor
alternativeenergy
supply
Emissionsfactor
forfueltype

Key
Assumptions
Applicablemarket
growsataverageCAGR
of2004-2007yearrange
Costofalternative
vehicledecreases
linearlyovertimeto
convergetowardsdiesel
vehiclecostby2030
Fuelconsumption
calculatedassuminga
fxedenergyrequirement
perunitdistanceacross
allvehicletypes
Priceoffuelorelectricity
isassumedfxedintime
Lifecycleemissions
creditisallocatedto
biodieselandbioethanol
toaccountforcarbon
sequestration
82 Carbon Capital
Financing the low carbon economy
Alternative fuel public
transit vehicles
Electricvehicles–EV
Bio-ethanolvehicles–BE
Bio-dieselvehicles–BD
Applicable
Market
Newregistration
ofpublicbuses
andcoaches
Specifc
Segments
Vehicletype
Publicbuses
Coaches
Enginetype
Electric
Bio-ethanol
Bio-diesel
AdoptionRate
Outlook*
Adoptionraterange:
2010:0-5%
2020:
EV:15-20%
BE:0-5%
BD:15-20%
MainSources:
 Internalsubject
matterexperts
analysis
SecondarySources:
 “SupplyChain
Decarbonization”,
AccentureandWorld
EconomicForum
 “Roadmap2050,A
practicalguidetoa
prosperous,low-
carbonEurope”,
EuropeanClimate
Foundation
 “EquityResearch,
EnergyTechnology/
AutoPartsand
Equipment,Electric
Vehicles”,CreditSuisse
Calculation
Factors
Generalfactors
Averagedistance
travelledper
vehicleperyear
Capitalfactors
Costpremium
foralternativefuel
vehiclescompared
tostandarddiesel
publicvehicleadded
tostandardvehicle
cost
Energyfactors
Priceoffuelper
typeoffuel(or
alternativeenergy
supply–i.e.electricity)
Fuelconsumption
pervehicletype(for
thevehicle’sfuelof
alternativeenergy
supply)
Costandcarbonfactors
Costoffuelor
alternative
energysupply
Emissionsfactor
forfueltype
Key
Assumptions
Applicablemarket
growsataverageCAGR
of2004-2007yearrange
Costofalternative
vehicledecreases
linearlyovertimeto
convergetowardsdiesel
vehiclecostby2030
Fuelconsumption
calculatedassuminga
fxedenergyrequirement
perunitdistanceacross
allvehicletypes
Priceoffuelorelectricity
isassumedfxedintime
Lifecycleemissionscredit
isallocatedtobiodiesel
andbioethanoltoaccount
forcarbonsequestration
Carbon Capital 83
Alternative fuel freight vehicles
New design and fuel-effcient
container freight sea vessels
Electricvehicles–EV
Bio-ethanolvehicles–BE
Bio-dieselvehicles–BD
Newdesignandfuel-effcientcontainerfreightseavessels(includeselectric
drivenpropellers,combinedheatandpowersystems,optimalenergy
managementsystems)

Applicable
Market
Applicable
Market
Newregistration
oflorries,semi
trailers,trailers
Numberof
newvessels
constructedper
year
Specifc
Segments
Specifc
Segments
Vehicletype
Lorries>1.5t
Lorries<1.5t
Semi-trailers
Enginetype
Electric
Bio-ethanol
Bio-diesel
Vesseltype
Container
Vehicle
Roll-on/roll-off
AdoptionRate
Outlook*
AdoptionRate
Outlook*
Adoptionraterange
(Onshore):
2010:0-5%
2020:
EV:0-5%
BE:0-5%
BD:15-20%
MainSources:
 Internalsubject
matterexperts
analysis
SecondarySources:
 “SupplyChain
Decarbonization”,
AccentureandWorld
EconomicForum
 “Roadmap2050,A
practicalguidetoa
prosperous,low-
carbonEurope”,
EuropeanClimate
Foundation
Adoptionraterange:
2010:10-15%
2020:40-50%
MainSources:
 Internalsubjectmatter
expertsanalysis
SecondarySources:
 “LinerIndustry
ValuationStudy”,
IHSGlobalInsight,
WorldShipping
Calculation
Factors
Calculation
Factors
Generalfactors
Averagedistance
travelledpervehicle
peryear
Capitalfactors
Costpremium
foralternative
fuelvehicles
comparedto
standardfreight
publicvehicleadded
tostandardvehicle
cost
Energyfactors
Priceoffuelpertype
offuel(oralternative
energysupply–i.e.
electricity)
Fuelconsumption
pervehicletype(for
thevehicle’sfuelof
alternativeenergy
supply)
Costandcarbonfactors
Costoffuelor
alternative
energysupply
Emissionsfactor
perfueltype
Capitalfactors
Costpremium
fornewenergy-
effcientvessel
comparedto
alternativestandard
vesseladdedtocost
ofstandardvessel
Energyfactors
Averagefuel
consumption
Energyeffciency
premiumfornew
vessel
Costandcarbonfactors
Priceoffuel
Emissionsfactor
perfueltype
Key
Assumptions
Key
Assumptions
Applicablemarketgrows
ataverageCAGRof2004-
2007yearrange
Costofalternative
vehicledecreaseslinearly
overtimetoconverge
towardsdieselvehiclecost
by2030
Fuelconsumption
calculatedassuminga
fxedenergyrequirement
perunitdistanceacrossall
vehicletypes
Priceoffuelorelectricityis
assumedfxedintime
Lifecycleemissionscredit
isallocatedtobiodiesel
andbioethanoltoaccount
forcarbonsequestration
Applicablemarket
growsataverageCAGR
of2005-2009yearrange
Priceoffuelisfxedintime
Onlynewships
registeredinEucountries
weretakenintoaccount–
effciencygainsonforeign
shipmovementshasnot
beenincluded
84 Carbon Capital
Financing the low carbon economy
e-vehicle charging infrastructure
Intelligent transport system
infrastructure
e-vehiclechargingend-pointswithhigh-voltage,high-amperage
gridconnection
distributedbatteriesandsuper-capacitorstoreducestressandpeak
demandongridloading
Intelligenturbantraffcsystemfortraffccontrol
Applicable
Market
Applicable
Market
Lengthofurban
roadnetwork
Lengthofurban
roadnetwork
Specifc
Segments
Specifc
Segments
Roadtype
Communal
Regional
National
Equipmenttype
Charging
pylons
Charging
stations
Distributed
batteries
Roadtype
Communal
Regional
National

AdoptionRate
Outlook*
AdoptionRate
Outlook*
Adoptionraterange
2010:0-5%
2020:35-40%
MainSources:
 Internalsubject
matterexperts
analysis
SecondarySources:
 “Bettingon
ScienceDisruptive
Technologiesin
TransportFuels”,
Accenture
Adoptionraterange
2010:5-10%
2020:25-30%
MainSources:
 Internalsubject
matterexperts
analysis
SecondarySources:
 “Carbon
Connections”report,
Accentureand
Vodafone
“SMART2020:
Enablingthelow
carboneconomy
intheinformation
age”,TheClimate
Group
“EquityResearch,
EnergyTechnology/
AutoPartsand
Equipment,Electric
Vehicles”,CreditSuisse
Calculation
Factors
Calculation
Factors
Generalfactors
Numberofcharging
stationspercity
Citysizeintermsof
roadnetwork
Chargingstations
requiredperkm
ofroad
Numberof
distributedbatteries
requiredperstation
Capitalfactors
Costofcharging
station(from
benchmarkof
chargingstations
implementation
projects)
Generalfactors
Totaldistance
travelledby
passengersperyear
Shareofdistance
travelledin
urbanareas
NumberofITSunits
requiredperkm

Capitalfactors
CostofITS
unitincluding
subcomponents
Energyfactors
Increaseinurban
speedfromITS
Reductionin
emissionsfrom
increasedspeed
Costandcarbonfactors
Priceoffuel
Emissionsfactorper
fueltype
Key
Assumptions
Key
Assumptions
Applicablemarketgrows
atCAGRofpastfouryears
Costofchargingstations
fxedintime
Relativeproportionof
distributedbatteries,
stationsandpylonsis
assumedfxedforallareas
Applicablemarketgrows
atCAGRofpastfouryears
Reductioninfuel
consumptionisinversely
proportionaltospeed
increasewithinthe
rangeofurbanspeeds
(MinistryofEconomy,
TradeandIndustry,Japan,
International
MeetingonMid-Long
TermStrategyforClimate
Change,June2008)
Impactonurban
speedimprovement
isproportionalonITS
coverage
E
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g
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[
k
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k
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]
Base case
S1-Recovery-H Growth/L Carbon
S2-Depression-L Growth/L Carbon
S3-Renewal-H Growth/H Carbon
S4-Struggle-L Growth/H Carbon
0.1
0.2
0.2
0.3
2020 2010
0.3
0.4
0.4
2008 2006 2004 2012 2014 2016 2018
E
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g
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[
k
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/
k
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]
Base case
S1-Recovery-H Growth/L Carbon
S2-Depression-L Growth/L Carbon
S3-Renewal-H Growth/H Carbon
S4-Struggle-L Growth/H Carbon
0.1
0.2
0.2
0.3
2020 2010
0.3
0.4
0.4
2008 2006 2004 2012 2014 2016 2018
E
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g
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[
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]
Base case
S1-Recovery-H Growth/L Carbon
S2-Depression-L Growth/L Carbon
S3-Renewal-H Growth/H Carbon
S4-Struggle-L Growth/H Carbon
0.1
0.2
0.2
0.3
2020 2010
0.3
0.4
0.4
2008 2006 2004 2012 2014 2016 2018
E
l
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c
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g
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s
i
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y

[
k
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2
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/
k
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]
Base case
S1-Recovery-H Growth/L Carbon
S2-Depression-L Growth/L Carbon
S3-Renewal-H Growth/H Carbon
S4-Struggle-L Growth/H Carbon
0.1
0.2
0.2
0.3
2020 2010
0.3
0.4
0.4
2008 2006 2004 2012 2014 2016 2018
E
l
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c
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i
t
y

g
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c
a
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s
i
t
y

[
k
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C
O
2
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/
k
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]
Base case
S1-Recovery-H Growth/L Carbon
S2-Depression-L Growth/L Carbon
S3-Renewal-H Growth/H Carbon
S4-Struggle-L Growth/H Carbon
0.1
0.2
0.2
0.3
2020 2010
0.3
0.4
0.4
2008 2006 2004 2012 2014 2016 2018
E
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g
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[
k
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/
k
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]
Base case
S1-Recovery-H Growth/L Carbon
S2-Depression-L Growth/L Carbon
S3-Renewal-H Growth/H Carbon
S4-Struggle-L Growth/H Carbon
0.1
0.2
0.2
0.3
2020 2010
0.3
0.4
0.4
2008 2006 2004 2012 2014 2016 2018
Carbon Capital 85
ELECTRICITyGRIDCARBONEMISSIONS
INTENSITy–Eu27
Appendix VI
Power mix forecasts methodology
THEPOLESMODEL–ProspectiveOutlookonLong-termEnergySystems–wasusedtoforecastthemixofenergysources
fortheelectricitygridonapercountrybasis.Thisisrequiredtoestimatetheemissionssavingswhichresultfroma
reductionorsubstitutionofelectricityconsumptioninthecapital,emissionsandcostsavingssizingmodel.
Model details
ENERDATA,INCOLLABORATIONwithLEPII(formerlyIEPE–
InstituteofEnergyPolicyandEconomics)andIPTS,coordinates
studiesonlong-termenergyoutlooksatworldlevelwiththe
POLESmodel.ThePOLESmodelprovidesavaluabletoolfor
addressingthelong-termenergy,technologyandclimate
changeissues.Itsworlddimensionmakesexplicitthelinkages
betweentheenergydemandandsupply.
Themodelsimulatestheenergydemandandsupplyfor32
Scenario calibration
THEPOLESMODELprovidesfourscenariosoflong-term
powermixforecasts:
 Renewal:sustainedeconomicrecoveryandglobal
implementationofclimatechangeregulationsandpolicies.
 Recovery:sustainedeconomicrecoveryandnoconsensus
oninternationalclimatechangepolicies.
 Struggle:pooreconomicrecoveryfurtherdampedby
restrictiveclimatechangeregulations.
 Depression:strongeconomicdownturnandnoconsensus
oninternationalclimatechangepolicies.
Thecapital,emissionsandcostsavingssizingmodelhas
beencalibratedusingabasecasewhichisanintermediate
scenariothatcombinestheRenewalandRecoveryPOLES
countriesand18worldregions.Thereare15energydemand
sectors(mainindustrialbranches,transportmodes,residential
andservicesectors),about40technologiesofpowerand
hydrogenproduction.Forthedemandside,behaviouralequations
takeintoaccountthecombinationofpriceandrevenueeffects,
technicalandeconomicconstraintsandtechnologicaltrends.
Moredetails:http://www.enerdata.net/enerdatauk/tools/
Model_POLES.html
modelscenarios.Thebasecasescenarioisgeneratedbya
linearcombinationoftheresultsfromtheRenewal(S3)and
Recovery(S1)scenarios,andwhichseekstocaptureaworld
whereeconomicrecoveryisconfrmed,butwherethereis
amoderateimpactfromclimatechangeregulations.The
weightinginthelinearcombinationwaschosenbasedon
consultationswithinternalexperts.
Anillustrationofthedifferentscenariosprovidedby
thePOLESmodelforEu-27andthechosenbase-case
ispresentedbelowintermsoftheelectricitygridcarbon
emissionsintensity:
BaseCase BaseCase
S1-Recovery
HGrowth/LCarbon
S2-Depression
LGrowth/LCarbon
S3-Renewal
HGrowth/LCarbon
S4-Struggle
LGrowth/HCarbon
E
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y

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S

I
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(
K
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C
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2
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/
K
W
H
)
0.1
0.3
0.2
0.4
0.2
0.4
0.3
2004 2006 2010 2016 2004 2008
0.305
Eu-27
2012 2018 2020
86 Carbon Capital
Financing the low carbon economy
Appendix VII
Bibliography
Action amid uncertainty: The business response to climate
change, Ernst&young,May2010

Barclays Capital Global Carbon Index Guide,BarclaysCapital,
May2008
Barclays PLC 2009 Responsible Banking Review,BarclaysPLC,
2009

Betting on Science: Disruptive Technologies in Transport Fuels,
Accenture,2009

Carbon Connections: Quantifying mobile’s role in tackling
climatechange,Vodafone;Accenture,July2009

Carbon Disclosure Project 2009 – Global 500 Report, Carbon
DisclosureProject,2009

Cleantech comes of age,PricewaterhouseCoopers,April2008

Cleantech matters: Going big: the rising infuence of
corporationsoncleantechgrowth,Ernst&young,2009

Cleantechmatters:The FutureofEnergy,Ernst&young;
BloombergNewEnergyFinance,2010

ClimateChange2007:Impacts,Adaptation andVulnerability,
IPCCWorkingGroupIIReport,2007

Climatechange – abusinessrevolution?Howtacklingclimate
changecouldcreateordestroycompanyvalue,TheCarbon
Trust,2008

Climateprinciplesprogressreview,PricewaterhouseCoopers,
January2010

DecidingtheFuture:EnergyPolicyScenariosto2050,
WEC,2007

Deliveringthelow-carboneconomy –Businessopportunities
forUKmanufacturers,EEF;Deloitte,January2008

DWSClimateChangeFundProspectus,DeutscheBank,
October2009

EnergyEffciencyinBuildings:Businessrealitiesand
opportunities,WBCSD,July2008

EnergyEffciencyinBuildings:Transformingthemarket,
WBCSD,August2009
EquityResearch,EnergyTechnology/AutoParts &Equipment,
ElectricVehicles,CreditSuisse,December2009

Financial RiskManagementInstrumentsforRenewableEnergy
Projects,uNEP,2004

Financinga privatesectorrecovery,DepartmentforBusiness,
Innovation&Skills,HMTreasury,July2010

FinancingtheResponsetoClimateChange,IMF,March2010

FiveEmergingU.S.PublicFinanceModel:PoweringClean-Tech
EconomicGrowthandJobCreation,CleanEdge,October2009

Focusforsuccess:Anewapproachtocommercializinglow
carbontechnologies,TheCarbonTrust,July2009

GETFiTProgram:GlobalEnergyTransferFeed-in-Tariffsfor
DevelopingCountries,DeutscheBankGroup,April2010

GlobalClimateChangePolicyTracker:AnInvestor’s
Assessment,DeutscheBank,October2009

GlobalIndustrySurveys–Banking:Europe,S&P,January2010

InvestinginClimateChange2009:NecessityandOpportunity
inTurbulentTimes,DeutscheBankGroup,October2008

InvestinginClimateChange:AnAssetManagement
Perspective,DeutscheAssetManagement,October2007

LowCarbonRefurbishmentofBuildings:Aguidetoachieving
carbonsavingsfromrefurbishmentofnon-domesticbuildings,
TheCarbonTrust,2007

PayingforRenewableEnergy:TLCattheRightPrice.Achieving
ScalethroughEffcientPolicyDesign,DeutscheBankGroup,
December,2009

PrivateFinancingofRenewableEnergy:A Guidefor
Policymakers,UNEP;SEFI;Bloomberg,NewEnergyFinance;
ChathamHouse,December2009
Proftingfromthelow-carboneconomy,McKinsey,2009

Carbon Capital 87
Roadmap2050:Apracticalguidetoaprosperouslow-carbon
EuropeVol.1,TheEuropeanClimateFoundation,April2010

SeizingtheOpportunitiesintheLow-CarbonEconomy,
Accenture,2010

Smart2020,TheClimateGroup,2008

SupplyChainDecarbonization,Accenture;TheWorldEconomic
Forum,January2009
TheBusinessofClimateChange:ChallengesandOpportunities,
LehmanBrothers,February2007

TheSternReviewontheEconomicsofClimateChange,Stern,
Nicholas,October2006
TransformationCleantech:enablingthebusinessresponseto
climatechange,Ernst&young,2008

Transitioningto aRenewableEnergyFuture,InternationalSolar
EnergySociety,2003

UnlockinginvestmenttodeliverBritain’slowcarbonfuture,The
GreenInvestmentBankCommission,June2010

WorldEnergyTechnologyOutlook –2050:WETO-H2,The
EuropeanCommission,2006

World energy, technology and climate policy outlook 2030:
WETO,TheEuropeanCommission,2003
88 Carbon Capital
Financing the low carbon economy
Financial services terminology
Asset Backed or Securitized Bonds
Similar to ordinary bonds but have a specifc set of revenue
generating assets, which are put into a special purpose vehicle
(entity) and pay the bond holder their interest and principal
Asset Management
Management of various securities (shares, bonds and other
securities) and assets which can be structured in funds made
available to investors
Bonds
Debt securities which are similar to loans, usually providing access
to debt on a long-term basis to fund large assets or corporate
development. Bond usage (and debt in general) helps limit
shareholders’ equity dilution
Corporate and Investment Bank (CIB)
A fnancial institution that provides banking, fnance, trading,
investment, risk management and advisory services to large
corporations and investors
Cost of Capital
The weighted average of a frm’s costs of debt and equity, in turn
linked to risk involved in the underlying project or company
Credit Ratings
Rating of debt borrowers which refects the likelihood of defaults
(usually provided by one of the major rating agencies: Moody’s,
Standard and Poor’s (S&P) and Fitch)
Debt
Securities such as bonds, mortgages and other forms of notes
that indicate the intent to repay an amount owed. A cash payment
of interest and/or principal is made at a later date
Development Capital
Capital provision for growth or expansion of a company,
supporting commercialization of its products and services and
fnancing of its operations
Equity
An investment in exchange for part ownership of a company
entitled to the earnings of a company after debt-holders have
been paid
European Investment Bank (EIB)
European Union’s long-term lending institution established
in 1958
Exchange Traded Fund (ETF)
An investment fund traded on stock exchanges, much like stocks,
which holds assets such as stocks, commodities, or bonds
Feed-in-Tariff (FIT)
A common policy mechanism to encourage the adoption of
renewable energy sources. A FIT is essentially a premium rate paid
for clean energy generation (e.g. from solar panels or small wind
turbines), typically on a small scale, and is often guaranteed for a
long-term period
Green Bond
A bond which results from the securitization of the debt of low
carbon technologies infrastructure and equipment roll-out.
The bond’s underlying assets can be required to comply with
environmental requirements to retain this label and beneft from
fscal incentives
Green Investment Bank Commission (GIBC)
An independent group which advises the UK Government on best
practice for higher investment in low carbon infrastructure and
technologies
Initial Public Offering (IPO)
Process of raising equity capital from public markets where
common stocks of a company are issued to investors which can
then hold these securities or trade them
Investment Vehicle
An investment structure such as a fund which is legally distinct
and combines securities, assets or other fnancial instruments
Joint Venture (JV)
A venture undertaken by a partnership in which risks and profts
are shared between participating entities
Mezzanine Finance
Lending which sits between the top level of senior bank debt and
the equity ownership of a project or company. Mezzanine loans
take more risk than senior debt because regular repayments of
the mezzanine loan are made after those for senior debt; however,
the risk is less than equity ownership in the company. Mezzanine
loans are usually of shorter duration and more expensive for
borrowers, but pay a greater return to the lender
Pay As You Save (PAYS)
A fnance solution that gives an entity the opportunity to invest in
energy effciency equipment and micro-generation technologies
Glossary of terms
Carbon Capital 89
for their facilities, and pay back the capital expenditure based on
the energy cost savings achieved
Private Equity (PE)
Equity capital invested in companies that are not publicly traded
on a stock exchange
Private Investment in Public Equity (PIPE)
The purchase of privately issued securities directly from a publicly
quoted company, typically at a discounted rate
Procurement Capital
Capital provision for procurement of equipment or roll-out of
infrastructure
Project Finance
Debt and equity made available for a large project fnancing,
usually linked to the revenue the project will generate over a
period of time used to pay back the debt
Risk Weighted Assets (RWA)
Total of all assets held by a bank which are weighted for credit risk
according to a formula determined by regulators
Special Purpose Vehicle (SPV)
A discrete business entity created around a project, in a legal form,
to permit lending and equity investments, disconnected from
other obligations or activities of a parent company
Tier 1 Capital
Assets that banks declare as its Tier 1 Capital (i.e. “core capital”
used as the primary measure of a bank’s fnancial strength), as
defned in Basel II, must be purely composed of shareholders’
equity and retained earnings
Tier 1 risk-based capital ratio
Ratio of a bank’s Tier 1 capital to its total risk-weighted assets
Venture Capital (VC)
Early-stage or growth-stage fnancing of a company’s
development where product or service is being conceived, tested,
piloted and progressively commercialized
Low carbon technology terminology
Advanced Metering Infrastructure (AMI)
An infrastructure supporting and including AMM smart meters
which includes meter data management
Advanced Meter Management (AMM)
AMM confguration of smart meters enables the end user to
optimize its energy consumption behaviour and adjust daily
consumption usage and allows the utility provider to improve
electricity distribution effciency across the network
Capacity Factor
The ratio of energy production output over installed production
capacity
Cleantech
The panel of technologies which, once implemented, lead to a
signifcant positive impact on the environment. These mainly
include applications in renewables, information technology,
alternative transport, waste, water and agriculture
Combined Heat and Power (CHP)
Recovery of waste heat from power generation to provide heating,
also known as cogeneration
Concentrated Solar Power (CSP)
A technology that converts solar energy into electricity by
concentrating solar radiation
Decentralized Electricity Production
Generation of electricity from a number of small capacity
electricity production units which are usually solar panels or CHP
(also referred to as micro-generation)
HVAC
Heating, ventilating, and air conditioning
Light-Emitting Diode (LED)
Semiconductor light source originally used as a light indicator and
now increasingly used for lighting
Low Carbon Technology (LCT)
Equipment and infrastructure which enable direct or indirect
carbon emissions reduction, with application in buildings,
electricity distribution, electricity production, transport vehicles
and transport infrastructure (the full range of applications
considered in this study is presented in Appendix I). Examples
include bio-fuel vehicles, intelligent transport infrastructure, smart
buildings, smart grid and renewable energy
Plug-in Hybrid (PHEV)
Hybrid vehicles with a battery which can be charged directly when
plugged in
Photovoltaic (PV)
A technology that converts solar energy into electricity using solar cells
90 Carbon Capital
Financing the low carbon economy
Low carbon technology terminology
General terminology
Renewable Energy
Energy sources which include (for the purpose of this study):
solar, wind, geothermal, biomass, tidal and wave energy
Renewable Energy Certifcate (REC)
Digital certifcates which hold details on electricity generation,
origin and usage. They are used to provide a fnancial incentive to
encourage investment in renewable energy production
Renewable Obligations Certifcate (ROC)
REC scheme applied in the UK
Business as Usual (BAU)
Business as usual projection in the context of forecast scenarios
Carbon Dioxide Equivalent (CO
2
e)
Expression of greenhouse gas emissions in equivalent units of
carbon dioxide emissions
EU25 countries
The 25 European member countries of the European Union,
before the accession of Romania and Bulgaria in January 2007
EU ETS
Emissions trading scheme in the EU. The scheme requires
companies in selected industries (power, transport, chemicals,
and materials) to limit their GHG emissions to a certain allowance
and to purchase additional permits from the ETS market if they
exceed this allowance
Green House Gas (GHG)
Gas which results in increased solar radiation refectivity to the
Smart Building
Automation and control of lighting, heating, air ventilation and
cooling to achieve optimal energy effciency within buildings.
Smart buildings can also integrate a number of additional features
which improve energy effciency and energy autonomy, including
micro-generation, new insulation material and more
Smart Grid
Infrastructure improving effciency of electricity grids
through active monitoring and control of the transmission and
distribution network
earth’s surface, leading to an increase in temperature. Six GHGs
are defned by the IPCC: carbon dioxide (CO
2
), methane (CH
4
),
nitrous oxide (N
2
O), hydro fuorocarbons (HFCs), perfuorocarbons
(PFCs), and sulphur hexafuoride (SF
6
)
Gt CO
2
e
A billion tonnes of CO
2
e, also known as one giga-tonne
kW, MW and GW
Watts (W) is the unit used to provide the power intensity of an
energy production site:
1,000,000,000 W = 1,000,000 kW = 1,000 MW = 1 GW
kWh, MWh and GWh
Watt-hours (Wh) is the unit used to provide the power output
over a fxed amount of time of an energy production site:
1,000,000,000 Wh = 1,000,000 kWh = 1,000 MWh = 1 GWh
Mt CO
2
e
A million tonnes of CO
2
e, also known as one mega-tonne

Authors
Simon Whitehouse, Managing Director, Accenture Management Consulting, Financial Services Client Executive Sponsor Peter Lacy, Managing Director, Accenture Sustainability Services, EMEA and Latin America Project Executive Lead Xavier Veillard, Accenture Management Consulting, Strategy Co-author Justin Keeble, Accenture Sustainability Services Co-author Shaun Richardson, Accenture Management Consulting, Financial Services, Strategy Co-author

Key contributors
Vedant Walia Rupesh Madlani Irakli Elashvili Richard Myerscough

Barclays Corporate Affairs, Sustainability Barclays Capital, European Renewables and Clean Technology Equity Research Barclays Corporate, Strategy Accenture Consulting Group

Study objectives
Climate change is one of the greatest challenges facing the global society today. Barclays and Accenture have partnered to produce this study to analyse the role of corporate and investment banks in accelerating the shift to a low carbon economy. In it, we seek to quantify the capital required to fund the development of low carbon technology (LCT) in the building, energy and transport sectors and the different financing mechanisms that could be developed to help meet the demand for capital. The study highlights the pivotal role that corporate and investment banks can play in rolling out low carbon technology and infrastructure on a wide scale, bridging the financing gap and helping to bring about the transition to a low carbon economy.

RepoRt StRuctuRe

Scope

I

Method

II

III

Findings

IV

V

Recommendations

VI

What are the sources of the capital requirements for low carbon technologies?

How can these capital requirements be quantified?

What are the capital requirements and carbon and cost impact?

Which financing streams will provide these capital requirements?

What are the emerging financing schemes to support capital requirements?

What actions are required to enable these financing schemes?

Report sections
I Sources of capital II Approach III Capital requirements and carbon impact IV Financing LCT development and procurement V Emerging financing schemes to increase capital flows VI Recommendations

Carbon Capital 03

Financing the low carbon economy

Foreword
Climate change is a critical global social and economic challenge. It is set to affect us all for generations to come. The transition to a low carbon economy – which is essential if we are successfully to meet this challenge – will require significant investment from both the public and private sector. This report was commissioned by Barclays in order to help answer some of the questions as to how this transition will be made. Barclays is already an active participant in the low carbon economy. We are providing a wide range of financial and risk management solutions across our core business lines. We help renewable energy firms access financing from the capital markets and offer strategic advisory services across the sector. Barclays was also the first major bank to establish a carbon trading desk. We are now leading intermediaries in the EU Emissions Trading Scheme and are transferring expertise to newer emissions markets. Our Equity Research teams provide coverage of the Global Clean Technology and Renewables sector to inform investor decision-making. We engaged Accenture to develop a comprehensive bottom-up model to estimate the growth of low carbon technologies in Europe over the next decade. The research estimates a capital demand of ¤2.9trillion to finance the development and roll-out of new technology in five key sectors. Barclays, and the wider banking sector, will play a key role in mobilising this capital but there are limits to what banks alone can accomplish. Uncertain policy frameworks and technology risk are increasing the difficulty of investing in low carbon technology. We need clear and consistent policy frameworks to help unlock the required flow of private capital. This research also explores some new funding models that can be used to accelerate capital flows to the sector, particularly access to deep and liquid bond markets. These will require effective partnerships between banks, investors, project sponsors, rating agencies and public sector actors to increase bond market financing. There may also be a need to create instruments to share risk so that initial transactions can help build a track record and build investor confidence. We at Barclays remain committed to playing a leading role in tackling climate change and enabling the transition to a lower carbon economy. I hope you find this research a helpful contribution to the debate on how we can address the climate change challenge in both Europe and globally. MARCUS AGIUS Barclays Group Chairman

“ We need clear and consistent policy frameworks to help unlock the required flow of private capital ”

04 Carbon Capital

The shift to a low carbon economy is leading to a remarkable development of sustainable low carbon technologies which are transforming and reshaping core industry sectors and infrastructures across our society. We, Accenture, play an active role in developing and integrating low carbon technologies in tomorrow’s society by working with industries, governments and non-governmental organizations to reduce the global energy footprint, and ultimately achieve energy security and climate change mitigation. Our work on intelligent cities, smart buildings and smart grids are examples of transformational initiatives we aim to implement on a global scale. However, we recognize that the shift to a low carbon economy requires an unprecedented level of capital investment. Through a distinctive modelling approach, this report provides unique insights on the sources and volume of capital required to fund a range of commercially viable low carbon technologies and quantifies the impact these will have on energy cost and carbon savings. With an estimated ¤2.9trillion of capital required in Europe up to 2020 to fund low carbon technologies, this report confirms that the private sector will play a crucial role in the provision of capital. High level of sovereign debt and maturing technology now imply that private sector capital, primarily intermediated by banks, must be provided to accelerate the investments we need to meet our 2020 goals. The financial services industry and more particularly banks, are still facing multiple challenges in recovering from the financial crisis. Financing low carbon technology represents a unique opportunity for banks to benefit from the significant growth of the low carbon technology sector whilst demonstrating a positive contribution in tackling climate change. But this will require adaptation and innovation of core banking products and services to address the specific capital requirements, risk level and regulatory environment of low carbon technologies. Having worked with banks for over two decades, I am confident that they have the capability to innovate and effectively intermediate the level of capital highlighted in this report; and you can be confident that we will be working with industry leaders like Barclays to achieve this goal. I hope that you enjoy reading this report and find the analysis insightful. PIERRE NANTERME Accenture Chief Executive Officer

“ Financing low carbon technology represents a unique opportunity for banks to benefit from the significant growth of the low carbon technology sector whilst demonstrating a positive contribution in tackling climate change ”
Carbon Capital 05

to any third party arising from reliance in any way on any part of this report. Clean Energy Sustainability Services. whose circumstances or requirements may be different. Utilities and Infrastructure. based on any part of the report. Research Financial Services. 1026167. whatsoever or howsoever caused. Head of Renewables. Smart Grid Transport and Travel Services. Strategy Financial Services European Policy and Government Relations Sustainability Services. Strategy Sustainability Services. Barclays Capital Director. 06 Carbon Capital . whether with or without our consent.Financing the low carbon economy Advisers ACCENTURE INTERNAL ADVISERS Lloyd Altman Dorothy Armstrong Mauricio Bermudez Neubauer Eric Clement Piercarlo Gera Simon Giles Richard Hanks Jenny Hawes Seb Hoyle Frederick Jones Richard Kho John Rhoads Melissa Stark Robert Stubbs Andy Tinlin James Woodhouse Barbara Wynne Serge Younes Capital Markets Trading and Risk Management Financial Services. Head of Renewables Project Finance. Smart Metering Resources. Barclays Corporate Managing Director & Chairman of Barclays Capital Cleantech Initiative Director. Clean Energy BARCLAYS INTERNAL ADVISERS Lorraine Connell Adam Darling James McKellar Gareth Miller Theodore Roosevelt IV Nick Salisbury Alastair Tyler Director. Carbon Markets Capital Markets. or on behalf of. Clean Technologies Banking. Barclays Corporate Disclaimer This report has been prepared by Accenture (UK) Limited (“Accenture”) solely for the benefit of Barclays Bank PLC (“Barclays”) for the purposes stated in the report and shall not be used for any other purpose. Accenture and Barclays accepts no liability of any kind. Barclays Corporate Real Estate Head of Strategic Asset Finance. London E14 5HP. Structured Finance Financial Services. This report was prepared by Accenture on instruction from Barclays and on the basis of information provided by. Investment Banking Public Sector Team Vice President. Strategy Resources. Accordingly. registered office: 1 Churchill Place. Smart Technology Resources. Barclays Bank PLC is registered in England No. Barclays. that other person must appreciate that this report was prepared on the basis of instructions and information given to us. Power. If this report or any of its contents is disclosed to or received by any other person. Barclays Natural Resource Investments Managing Director. Each recipient of this report is entirely responsible for the consequences of any use of the report. and cannot be relied on by any third party. Supply Chain Financial Services Resources. Smart Buildings Resources. Barclays Bank PLC is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange. including any actions taken or not taken by it. Accenture has assumed all such information to be complete and accurate and has not independently verified such information.

email: sustainability@barclays. comprehensive capabilities across all industries and business functions.000 people. emissions and cost savings sizing model Appendix III – Financing streams for procurement capital model Appendix IV – Financing streams for development capital model Appendix V – Individual LCT models’ details and assumptions Appendix VI – Power mix forecasts methodology Appendix VII – Bibliography Glossary of terms 72 73 74 75 76 85 86 88 69 58 48 30 17 23 04 08 11 AccentuRe Accenture is A global management consulting. corporate and investment banking and wealth management with an extensive international presence in europe. Accenture collaborates with clients to help them become high-performance businesses and governments. Barclays operates in over 50 countries and employs nearly 147. technology services and outsourcing company.000 people serving clients in more than 120 countries.accenture.com united Kingdom registered office: 1 Plantation Place 30 Fenchurch street London ec3M 3BD england tel: +44 (0) 20 7844 4000 Fax: +44 (0) 20 7844 4444 For more information visit: www. com or write to the address below. lends. With over 300 years of history and expertise in banking. the Americas. Barclays moves. credit cards.Contents Foreword Executive summary Introduction The drivers of the low carbon economy The growing capital requirement I – Sources of capital II – Approach LCT applications and geographical scope An advanced modelling approach based on an s-curve adoption method III – Capital requirements and carbon impact Overall impact for Europe Detailed LCT applications analysis Delivering a Smart Grid in an Intelligent City – SmartGridCity in Boulder. with approximately 211. combining unparalleled experience. invests and protects money for 48 million customers and clients worldwide.6billion for the fiscal year ended August 31. Carbon Capital 07 . and extensive research on the world’s most successful companies.barclays.com Social Intelligence Series Barclays is collaborating with independent experts to build and disseminate knowledge on key global social and environmental issues.com/sustainability BARclAyS BArcLAys is A major global financial services provider engaged in retail banking. Barclays PLc 1 churchill Place London e14 5HP this report was published in February 2011.com/sustainability We welcome your feedback.barclays. please visit our website www. the company generated net revenues of us$21. For further information about Barclays. 2010. Colorado IV – Financing LCT development and procurement Barriers to capital provision Development capital Procurement capital The role of corporate and investment banking products and services V – Emerging financing schemes to increase capital flows Overall applications of financing schemes to external capital needs VI – Recommendations Policymakers Corporate and investment banks Conclusions Appendix I – Full list of initially considered LCT Appendix II – Capital. see: www. its home page is www. Africa and Asia.accenture.

energy and transport sectors in europe to 2020 and in selected countries globally up to 2020 for the energy sector only. 08 Carbon Capital . and production efficiency remains below 20 per cent on average. Adaptation and Vulnerability”. this would lead to savings of €261bn and 2. this would make the eu far more likely to meet its target of a 20 per cent reduction in emissions. the eu will be in real danger of missing its emissions targets.  hotovoltaic solar power is the most capital intensive within P the Lcts identified. india. solar. if this “carbon capital chasm” is not addressed. canada and Australia to 2020. public finances tightening and little real consensus on emissions targets. china. With the world barely recovered from a severe economic downturn. the technology is about five times more expensive than onshore wind. At present there is not sufficient investment to fund the transition to a low carbon economy. i  dentify various financing streams which could potentially provide sufficient capital to meet demand for the technology. ¤2.  2. for example. how can banks develop financing schemes to support the provision of capital? In this report we seek to:  uantify the amount of capital needed to fund essential Q Lct in the building.  easure the cost and emissions savings that will come M from investing in Lct.  utline supporting financing schemes and instruments O that stimulate more capital provision. with the gap between the capital needed and that available widening. it will cost about €365bn to procure both large-scale infrastructure and micro installations.4trillion will be required to finance renewable energy € (wind. Working Group II Report “Impacts.3trillion in procurement capital. this is derived from a demand-driven model based on realistic adoption rates for a range of Lcts.Financing the low carbon economy Executive summary scientists BrOADLy AGree that if the world is to prevent irreversible climate change. these require €591billion in development capital and €2. this investment will lead to a 6. Approach We take a unique approach to quantifying the capital needed for the low carbon economy. Past models have been supply driven. estimating Lct capital requirements “top down” based on emission targets. 2007 Accenture Analysis. taken together with the carbon savings expected from other sectors. 2006 Findings  ifteen commercially viable Lct applications in europe F were considered in this report. levels of greenhouse gas emissions must be stabilized by 2015 and reduced in the years that follow1. 1 2 IPCC. our model calculates the capital needed to finance the development and commercialization of Lct (“development capital”) and the amount needed to finance the procurement of Lct assets (“procurement capital”). most of the funding for the low carbon economy is expected to come from the private sector. How much capital will be required to fund the development and procurement of low carbon technology? in addition. such as manufacturing or chemicals.2trillion is estimated to be financed by sources external to the entity procuring or developing the LCT.  olling out this technology would bring the eu emissions r down to 83 per cent of 1990 levels by 2020. By contrast. usA.2 Gt cO2e.6Gt cO2e reduction. Japan. Moving to a low carbon economy will be crucial to achieving these reductions and will require unprecedented levels of investment in low carbon technology (Lct): as much as two per cent of GDP2 according to some estimates.  ake recommendations to banks and policymakers on how M they accelerate the provision of capital to the Lct sector. based on capital requirements presented in GIBC and new estimates from Lord Stern re-evaluating estimates presented in “Stern Review on the Economics of Climate Change”. geothermal and biomass) in europe (eu25).

Carbon Capital 09 .  inancing energy-efficient and micro-generation assets F through leases.  et up dedicated investment funds to give investors s strategic exposure to the Lct sector. making it a significant funding challenge.  evelop technical.  everage public funding to stimulate private L sector investments. technology risk and policy uncertainty significantly increase investment risk.  rovide debt financing for energy-efficient and P micro-generation asset leases.2trillion is estimated to be financed by sources external to the entity procuring or developing the Lct. policymakers should:  rovide a long-term and stable commitment to incentives P that support the commercialization of Lct.new sources of finance Out of all the capital required to fund Lct up to 2020. corporate and investment banks as intermediaries have a significant role in mobilizing this financing. €2. regulatory.  evelop standards for asset-backed securities funding D Lct assets and “green bonds”. corporate and investment banks should: D  evelop the capabilities to provide Lct asset-backed securities.  reating new investment vehicles for Lct asset management. i  eveloping advisory services to improve Lct sector risks D and opportunities assessments. c  nvesting equity in Lct assets and developers. some emerging financing schemes include:  nlocking access to Lct finance through capital markets u and “green bonds”.  ncrease primary equity and debt contributions in i Lct assets and developers. Recommendations in the report we make a number of recommendations for banks and policymakers to speed up the introduction of financing for the low carbon economy. However. Banks will need to work with investors and project sponsors to identify innovative solutions which meet investor needs and enable them to deploy capital to this space. financial and D commercial expertise to support the risk assessment of Lct assets and developers.

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derived from Eurostat figures for energy consumption in Europe Eurostat average for EU25 countries Demand for LcTs 4 Carbon Capital 11 .  ransport vehicles (e. directly or indirectly. smart grid).g. bio-fuel vehicles). c  carbon markets are increasing cost pressure on carbon intensive industries. LcT  arbon emissions mitigation is supporting the emergence of carbon reduction targets and of carbon markets. T The drivers of the low carbon economy Many facTors havE emerged in the past decade that highlight the urgent need to develop low carbon and renewables technology. leading to a reduction of carbon emissions.  Technological advances and innovation have led to significant cost efficiencies. smart buildings).Introduction This section examines:  he drivers of the low carbon economy. Low carbon technologies (LcTs) are equipment and infrastructure that enable energy efficiency or alternative energy production and use. T  he growing capital requirement.  Electricity production (e. 1 ThE DEManD for Low carBon TEchnoLoGIEs Key players › Drivers › Impact › Response › consumers and businesses operational and energy cost efficiency smart buildings alternative transportation renewable energy smart grid Energy efficiency equipment Energy supply security and economic growth Governments and policymakers Environmental targets and regulations Technology developers and providers new technology advancements and applications Consumers and businesses are recognizing the case for action DEManD for fossIL fuels has soared in developed and developing countries in the past decade. The stark increase in demand for electricity (10 per cent per capita on average between 1999 and 20093 in EU15) combined with rising energy prices (the price of electricity increased by 47 per cent for domestic and 34 per cent for industry between 1999 and 2009 in EU154) have propelled energy cost efficiency up individual and corporate agendas.g. whether to power new electrical appliances coming on to the market or to automate business processes. consumers.  represents an opportunity for growth and job creation. The full range of technology considered in this study is in appendix I and is categorized as follows:  Buildings (e. 3 accenture analysis.g. businesses and industry are demanding more energy.g. E  Transport infrastructure (e. renewable energy). c  Energy security is a primary concern for governments. T  lectricity distribution (e. A number of factors bolster the demand for LCT:  onsumers and businesses are recognizing the case for action.g. e-vehicle charging system).

france EcoTax). 2007 2009 2011 2013 12 Carbon Capital . Low carbon network fund in the UK) to drive investment in the LcT sector. December 2009 11 china’s carbon intensity targets explained. Globally.Financing the low carbon economy Domestic price (mid band) 2 2 ELEcTrIcITy rETaIL prIcE In EUropE (EU15) BETwEEn 1999 anD 2009 (100% In 1999) Industrial price (mid band) Domestic price (mid-band) Industrial price (mid-band) Source: Eurostat Domestic160% (mid band) price Domestic price (mid band) Industrial price (mid band) Industrial price (mid band) 160% 140% 140% 120% 147% 134% 147% 134% 120% 100% 100% 80% 80% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 147% 147% 134% 134% Energy security is a primary concern for governments 2003 2005 2007 2009 2011 2013 In 2007.g.g. the Us imported 35 per cent and the EU 94 per cent5. E&y. some governments have provided fiscal incentives (Green funds tax-based incentive scheme in the netherlands.000 gross jobs per annum and £600m per annum of gross value-added opportunities7. The EU has set a target of taking emissions down to 20 per cent of 1990 levels8. china. 2009 8 section 22. European Environmental agency. Italy and spain. chIna imported 47 per cent of its crude oil. financial Times. february 2005 7 prospectus for London. governments have developed a range of incentives and regulations to stimulate demand for renewable and LcT. To achieve these targets. new policies emphasize an increase in the use of renewable energy to reduce reliance on energy imports. which established an fIT in its renewables Energy Law in 2005. 12 December 2008 9 annual European Union greenhouse gas inventory 1990-2008 and inventory report 2010. e. fITs have been introduced in most major European economies. UK carbon reduction commitment. Germany 40 per cent and france 30 per cent compared with 1990 levels9. november 2009 LCT represents an opportunity for growth and job creation In aDDITIon To decreasing reliance on foreign energy sources. To reduce dependency on foreign imports. The Low carbon capital. 2005 2005 Carbon emissions mitigation is supporting the 2007 2009 2011 2013 emergence of carbon reduction targets and of carbon markets DEspITE ThE aBsEncE of a global agreement on carbon reduction. council of European Union presidency conclusions. france. governments are using the transition to a “green economy” as an opportunity for economic growth. The most prominent scheme is the European Union Emissions Trading scheme (EU ETs). UK. sweden carbon Tax. a number of countries have also committed to reduce the carbon intensity of their economy by 2020 with India pledging a 20-25 per cent10 and china pledging 40-45 per cent11 reduction in carbon emissions co2e/GDp compared with 2005 levels. June 2010 10 carbon reduction targets not up for re-negotiation: India. many governments have committed to aggressive targets in line with the Kyoto protocol and copenhagen agreements. 5 2003 2003 IEa. Launched in 2005. including Germany. governments have begun to tax carbon intensive industries and activities directly (e. including renewable Energy certificates (rEcs) in the Us or renewable obligations certificates (rocs) in the UK. accordingly. is one of several other countries implementing the tariffs globally6. one prolific example is that of feed-in-Tariffs (fITs) which typically guarantee a long-term premium price to clean electricity vendors. Emissions trading schemes brought in by governments seek to put a price on carbon. London’s proposed carbon mitigation activities are estimated to deliver 14. the EU ETs was the world’s first operational carbon emissions market. with some member countries striving for more ambitious targets: the UK wants a 34 per cent reduction. derived from country energy balance 6 The renewable Energy Law of the people’s republic of china. other schemes force utilities to derive additional electricity from renewable sources.

while some locally traded sectors such as utilities will be able to pass on the extra cost of complying with regulations to consumers through electricity bills for example. cement and chemicals. operating and maintenance. This compares with much lower levels in 2000. The growing prevalence of LcT has led to a growth in support services such as engineering.Carbon regulations are generating growing cost pressures carBon rEGULaTIons sUch as the EU ETs have forced companies to bear the cost of their carbon emissions. Global Investment Research. “Emissions levels will be a liability and any emissions allowances an asset. and other LcTs has also dropped substantially. and the difference between the two will determine the net impact on company accounts12. European commission world Energy Technology outlook. This cost-reduction trend is expected to continue as technology matures. The caps and the amount of credits allocated for free will decline in time. The cost of micro-chp. biodiesel vehicles. European climate Exchange. DoE. This in turn has led to and steepened the innovation learning curve and led countries to adopt the technology at a faster rate. driving demand for lower carbon operations and therefore LcTs. will see the effect of stringent carbon regulations on their balance sheets and income statements. 12 seizing the opportunities in the Low-carbon Economy. while in Denmark it was 18. energy intensive sectors producing globally traded goods such as metals. 2050 15 DoE solid-state lighting cLIpEr program summary of results. 2010 13 EcX EUa futures contract: historic Data 2010. 2010 14 TEchpoL database. the cost of Light Emitting Diodes (LEDs) is expected to drop significantly due to advancements in material science15. 3 ThE rEvEnUE IncrEasE rEqUIrED for UTILITIEs To MaInTaIn a consTanT rETUrn on capITaL facTorInG In ThE cosT of carBon EMIssIons 25 Revenue increase needed to maintain industry return on capital 25% 20 15 10 5 0 20% 15% 10% 5% 0% 0 10 20 30 40 50 60 Source: GS SUSTAIN.” companies covered by regulations will compare their internal abatement cost to the market price of emissions permits on the carbon markets (approximately €15 during august 201013 on the EU ETs). expanding the cost liability and reducing profitability. Germany’s share of wind power as a proportion of electricity production was 6. making LcT more affordable and accessible to industries and end customers.6 per cent16. solar pv cost per Mw-capacity has decreased by more than 30 per cent between 2000 and 201014 and similarly. Goldman Sachs Cost of direct carbon emissions assumed (US$/tonne) Technological advances and innovation have led to significant uptake rEcEnT aDvancEMEnTs anD developments in cleantech have resulted in reduced procurement and operating costs. accenture. february 2009 16 Enerdata power production database Carbon Capital 13 .3 per cent in 2009.

nevertheless.35124. LcT initial public offerings (Ipos) totalled an estimated $6.5bn with 24 taking place around the world between July 2009 and June 201020. Despite the global recession. so has the need for capital to develop and deploy the technology. In 2009.64bn17 was invested globally in cleantech venture capital with the majority of the technology classified as alternative energy or energy efficiency18. derived from smart grid components price estimates 24 Global renewables Demand forecast 2010-2014E. august 2010. In the Us in 2002. derived from transactions database 22 Bloomberg new Energy finance. a significant shift in venture capital investment towards cleantech is underway. cleantech represented less than five per cent of venture capital investment compared with an estimated 25 per cent for software and 15 per cent for biotech17. In 2009. a significant outlay for most households. Innovation and Imperatives for the 2010s. cleantech venture capital investment reached the same level as biotech at 20 per cent. the amount of capital invested soared to a record high of $42bn in Europe in 2008 (figure 5). yet remains vulnerable to the global economic cycle. suggesting that the appetite for LcT equipment and infrastructure is not diminished by economic cycles. with more LcT companies reaching the later development stage. local authorities or other operators.6bn23 (including substation automation and distributed storage). derived from transactions database 21 Bloomberg new Energy finance. or €1. up 360 per cent on the same period in 2008/09 (figure 4). Barclays capital Equity research. for individuals.and growth-stage private and public equity has risen sharply.Financing the low carbon economy The growing capital requirement as DEManD for LcT has risen. derived from ¤/wp cost provided procUrEMEnT of LcT equipment and infrastructure requires an increasing volume of capital. derived from transactions database 23 accenture smart Grid services. LcT InfrasTrUcTUrE anD equipment tends to be capital intensive. the amount of capital going into LcT procurement capital fell by only five per cent in 2009 compared to 2008. as the LcT sector grows. funding this infrastructure will require significant investment from utilities. To mount a 2kwp solar panel on a roof would cost approximately €11. with more people adopting LcT despite the high costs. requiring significant capital expenditure upfront. 4 DEvELopMEnT capITaL ($Bn) In EUropE BETwEEn 2004 anD 2009. however. demand for early stage capital to fund LcT developers is high. LcT investment in development capital dropped by 49 per cent19 as the global recession took hold.7m per Mw-capacity22 between 2004-2009 . demand for late. while procurement capital remained at a similar level to 2008. $5. By fInancInG sTrEaM – EUropE (EU25) onLy 5 capITaL raIsED To fUnD assETs ($Bn) In EUropE BETwEEn 2004 anD 2009 By fInancInG sTrEaM – EUropE (EU25) onLy 4 20000 Convertible and other Secondary & PIPE IPO $20 50000 $50 $40 $30 In $Bn 15000 $15 40000 PE expansion capital In $Bn VC late stage 30000 10000 VC early stage 5 $10 20000 $20 $10 $ Bond and other Project debt Balance sheet 5000 $5 10000 0 $ Source: Bloomberg New Energy Finance 2004 2005 2006 2007 2008 0 2009 2004 2005 2006 2007 2008 2009 14 Carbon Capital . ThE aMoUnT of capital available for developing LcT has risen sharply. In 2009. april 2010 18 share derived from the composition of the cTIUs Index 19 Bloomberg new Energy finance 20 Bloomberg new Energy finance. Implementing a smart grid (upgrading the electricity distribution network through dynamic monitoring and control) in a city of one million households is estimated to cost about €2. The average cost of building a wind farm in Europe was €140m21. 17 scaling cleantech: corporations. ahead of software at about 17 per cent17. this financing stream is highly volatile and carries a correlation to investor confidence and the global economic outlook. switching to LcT is also very costly. This trend is essential to anticipating the expected future demand in late-stage development capital for the cleantech sector. cleantech Group.

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bridge financing. C demand for LCT equipment and infrastructure. Both streams will need to be stimulated and supported differently to create supply and demand for LCT. Carbon Capital 17 . Individual and institutional investors Primary Investments Secondary Investments Examples include: individual investors. Development capital includes banks providing equity and debt.  apital associated with financing LCT asset procurement C junior debt and senior debt are lower than those in other has been defined as procurement capital. commercializing products for the mainstream market. Emerald Technologies.e. mezzanine financing. sectors. product enhancement and operational efficiency in LCT. pension funds. LCT financing is segmented between Development capital and Procurement capital. 6 SOuRCES OF DEvELOPmEnT AnD PROCuREmEnT CAPITAL Both streams address different entities and are considered distinct for the purpose of this study (Figure 6). We review the main sources of external development capital along with key financial characteristics of LCT transactions in Figure 7. production and commercialization) of companies  Average transaction sizes involved in development capital developing LCT is defined as development capital. to be stimulated differently to create market supply and In this report. and others). SET ventures. insurance funds Corporate and investment banks Primary Investments € Primary Investments € Secondary Investments Primary Investments € External development capital € € External procurement capital € Providers and developers € Internal development capital LCT equipment LCT infrastructure Buyers € Internal procurement capital Stimulate and support LCT market supply Stimulate and support LCT market demand Development capital DEvELOPmEnT CAPITAL IS necessary to drive innovation. including IPOs. development capital only attracts interest from corporate and investment banks when companies reach growth stage. as both streams will need T and services. Earlier financing streams rely on venture capital and private equity investment primarily from dedicated companies (examples include Carbon Trust ventures. i. Procurement capital refers to financing the purchase and installation of LCT assets. creating demand for bespoke financial products  his distinction is essential. Key messages:  apital associated with financing the operations (R&D.I Sources of capital This section examines the scope for capital required for both the development of the LCT industry and procurement of LCT equipment. for example to a company whose products or services are core to the LCT value chain. In general.

venture Capital): margeriaz Energie.Financing the low carbon economy Examples of transactions include25:  France. 7 DEvELOPmEnT CAPITAL TRAnSACTIOnS  united Kingdom. Transactions value size in scope for corporate and investment banks’ products and services DEVELOPMENT STAGE COMPANY CONCEPTION PRODUCT PROTOTYPE PRODUCT DEMONSTRATION PRODUCT COMMERCIALIZATION OPERATIONS GROWTH Seed Capital/Angel $0-2. 2004-2010 $210m 25 Bloomberg new Energy Finance Ranges and averages of transactions segments were adjusted and derived from frequency and value of transactions.6-20m Avg. Demonstrating projects grants n/A Guaranteed loans. France-based ( operator of biogas power plants has raised €1. 2004-2010 $9m Late Stage venture Capital $1-65m Avg.  Spain.  netherlands. 2004-2010 $111m Increasing external finance Corporate/Senior Debt $1-250m Avg.3m Avg. R&D. IPO): Sensata Technologies. loan) Avg. 2004-2010 $74m Increasing external finance Transactions value size in scope for corporate and investment banks’ products and services DEVELOPMENT STAGE OPERATIONS GROWTH ORGANIC AND ExTERNAL GROWTH LONG-TERM INVESTMENT IN OPERATIONS. 2004 -2010 $84m fINANCING STREAMS (ExTERNAL ONLY) Discovery and R&D grants $1-50m Avg. Secondary offering): Renewable ( Energy Generation Ltd raised £43m through the placement of new shares. Ranges and averages values were adjusted based on interviews with subject matter experts at Barclays and Accenture. match funding $45-115m (g. 2004-2010 $7m Tax credits. 2004-2010 $2m Early Stage venture Capital $0. buyout $1-125m (IPO) Avg. 18 Carbon Capital . maker of sensor ( and controls for alternative fuel vehicles and solar panels. provided on Bloomberg New Energy Finance.5m in a Series A funding round. 2004-2010 $33m mezzanine debt n/A Corporate Bridge Finance $1-10m Avg. raised $569m from its nYSE IPO. Corporate debt): Spanish Pv manufacturer Siliken ( has signed a loan worth €31m with a syndicate of 10 banks. 2004-2010 $39m Additional Secondary n/A Convertible /Junior Debt $1-150m Avg. 2004-2010 $22m IPO. INfRASTRUCTURE & ACQUISITIONS Secondaries & PIPE fINANCING STREAMS (ExTERNAL ONLY) $1-100m Avg.

2004-2010 $85m Asset lease fINANCING STREAMS (ExTERNAL ONLY) Range: $10-120m Avg. Ranges and averages values were adjusted based on interviews with subject matter experts at Barclays and Accenture. 26 British Gas plans two million smart meters in British homes by 2012. TnT. Asset Finance): novenergia II and ( Fotoparques Gest secured €32.  Greece. either by service providers or equipment manufacturers. the available funds of the buyer relative to the size of the investment needed will drive the demand for external capital. the 630mW Phase I London Array Offshore Wind Farm. 2004-2010 $169m Increasing average capital required for LCT procurement Ranges and averages of transactions segments were adjusted and derived from frequency and value of transactions. Project Finance): Dong Energy ( has secured £250m in project finance to refinance million smart meters between 2010 and 2012 in the uK26. Centrica. provided on Bloomberg New Energy Finance.3mW Pv plant located in Fuente Alamo. and TnT planning the roll-out of 200 electric freight vehicles27. not only to the primary LCT equipment providers but also to suppliers. 2004-2010 $175m Bonds Range: $80-400+m Avg. Examples include British Gas introducing two Examples of transactions include29:  Portugal. 8 LCT PROCuREmEnT CAPITAL TRAnSACTIOnS Transactions value size in scope for corporate and investment banks’ products and services ASSET PROCuREmEnT CATEGORIES LOW vOLumE OF InDIvIDuAL LCT EquIPmEnT PROCuREmEnT LARGE vOLumE OF InDIvIDuAL LCT EquIPmEnT PROCuREmEnT SmALL-SCALE LCT InFRASTRuCTuRE LARGE-SCALE LCT InFRASTRuCTuRE Asset finance – term loan Range: $1-200m Avg. small-scale LCT can be rolled out in large volumes.  united Kingdom. Bonds): Acciona has secured €43m in bond ( financing from Alpha Bank for the development of the 48. Carbon Capital 19 . service providers.45mW Panachaiko Wind Farm.55m in asset financing for the 5. march 2010 27 The “Big Orange’s” Green Revolution. The main sources of external procurement capital are reviewed along with key financial characteristics of transactions as they relate to the LCT sector in Figure 828. ultimately. Procurement capital is concentrated on the purchaser of the LCT equipment or infrastructure.Procurement capital ThE vALuE OF transactions in LCT procurement range from small individual investments to large project finance. 2004-2010 $66m Short-term asset lending (bridge) Range: $1-115m Avg. however. 2004-2010 $101m Project finance Range: $70-400+m Avg. December 2006 28 Transactions values and examples retrieved from Bloomberg new Energy Finance 29 Bloomberg new Energy Finance The value chain capital requirements IT IS ImPORTAnT to recognize that development capital will need to be supplied. household Pv panels and smart meters require small amounts of procurement capital compared with large renewables infrastructure projects. manufacturers and developers which play an essential role across the LCT value chain. Individual applications such as alternative vehicles.

B. CASh LOAnS SEnIOR (CORPORATE) DEBT IPO. COnvERTIBLES SEED CAPITAL. DEmOnSTRATIOn GRAnTS LCT PRODuCT DESIGn AnD COnCEPTIOn DEvELOPER RAW mATERIAL PROvIDER PRImARY SuBCOmPOnEnT PROvIDER RAW mATERIAL PROvIDER SECOnDARY SuBCOmPOnEnT PROvIDER PRODuCT mAnuFACTuRInG (AnD COnCEPTIOn IF APPLICABLE) PROvIDER RAW mATERIAL PROvIDER REQUIREMENT fOR DEVELOPMENT CAPITAL HIGH LOW MEDIUM NONE . AnGEL 9 OvERvIEW OF ThE LCT vALuE ChAIn 20 Carbon Capital APPLICAbILITY RANGE PRODuCT DEvELOPER CAn BE nOn vERTICALLY InTEGRATED AnD BASED On A LICEnCE mODEL OnLY (E. InSTALLATIOn AnD ROLL-OuT OPERATOR PRODuCT uTILIzATIOn mAInTEnAnCE OPERATIOn PRODuCT EnD-OF-LIFE & DISPOSAL PROvIDER LCT PRODuCT ACquIRER APPLICAbILITY RANGE PROCUREMENT CAPITAL ASSET FInAnCE TERm LOAn BOnDS ASSET LEASE PROJECT FInAnCE Financing the low carbon economy TAx CREDITS. BuYOuT SECOnDARY OFFERInGS JunIOR (CORPORATE) DEBT. D+ ROunDS) mEzzAnInE DEBT GuARAnTEED LOAnS. C.DEVELOPMENT CAPITAL vEnTuRE CAPITAL (A.G. RETAIn IP RIGhTS) PRODuCT COmmERCIALIzATIOn.

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low-carbon europe. quantitative. along existing forecasts and expert analysis. with the impact on carbon and cost savings based on an  his approach differs from existing supply-driven t s-curve adoption method. A practical guide to a prosperous. approaches that estimate capital requirements based  he study uses a demand-driven model based on a realistic t on adoption targets which match carbon reduction or adoption rate of a range of lct applied to buildings. this is supported by a number of capital required for the adoption of lct up to 2020. this contrasts with alternative approaches based on the supply of capital required to achieve carbon reduction or renewables uptake targets30. Key messages:  e estimate the amount of procurement and development w and transport up to 2020.II Approach this section detAils the approach taken in estimating the capital needed to deploy a range of lct in europe between 2011 and 2020 and the associated carbon and energy savings. energy renewables uptake targets. along with their associated carbon and energy cost savings. A detailed. bottom-up approach has been developed to estimate the development and procurement capital likely to be demanded from the adoption of a range of lct equipment or infrastructure. technical Analysis. the supply-driven approach risks overestimating capital requirements and may not be granular enough to permit identification of financing streams. 30 roadmap 2050. european climate foundation study approach demand-driven approach supply-driven approach technology Adoption outlook for low cArbon technologies carbon target policies and regulation consumers businesses macro trends estimAted demAnd for lct required supply of lct renewables target carbon pricing energy security Carbon Capital 23 . our model takes a demand-driven approach to estimate how the approaches differ: 10 overview of the study’s modelling approach the adoption of lct that could be achieved by 2020.

defines development capital associated with each technology based on sector analysis. 31 carbon and energy cost savings may not be applicable to all lct applications: e. b  transport vehicles. identifies the energy consumption to be reduced by capital intensive lct equipment and infrastructure (list the technology. d. procurement capital. J  u25. 5. i Analysing the capital requirements of renewables infrastructure on a global scale is essential in order to understand the magnitude of the challenge faced by developers and buyers looking to secure financing. identifies a selection of commercially viable and 6. nearly 40 different types of lct equipment and infrastructure were evaluated (Appendix i) taking into account their probable market size by 2020.Financing the low carbon economy Applications and geographical scope Selected commercially viable applications low cArbon technologies come into many areas including power generation. solar. calculates the following metrics: adoption rates. carbon capture storage and other applications not listed in Appendix i were excluded. e-vehicle charging infrastructure does not lead to direct energy cost savings nor carbon savings 24 Carbon Capital . a. defines energy efficiency gains made by the technology 2. defines the energy price and carbon emissions factor for the energy source. defines procurement cost of lct. large-scale renewable power infrastructure (wind. by the end or intermediate entity acquiring lct). rural or commercial vs. were selected for detailed evaluation. A  ndia.  transport infrastructure.g. 8. capital intensity and average number of lct units acquired by the buyer (i. nuclear power. Geographical scope All the lct equipment and infrastructure identified have been investigated on a per country basis for all eu25 countries.  electricity production.  electricity distribution. the detailed list is presented in figure 11.g. relevant sub-sectors (e. we focus on commercially viable lct for:  uildings. identifies and segments the applicable market into from benchmark analysis. 7. development capital. in addition. c  anada. in Appendix i). for the purpose of this analysis. private). 10. manufacturing. calibrates the 2011-2020 adoption rate of lct in its applicable market based on historical and expected 9. b. links procurement and development capital to specific financing streams. energy cost savings31. transport and buildings. 3. urban vs.e. 15 commercially viable and capital intensive technologies with a high requirement for external capital. An advanced modelling approach based on an s-curve adoption method the study methodology uses the following steps (additional details provided in Appendix ii): 1. geothermal and biomass power) has been investigated on a global basis for the following countries:  s. carbon savings31. energy production. u  hina. 4. from this. e  ustralia. c. c  apan.

1 8.1 commerciAl Vehicles Alternative fuel light commercial vehicles 12.1 12. cooling control & automation smart buildings (new builds) buildings building construction And design decentrAlized power units smart building – integrated solution for new commercial buildings pV solar panels for decentralized power generation for households smart grid infrastructure – Advanced control and management of electricity grid Advance metering infrastructure for electric smart meters (Ami with Amm meters) 2.2 offshore wind power onshore wind power geothermal power waste to energy concentrated solar power – thermal (csp) photovoltaic solar power (pV) trAnsport infrAstructure lArge-scAle trAnsport infrAstructure e-vehicle charging infrastructure 10.2 monitoring & control of electricity transmission and distribution infrastructure demand & supply management infrastructure for electricity transmission and distribution automation and control Advance metering infrastructure for electricity consumption to optimize loading Amm smart meter roll-out to provide advanced consumer electricity monitoring functionalities electricity consumption electricity production lArge-scAle power infrAstructure large-scale wind power generation large-scale geothermal power large-scale biomass power generation large-scale solar power generation 6.1 9.2 12.3 1.3 seA Vessels new design and fuelefficient container freight sea vessels 15.1 13.4 micro-combined heat and power units (micro-chp) next generation led lighting high efficiency hVAc cooling & heating system integrated building management systems (bms) for lighting.1 3.1 Carbon Capital 25 .1 5.1 pV electrical solar panels electricity distribution electricity trAnsmission & distribution 4.1 6. heating.1 4.3 12.2 14.4 plug-in hybrid vehicles electric vehicles bio-ethanol vehicles bio-diesel vehicles cng fuel vehicles electric vehicles bio-ethanol vehicles bio-diesel vehicles electric vehicles bio-ethanol vehicles bio-diesel vehicles new design and fuel-efficient container freight sea vessels trAnsport Vehicles 12.2 13.2 e-vehicle high-voltage charging stations (mix of large stations and pylons) distributed energy storage units to reduce peak demand on grid loading intelligent urban traffic system for traffic control intelligent transport system infrastructure 11.2 7.1 1.2 1.1 9.3 commerciAl freight Vehicles Alternative fuel freight vehicles 14.11 lct equipment and infrastructure selected for the study building equipment retrofit smart building – lct equipment retrofit for commercial buildings 1.2 5.1 14.5 public trAnsit Vehicles Alternative fuel public transit vehicles 13.1 10.

r for renewables. barclays Defining the adoption outlook through an s-curve calibration the rAte At which this new technology is likely to be adopted is the most sensitive parameter in defining its potential market. existing adoption rate forecasts were taken from well-established sources such as enerdata’s poles33.  020 level of adoption (parameter b). 2009.g. enerdata 34 the study model has been calibrated using a base case which is an intermediate scenario generated by a linear combination of the results from the renewal (s3) and recovery (s1) scenarios. i  ntegrating the technology cost learning curve. 32 derived from midband commercial electricty price. 2  010 level of adoption (parameter A). this method ensures that factors specific to individual countries are taken into account. the model encompasses many factors to ensure accurate estimates of capital requirements. industrial and private usage). france’s commercial electricity price was 35 per cent less than the uk’s in 200932. carbon abatement potential and possible cost savings between 2011 and 2020. electricity production for renewable or vehicles sold per year for alternative vehicles) are retrieved on a per country basis. up to year 2014). 26 Carbon Capital . technology. the industry experts we interviewed agreed with a calibration of the adoption rates along with a review of existing forecasts and of several regulatory. and which seeks to capture a world where economic recovery is confirmed. and takes into account a number of specific factors such as the cost of electricity in a particular country. y  ate of adoption at point c year (parameter d).g. calibration. the s-curve method is the fundamental principle used to reflect the changing adoption rates central to demand for lct.g building retrofits differs from commercial. where all applicable markets are country-dependent. the most important characteristics and assumptions used in the model are:  uantifying the size of the applicable market for lct. A worked example of the model for smart meters in germany is presented in Appendix ii. this helped shape an outlook for the lct market up to 2020 at a european level and on a per country basis where possible. i  actoring the total cost of asset procurement.  ncorporating in-depth technology understanding.g. but where there is a moderate impact from climate change regulations 35 global wind and solar demand forecast for 20102014e. the growth of each market (absolute size) has been calculated based on empirical business as usual cAgr. 2  ear where 50 per cent of the 2010-2020 adoption is achieved (parameter c). f Quantifying the size of the applicable market for LCT All ApplicAble mArkets (e. A world energy model. A standard four-point s-curve methodology (figure 12) was used to calibrate the adoption rate of lct based on their respective applicable markets.and medium-term forecasts for wind and solar power35 were also used to calibrate the s-curve (e. eurostat 33 poles model.34 model to calibrate the 2020 adoption level. barclays’ equity research short. macro-economic and consumer drivers.Financing the low carbon economy this methodology is applied to each country. each market is divided in as detailed a way as possible to only retain the most relevant segments (e. An example is electricity prices which differ substantially by country – e. q  nticipating the evolution of electricity grid A  efining the adoption outlook through an s-curve d emissions intensity.

12 four point s-curVe Adoption rAte cAlibrAtion methodology 0% 30% B D 20% % of adoption 0% 0% 10% A 0% 2010 2012 2014 0% C 2016 2018 2020 this approach allows the model to set an adoption rate for each of the different lcts based on the existing forecast 2010 2012 2014 and drivers (examples of different adoption rate profiles are illustrated in figure 13). 2016 2018 2020 13 illustrAtiVe Adoption rAte configurAtions 16% 12% % of adoption 8% 4% 13 Adoption 1 Adoption 2 0% 2009 2011 2013 2015 2017 2019 Adoption 3 Carbon Capital 27 .

000 10.000 2.000 10. this cost reduction trend could. experts have been engaged in each lct area to identify the technical components of each application which determine associated costs.000 2000 2010 8.000 4. As many lct products have not yet reached maturity.000 Biomass (gasification) Solar power plant Wind offshore Wind onshore s Wind offshore0 Wind onshore 2000 2010 2020 2030 2040 2050 Anticipating the evolution of electricity grid emissions intensity A number of countries are undergoing significant changes in electricity production sources (e. An example of how this might occur in renewables energy production36 is outlined below.Financing the low carbon economy Integrating the technology cost learning curve As preViously discussed. the unit price of the lct will fall due to improvements in processes and other economies of scale. to decrease2040 cent between 2010 2030 2050 and 2015 37 was Biomass (gasification) incorporated in the model for each country to Solar power plant the evolution of the electricity grid emissions intensity Hydrogen fuel cells accurately compute the emissions savings resulting from electricity consumption savings over time.000 2030 2040 2050 Decentralized PV Decentralized PV 2. As more applications are produced. Accenture smart building solutions (Asbs). decommissioning of coal plants). polycrystalline silicon for solar photovoltaic.000 2020 2030 2040 2050 14 20 tion) Hydrogen fuel cells 4. e. their cost learning curves are likely to decrease rapidly over the next 10 years. derived from enerdata power mix and emissions forecasts Decentralized PV Incorporating in-depth technology understanding to AccurAtely price the costs of the different lcts. this evolution of lct cost was integrated for renewables and transport vehicles in the model to accurately size future capital requirements.g.000 Solar power plant Hydrogen Fuel Cells Solar Power Plant Wind Offshore Wind Onshore Biomass (gasification) 6. price of monocrystalline silicon. however. the price of many technologies is highly sensitive to the volumes being rolled out. Accenture intelligent city network (Aicn) and other groups provided in-depth technological expertise to 28 Carbon Capital . for example. 14 cost-intensity of AlternAtiVe power production 12. Wind offshore Wind onshore 36 poles world energy/ technology outlook to 2030 (weto 2030) 37 Accenture Analysis. installation of nuclear plants. Accenture smart grid solutions (Asgs). Accenture mobility services (Ams). the uk’s grid carbon emissions intensity 2000 2010 by 12 per 2020is expected.000 8. this directly impacts the average carbon emissions intensity associated with electricity consumption from the grid. All other lct costs were assumed constant as there was no consensus on future cost evolution (more details in Appendix V). energy reduction impact and adoption outlook.000 6. be reversed if raw materials used in lct manufacturing were to increase substantially.g.000 $/kw capacity $/kw-capacity 12.

colorado)38. Accenture.g. 2008 As many LCT products have not yet reached maturity. 38 helping Xcel energy Achieve high performance with a revolutionary and sustainable smart grid solution. for smart buildings (new-builds) for example. but simply uses the average procurement cost of the end product. smartgridcity. excluding operational costs. the premium attached to these buildings was added to the average cost of property construction.calibrate the model based on empirical results taken from existing projects and pilots. p  mart voltage control equipment. components included in the analysis of smart grid capital requirements included the following:  nergy storage unit. e  rimary/secondary substation network sensing. Carbon Capital 29 . their cost learning curves are likely to decrease rapidly over the next 10 years. the procurement capital required by lct assets does not treat the costs of all the sub-components as separate. s  rimary/secondary substation fault current limiters. Xcel & Accenture in boulder. for example. for instance. the full cost of purchasing the technology was taken into account when estimating the value of procurement capital. pricing for smart grid technologies. p  er-based trading and risk management system. p  rimary/secondary substation power factor equipment. was based on subcomponent pricing from live projects (e. d Factoring the total cost of asset procurement for All the lct analysed.

in addition. along with the resulting energy cost and carbon savings. the section considers the impact of rolling out renewables on a global scale. 30 Carbon Capital .3trillion Electricity Production solar large scale power generation • csp • pv Biomass and Geothermal large-scale power generation Wind large scale power generation • onshore • offshore 280 44 184 177 352 Electricity Distribution smart grid infrastructure – advanced control and management of electricity grid advance metering infrastructure for electric smart meters (ami with amm meters) 508 529 * Numbers on graphs may have discrepancies due to rounding for numbers presentation only.* 15 cumulative procurement capital: 2011-2020 (€Bn) – europe (eu25) Transport Vehicles new design and fuel efficient container freight sea vessels alternative fuel public transit vehicles • Bioethanol • ev • Biodiesel alternative fuel freight vehicles • Bioethanol • ev • Biodiesel alternative fuel light commercial vehicles • Bioethanol • ev and phev • Biodiesel • cnG Transport Infrastructure e-vehicle charging system infrastructure intelligent urban traffic system for traffic control Buildings smart building – lct equipment retrofit for commercial buildings • micro-chp • leD lighting • hvac cooling and heating system • Building management systems smart building – integrated solution for new commercial buildings pv solar panels for decentralized power generation for households 154 35 24 1 19 34 102 582 600 344 215 325 €2.Financing the low carbon economy III Capital requirements and carbon impact this section presents the capital requirements for lct procurement and development in europe between 2011 and 2020.

Cng) alternative freight vehicles (EV. the 15 commercially viable lct applications would require a total of €2. bioethanol.6 Gt co2e. premium cost of micro-generation and high expected take-up. between 2011 and 2020.  cost of introducing renewables (wind. china. solar requiring €365bn in funding for large-scale infrastructure and micro-generation installations. low production capacity. india. bioethanol. usa. there are no energy cost savings to be derived from using renewables to produce electricity as these are only a substitute for other modes of electricity production.2 Gt co2e and cost savings equivalent to €261bn. solar. EV. Japan. biodiesel.  pv power is the most expensive technology identified.2 Gt co2e (Figure 18) of carbon and energy cost savings of €261bn (Figure 20). Overall impact for Europe in europe (eu25).Key messages:  europe (eu25).4trillion in procurement. ELECTrICITY DIsTrIBuTIon smart grid infrastructure – advanced management of the electricity grid advanced infrastructure for electric smart meters (amI with amm meters) ELECTrICITY gEnEraTIon Large-scale wind power generation (onshore and offshore) Large-scale geothermal power generation Large-scale biomass power generation Large-scale solar power generation (CsP & PV) TransPorT VEhICLEs alternative fuel light commercial vehicles (PhEV. leading to carbon savings of 2. bioethanol. biodiesel) new design and fuel efficient container freight sea vessels TransPorT InfrasTruCTurE e-vehicle charging infrastructure Intelligent transport systems Carbon Capital 31 .3trillion in procurement capital (Figure 16) and €591bn (Figure 17) in development to be rolled out on a wide scale. geothermal the and biomass) across europe.3trillion in procurement capital between 2011-2020. canada and australia will require investment of €2. between 2011 and 2020. the 15 in commercially viable lct applications would require a total of €2. biodiesel) alternative public transit vehicles (EV.6trillion in development capital. this would save 2. 15 LCT EquIPmEnT anD InfrasTruCTurE LEgEnD (for suBsEquEnT fIgurEs) BuILDIngs smart buildings – LCT equipment retrofit for commercial buildings smart buildings – integrating LCT in new commercial buildings PV solar panels for decentralized power generation for households The 15 technologies analysed require ¤591bn in development and ¤2.3trillion in procurement capital (Figure 15) and €0. resulting in emissions savings of 6. this will enable carbon savings equivalent to 2. this is due to the high cost of technology (being over five times greater than that of onshore wind on a per mW-capacity basis).2Gt CO2e and energy cost savings of ¤261bn.

in other less mature sub-sectors. this is due to the high cost of retrofitting buildings and the fact that smart buildings command a premium price (estimated between five to seven per cent of total construction costs). implementing central information management systems and additional network improvements. the recent ipo of enel’s renewables power division. low-carbon europe. technical analysis. Barclays capital equity research) 41 enel raised less than hoped in green ipo. will require €352bn in investment. large ipos of wind. and will require up to €365bn invested in procurement.Financing the low carbon economy Procurement capital the larGest share of capital will be given over to buildings for retrofitting lct equipment. a practical guide to a prosperous. 16 cumulative procurement capital 2011-2020 (€Bn) – europe (eu25) 17 cumulative Development capital 2011-2020 (€Bn) – europe (eu25) 2500 2500 582 2000 2000 508 in €Bn in €Bn 600 600 35 2. the cost of smart grid infrastructure is spread across back-up electricity storage units. 32 Carbon Capital bu to ta l . for example. a low ratio of production to capacity and a high adoption rate forecast (the number of solar panels in Germany. private equity and initial public offerings (more details in section iv). development capital will remain essential to help emerging technology to reach a more mature stage. We expect the uptake of e-vehicle charging to be concentrated in dense urban areas and estimate that €34bn will need to be invested to fund the infrastructure.4bn and was the largest european ipo since 200841. solar and other diversified renewables companies will drive capital into this sub-sector. investment in these sectors is likely to be dominated by venture capital. essential for managing intermittent power and decentralized energy production. reuters. is expected to increase by 140 per cent between 2008 and 201040). alternative energy from wind and solar will require an overwhelming 66 per cent share of all development capital required by the sector. smart grids. upgrading electricity substations. given the premium of installing roof-mounted pv over large-scale solar projects (estimated at 25 per cent39 of non-roof-mounted pv) and the high per mW cost of producing energy from solar. in addition. the cost of generating power from decentralized solar pv is expected to remain high. 2010 Development capital BaseD on an analysis of investment in the lct sector between 2004 and 2009 (detailed methodology in appendix iv). this is driven from a high cost of technology (five times more expensive than onshore wind). solar pv is the most capital-intensive technology within the range of lct reviewed. enel Green power spa raised €2.254 500 500 400 400 300 300 200 200 100 0 63 382 35 591 1500 529 1000 1000 600 500 500 88 23 0 in gs di ele st c rib tri ut cit io y n pr ele od ct ric uc i tio ty n tra ve nsp hi o cl rt es in fra tr st ans ru p ct or ur t e al to t ild bu s di ele st c rib tri ut cit io y n pr ele od ct ric uc i tio ty n tra ve nsp hi o cl rt es in fra tr st ans ru p ct or ur t e ild in g 39 roadmap 2050. constructing smart buildings and decentralizing energy production. european climate Foundation 40 Derived from accumulated capacity (eurostat) and new added capacity (Global renewables Demand Forecast 2010-2014e.

estimated at 182 mt co2e between 2011 and 2020. if additional carbon emission reductions are to be achieved in other sectors (e. cheaper energy source. the identified savings would put the eu on track to meet its 20 per cent carbon emissions reduction target.g.2 Gt co2e of carbon would reduce the eu’s 2020 emissions to 83 per cent of the 1990 level. this is expected to save approximately 1. transport and electricity distribution have a smaller impact on carbon emissions as they only influence urban congestion and network losses respectively. however. manufacturing.1 Gt co2e of carbon emissions. this strongly supports the business case for buildings retrofits. Within transport. this saving is generated for a very small procurement capital outlay. smart meters offer a significant opportunity for cost savings by improving people’s awareness of their electricity consumption and motivating them to change their Carbon Capital 33 . 19 europe (eu25) emissions proFile 2011-2020 (mt co2e) – europe (eu25) 2500 2500 414 2000 2000 in mt co2e 24 2.089 1500 1000 288 500 500 60 60 60 1990 1990 403 1995 1995 2000 2000 2005 2005 2010 2010 2015 2015 2020 2020 0 s di ele st c rib tri ut cit io y n pr ele od ct ric uc i tio ty n tra ve nsp hi o cl rt es in fra tr an st s ru p ct or ur t e ild in g bu to ta l index 100 = 1990 emissions Historical Historical BAU Projection BAU Projection Projection with roll out LCT Projection with roll out ofof LCT Cost savings When analysinG lct equipment and infrastructure. they are essential for rolling out e-vehicle charging and managing an intermittent power supply. offering the possibility of abating 403 mt co2e.Emissions savings savinG 2. For large-scale power generation from renewables. chemicals). by reducing tenants’ energy consumption or substituting it with an alternative. the replacement of existing freight sea vessels by new energy-efficient ships would create significant emissions savings. Buildings represent the third largest source of emissions savings. making it an extremely carbon-efficient use of capital. if subtracted from europe’s Bau projection of emissions levels (Figure 19). the energy cost savings for the end-user or operator were investigated in each case. this will be achieved through retrofitting buildings with energy-efficient equipment and decentralizing the power supply to reduce the amount of energy consumed from the grid. some 49 per cent of the emissions savings we identified are likely to originate from substituting renewables for conventional power. other modes of transport. with a potential abatement of 414 mt co2e. no energy cost savings were assumed as the use of renewables as a source of energy does not imply any cost savings for the end-users. retrofitting buildings with lct equipment is expected to save €85bn with the opportunity to use these savings to pay back the initial cost of purchasing the equipment.219 index 100 = 1990 emissions index 100 = 1990 emissions 100 100 100 90 90 90 80 80 80 70 70 70 91 91 83 83 1. 18 cumulative emissions savinGs alternative transport vehicles will require 26 per cent of the procurement capital and create the second source of emissions savings. Buildings will account for 42 per cent of energy cost savings.

the price of electricity can also alter the energy cost savings achievable with significant differences between countries (e. removal of these subsidies could remove the possibility of savings. alternative fuel vehicles also provide scope for cost savings. By contrast. bonus-malus scheme in France). we estimate that using intelligent urban traffic systems to control traffic would save €13bn.1052 €/kWh in the first semester of 2010. the average cost of electricity in France was 0. lastly. 25 per cent of all cost savings identified. electricity production from low carbon sources is expected to drive emissions reductions in the first half of the decade as uptake is growing rapidly.g.2446 €/kWh in Germany for the same period).Financing the low carbon economy di ele st c rib tri ut cit io y n pr ele od ct uc rici tio ty n tra ve nsp hi o cl rt es in fra tr an st s ru p ct or ur t e ild in gs 2011-2020 evolution of carbon and cost savings the aDoption proFile of lct between 2011 and 2020 will determine when specific kinds of equipment and infrastructure begin to deliver their carbon and cost savings. We estimate smart meters could save consumers €64bn between 2011 and 2020 in europe. 21 cumulative annual emissions savinGs (mt co2e) – in europe (eu25) 22 cumulative annual cost savinGs (€Bn) – in europe (eu25) 500 50 50000 400 400 40 40000 21 22 300 30 30000 Transport Infrastructure Transport Vehicles Electricity Production Electricity Distribution & other equipment Buildings 200 200 20000 20 100 10 10000 0 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 0 0 20 0 9 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 34 Carbon Capital bu to ta behaviour. 20 cumulative cost savinGs on enerGy 2011-2020 (€Bn) – in europe (eu25) 300 300 250 250 52 87 13 261 in €Bn 200 200 150 150 109 100 100 50 50 0 l . these savings derive from reducing congestion and the fuel consumption associated with it. certain lct segments will begin to drive the different savings earlier than others. these are conditional on public subsidies which make alternative fuel vehicles attractive (e.g. however. Within the transport sector. compared to 0. the second half of the decade is likely to see an acceleration in savings from technological advances in alternative fuel and electric vehicles as adoption becomes more widespread. For electric vehicles.

renewables energy World. solar. owing to its large electricity market and relatively high grid intensity (0. its electricity market is only a quarter of china’s. Japan and australia will face the same challenges in attracting investment in renewables as europe. major chinese solar pv manufacturers are likely to benefit greatly from global increase in demand for procurement capital. in the period 2011-2020 carbon emissions savings would represent approximately 10-15 per cent of the world’s annual carbon emissions42. china is likely to dominate the emissions savings with a 43 per cent share. Finally. January 2009 43 rising demand in china pv market. and would lead to a carbon abatement of 6.4 0.6 Gt co2e.76 kg co2e/kWh in 2010).8 0. 25 cumulative Development capital 2011-2020 (€Bn) 82 60 21 382 1. china. manufacturing and installation of renewables technology will require an estimated €1. along with soliciting development capital to support production scaling. this reduces the country’s potential to lower carbon emissions: india is expected to save 0. the development. as china produces 30 per cent of the world’s solar photovoltaic modules43.7trillion in development capital. china and the united states are expected to invest more than europe over the next 10 years. canada. the cost reduction of primary material and main components of solar pv are likely to benefit all manufacturers on a global basis. although on a smaller scale in terms of the amount of investment required. 23 cumulative procurement capital 2011-2020 (€Bn) 23 24 25 112 81 28 508 Europe 25 United States Canada China India Japan Australia 2. canada and australia would require €2. the overall emissions savings are significant. november 2009 552 29 Carbon Capital 35 . overall. geothermal and biomass) for the eu25 countries.4 Gt co2e compared with 2. historical growth in electricity production is about 50 per cent to 70 per cent of china’s and the expected take-up of renewables is lower. usa. Japan.4trillion in procurement capital during the period 20112020. india. While india has a similar grid intensity.1 1.7 trillion 567 42 Derived from supply chain Decarbonization.6 Gt c02e 1. china or the us.8 Gt co2e for china.1 6.8 2. this is likely to create local gross value added (Gva) in countries with existing strong production capacity of lct equipment. accenture and World economic Forum.04 China and the United States are expected to invest more than Europe over the next 10 years.2 0.Financing renewables: the global perspective the expecteD aDoption of selected renewables (wind.4 trillion 828 762 41 24 cumulative emissions savinGs 2011-2020 (Gt co2e) 0.

cooling control and automation. m  ext generation leD lighting. the london Development authority created the Building energy efficiency program (Beep) to focus on t 44 Bright forecast for leD lighting. green roofs (where appropriate) and other embedded lct. with penetration set to reach 25 per cent by 2020 45. action plan for energy efficiency.  e anticipate that building management systems (Bms) will also be retrofitted in many commercial properties to improve the control and integration of W new energy appliances. h  integrated building management systems (Bms) for lighting.  arbon emissions savings are expected to differ significantly by country. this compares to Germany where 83 mt of savings is expected from a carbon emissions grid with a higher intensity (0. optimized hvac air circulation systems. be widely dependent on energy consumption and calibration of building management systems.  ignificant energy cost savings of about €85bn will be generated from the integration of lct retrofits in buildings. intelligent lighting and energy monitoring systems in public buildings in london (e. leD lighting is expected to undergo rapid adoption with an expected 46 per cent of o commercial buildings to be covered in 202044. heating. metropolitan police. For example. such as energy-efficient condensing boilers. Bms). optimal design for natural air circulation and heat convection. 0-5% 5-10% Key FindingS:  uildings will require the greatest amount of procurement capital: €600bn by 2020 (27 per cent of the overall total). however. We anticipate that these technologies will represent more than half of all commercial new-build properties past 2020. solar pv for buildings represents €154bn in procurement capital – this is likely to be limited to high-income private home owners who plan to stay in their homes long-term.42kg co2e/kWh). new insulation material.351 for a 2 kWp household installation. 2008 46 european union. 5-10% 50-55% pv solar panels – Decentralized power generation for households installing solar photovoltaic panels on existing building exteriors to generate electricity. and a range of lct s equipment (leD. water recuperation systems. some of which is used by the building and the rest sold to the grid. Given the F cost of roof-top panels – €11. 36 Carbon Capital . n  igh efficiency hvac cooling and heating system. 2007 integrating lct. etc).  mart design specifications for new buildings include using eco-efficient materials. micro-generation. may 2010 45 smart 2020: the climate Group. Selected example – building retroFitS  o achieve its carbon reduction targets. cnet news. B  he carbon emissions saved by retrofitting buildings are consistent with the level of investment required. the low carbon grid intensity of France (0.g. universities. as new regulations on construction specifications are enforced across the eu46. cost savings will. smart building – integrated solution for new commercial buildings construction of smart commercial buildings (new-builds) which integrate Bms.  it incentives and a sharp drop in the cost of technology (on a per kW capacity basis) will lead to widespread adoption of solar pv panels. leD lighting.Financing the low carbon economy Buildings BuilDinGs low carbon technology overview application adoption indicator* 2011 smart building – lct equipment retrofits for commercial buildings installing smart building technologies to reduce energy consumption including: 0-5% 2020 20-25%  icro combined heat and power units (micro-chp). savings or 293 mt co2e. not just the “green” premium.04kg co2e/kWh) is c expected to result in a relatively low carbon emissions reduction of eight mt. representing 13 per cent of total emissions t  f the energy efficiency equipment to be retrofitted in buildings. ¤344bn procurement capital includes the total capital cost for smart buildings. these will be achieved through s reducing energy consumption from more efficient equipment and also by substituting energy sources with micro-generation. this is largely due to a high-cost recovery ratio and moderate capital expenditure requirements. high efficiency hvac.

BuilDinGs.total procurement capital. EuroPE: €109Bn total procurement capital (€Bn) total emissions savinGs (mt co2e) France Germany Italy Spain United Kingdom 83 103 77 68 77 France Germany Italy Spain United Kingdom 8 83 49 35 49 20 0 40 60 80 100 120 0 20 40 60 80 100 * PEnETraTIon of LCT as a PErCEnTagE of ThE aPPLICaBLE marKET – morE DETaILs In aPPEnDIx V Carbon Capital 37 . europe (€Bn) total emissions savinGs. EuroPE: €88Bn ToTaL CosT saVIngs 2011-2020. 2011-2020. europe (mt co2e) 403 600 102 344 154 600 bn 403 mt c02e 293 44 66 ToTaL DEVELoPmEnT CaPITaL 2011-2020. BuilDinGs. 2011-2020.

to explore smart grid tools. consumption patterns. in terms of number of substations included). smart meters are expected to save 211 mt co2e in carbon emissions overall. because the utility can now sense and predict energy conditions. with 80 per cent coverage to be reached by 2020. frequency. Selected example – Smart grid  energy. and enable consumers to change their energy consumption behaviour49. correlation with external factors such as weather). us.com 49 British Gas plans 2 million smart meters in British homes by 2012. as well as automatically through smart appliances. high-speed communications.g. amm smart meters also enable the end-user to optimize its electricity consumption behaviour and adjust daily consumption usage through a variable electricity tariff (if applicable) and interconnectivity between the meter and a number of smart appliances. active network management systems and hardware. it can proactively monitor the state of the grid and detect power outages before they occur48. potentially saving 288 mt co2e in carbon. better manages intermittent power sources and allows efficient integration of micro-generation. with accenture. this in turn optimizes electricity loading. the eu directive on smart meter specifications and roll out47 implies a compulsory roll-out of smart meters in all member states by 2022. has developed the smartGridcity pilot in colorado. including substations or power storage facilities. xcelenergy. the high capital intensity is explained by the large range of equipment that needs to be integrated into the smart grid. Benefits hypothesis summary.  take-up of smart metering is currently strong in europe. 5-10% 80-85% Key FindingS:  electricity distribution will require an investment of €529bn in procurement.Financing the low carbon economy Electricity Distribution electricity DistriBution low carbon technology overview application adoption indicator* 2011 smart grid infrastructure – advanced control and management of electricity grid upgrade of the electricity transmission and distribution network to automate monitoring and control of grids infrastructure equipment. it allows utility companies to anticipate electricity demand based on consumption data retrieved to optimize grid loading (e. this is the primary driver for the large implementation plans and resulting high level of capital investment. this has helped to automate the grid and. press release.  implementing smart meters allows the consumer to reduce his or her energy consumption by monitoring energy use and adapting it based on a variable tariff (tou – time-of-use tariffs are used in a number of eu countries). reduce field engineering and maintenance. this makes smart grids responsible for a far greater share of emissions reductions than those they save directly.e. “a smart grid enables calculation and minimization of line losses by redistributing power flow and balancing current to maintain optimal balance between voltage. as well as facilitating micro-generation and e-vehicle charging. 2008). march 2010 capabilities across the grid using two-way. even though over only 40 per cent of the electricity grid is expected to be covered (i. requiring an estimated €352bn investment in europe up to 2020. primary substation network sensors. 38 Carbon Capital .  rolling out smart grid infrastructure will be capital intensive. 0-5% 2020 40-45% advance metering infrastructure for electric smart meters (ami with amm meters) monitoring of electricity consumption through amm smart meters. this includes energy storage units.  smart grids play a pivotal role in the lct sector as they enable renewables to be rolled out on a broad scale. reduces network losses. smartgridcity. italy is expected to reach full smart metering implementation by 2012 and consequently has a smaller capital requirement from 2011 through 2020. Selected example – Smart meter  British Gas is planning to roll out two million smart meters by the end of 2012 to improve customer interaction. and reactive power” (xcel energy smartGridcity™. smart grids will ensure stability of the grid by dynamically managing both intermittent power and abrupt peak consumption.  implementing smart grid infrastructure is expected to reduce network losses (seven per cent of electricity consumption on average in eu25) through load optimization which implies carbon emissions savings of 77 mt co2e. xcel energy has implemented digital xcel 47 eu Derivatives 2009/72/ec and 2009/73/ec 48 smart Grid city. 13 per cent of all identified emissions savings.

europe (mt co2e) 529BN 288 MTC02e 77 211 288 352 177 529 ToTaL DEVELoPmEnT CaPITaL 2011-2020. EuroPE: €87Bn total procurement capital (€Bn) total emissions savinGs (mt co2e) France Germany Italy Spain United Kingdom 84 95 60 61 69 France Germany Italy Spain United Kingdom 8 64 11 25 43 20 0 40 60 80 100 0 10 20 30 40 50 60 70 80 * PEnETraTIon of LCT as a PErCEnTagE of ThE aPPLICaBLE marKET – morE DETaILs In aPPEnDIx V Carbon Capital 39 . europe (€Bn) total emissions savinGs 2011-2020.total procurement capital 2011-2020. EuroPE: €23Bn ToTaL CosT saVIngs 2011-2020.

uK: 15 per cent (“unlocking investment to deliver Britain’s low carbon future”. the difference in cost per installed mW-capacity is also the result of pv solar’s lower capacity factor of 5-15 per cent compared with wind 15-25 per cent.Financing the low carbon economy Electricity Production electricity proDuction (eu only) low carbon technology overview application adoption indicator* 2011 large-scale wind power generation onshore and offshore wind power on sites with installed capacity of greater than 1 mW. France: 23 per cent.g. large-scale solar power generation production of both concentrated solar power and solar power pv on sites with capacity greater than 1 mW. pv solar power has unique operational benefits which facilitate adoption in a variety of geographical areas. share of identified carbon savings with 1. large-scale biomass power generation production of biomass power on sites with capacity greater than 1 mW. investment of €382bn will need to be put into r&D. this results in low carbon emission savings. the uK is expected to undertake a relatively modest roll-out of renewables for power production (three per cent for onshore wind.  ith rapid developments in technology and strong demand for renewable energy.  owever. projected emissions savings are 718 mt co2e. which sequester carbon during their lifecycle. Selected example – renewableS adoption targetS  ost european countries have targets for generating renewable energy for 2020. italy: 17 per cent. pv solar power’s relatively small share of total electricity production and small capacity factor implies it will only substitute h conventional power production in low volumes. excluding the uK ranges from €70bn-110bn t per country. Biomass power results mainly from the combustion of items such as wood or food. 0-5% 0-5% 0-5% 5-10% 0-5% 0-5% 0-5% 2020 10-15% Key FindingS:  lectricity production from renewables is estimated to require €508bn in procurement capital between 2011 and 2020 whilst generating the largest e  he relatively high cost of solar pv and csp power – greater than onshore wind power on a per mW-capacity basis – means it will require the greatest t investment to purchase: an estimated €280bn or 55 per cent of all renewables procurement capital. three to four per cent for offshore wind and less than 0. GiBc). although it will remain B marginal compared with wind power. production W scaling. largely due to a positive outlook for adoption in a number of o  iomass power is increasingly attracting investment and its production capacity is expected to grow rapidly in the next 10 years. geothermal power is expected to remain small requiring about £1bn in procurement capital although the potential for this energy source may increase beyond 2020. netherlands: 14 per cent. more than any other technology analysed. similarly. Fit. Germany is likely to benefit the most from the substitution of its conventional coal and gas power production with i renewables.5 per cent for solar in terms of the share of total electricity production in 2020). 40 Carbon Capital .  nshore and offshore wind power will have the biggest impact on carbon reduction. 65 per cent of all development capital required. european countries. 11 per cent of total identified savings from renewables. although this is greatly disproportionate to the high procurement cost. directly or indirectly. large-scale geothermal power generation production of geothermal power on sites with capacity greater than 1 mW. m roc). approximately 12 per cent of all lct carbon savings identified. Below are some of the targets set out by selected eu countries: Denmark: 30 per cent. and action plans and incentives to achieve these targets (e.089 mt co2e (49 per cent of all lct carbon savings identified).  n terms of carbon impact. this is expected to lead to significant carbon emissions savings: 289 mt co2e between 2011 and 2020.  he procurement capital required for renewable power production across the large european geographies. Germany: 18 per cent. in contrast. 32 per cent of all lct carbon savings. Geothermal power refers to extracting heat from the earth to produce electricity or heating.

total procurement capital 2011-2020.089 ToTaL DEVELoPmEnT CaPITaL 2011-2020. europe (€Bn) total emissions savinGs 2011-2020.089 mt c02e 232 19 718 508 1. EuroPE: €382Bn ToTaL CosT saVIngs 2011-2020. europe (mt co2e) 508 bn 280 43 1 184 120 1. EuroPE: n/a total procurement capital (€Bn) total emissions savinGs (mt co2e) France Germany Italy Spain United Kingdom 72 109 88 93 40 France Germany Italy Spain United Kingdom 18 289 146 110 99 20 0 40 60 80 100 120 0 50 100 150 200 250 300 * PEnETraTIon of LCT as a PErCEnTagE of ThE aPPLICaBLE marKET – morE DETaILs In aPPEnDIx V Carbon Capital 41 .

 se of alternative vehicles in public transport and freight is expected to remain low. Selected example – alternative road tranSport vehicleS – cng  ps.  ublic incentives for low carbon vehicles will help to create cost savings of €52bn. substituting existing container and roro50 vessels with an average of 15+ years in service with a new generation of fuel efficient vessels. this is limited to freight vehicles with useful capacity greater than 1. remove the benefits completely. removing these incentives (e. ups will expand its fleet of u alternative vehicles after ordering an additional 300 cnG vehicles from Daimler’s Freightliner custom chassis corporation (Fccc)51. with their large transport sectors and high sales of freight and light commercial vehicles. biodiesel and electric vehicles. represent important markets for F alternative transport vehicle providers – their combined market is expected to be worth €104bn between 2011 and 2020. plug-in hybrid. with expected carbon emission a  lternative light commercial vehicles will require the greatest share of procurement capital of all lct transport (56 per cent) as they make up the largest a volume of vehicles.5 mt co2e in emissions for every billion euros invested. battery life limiting freight routes. the extension of environmental regulations to shipping will accelerate take-up of energy-efficient technology by ships.5 tonnes. although application of new design and fuel-efficient vessels in europe is limited (the model is based on the location of ship production). bioethanol. thereby making ups one of the world’s largest operators of alternative vehicles.  eplacing ageing sea freight vessels such as container and bulk vessels with new vessels that meet energy efficiency and design standards (electric r propellers.  rance and Germany.g.com 42 Carbon Capital .Financing the low carbon economy Transport vehicles transport vehicles low carbon technology overview application adoption indicator* 2011 alternative light commercial vehicles substituting conventional internal combustion engine light commercial vehicles (diesel and petrol) with cnG. electric and bioethanol vehicles is expected to remain low while take-up of biodiesel and plug-in hybrid vehicles is expected to grow at non-negligible rates over the next 10 years. adoption of compressed natural gas (cnG). these u will continue to face barriers preventing wide scale adoption such as the cost of integration. although a number of pilot projects have been launched. optimal energy management systems) will require relatively little investment in procurement – €24bn – and will save 182 mt co2e. combined heat and power systems. in the worst case. maintaining fleets and operational difficulties arising from technology (e. biodiesel and electric buses. alternative public transit vehicles new design and fuel efficient container freight sea vessels substituting public transit buses with bioethanol. 0-5% 10-15% 15-20% 40-50% 0-5% 10-20% 0-5% 2020 20-30% Key FindingS:  lternative fuel transport vehicles (commercial and public) are expected to require €582bn in procurement capital.5 tonnes. reductions of 414 mt co2e between 2011 and 2020 in europe. 50 roro: roll on. biodiesel and electric vehicles. ups.responsibility. this is limited to light commercial vehicles with useful capacity of less than 1. replacing sea freight vessels elsewhere in the world represents a significant opportunity to make savings. tax-rebate on biofuels or cnG) will p substantially lower these cost savings and. roll off ships 51 www.g. downtime requirements). representing approximately 25 per cent and 10 per cent of light commercial vehicles sales respectively in europe in 2020. alternative freight vehicles substituting conventional internal combustion engine freight vehicles (diesel and petrol) with bioethanol. or 7. the american freight and logistics company already has 25 hybrid diesel electric commercial vehicles in operation.

europe (€Bn) total emissions savinGs 2011-2020.total procurement capital 2011-2020. EuroPE: €63Bn ToTaL CosT saVIngs 2011-2020. europe (mt co2e) 414 582 24 215 19 325 8 182 116 107 582 bn 414 mt c02e ToTaL DEVELoPmEnT CaPITaL 2011-2020. EuroPE: €52Bn total procurement capital (€Bn) total emissions savinGs (mt co2e) France Germany Italy Spain United Kingdom 65 39 39 52 38 France Germany Italy Spain United Kingdom 66 75 21 24 20 10 0 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 * PEnETraTIon of LCT as a PErCEnTagE of ThE aPPLICaBLE marKET – morE DETaILs In aPPEnDIx V Carbon Capital 43 .

emissions savings for its are marginal. this will allow plug-in hybrid and regular electric vehicles to be adopted more widely.000 charging points53. Funding the procurement of e-vehicle charging systems is expected to cost €10bn. helps to optimize traffic and reduce congestion. o  he cost of installing 10. which implies higher speed improvements.Financing the low carbon economy Transport infrastructure transport inFrastructure low carbon technology overview application adoption indicator* 2011 e-vehicle charging infrastructure high voltage charging stations that allow e-vehicles to be recharged in urban areas. which is connected to a traffic management platform.  -vehicle charging infrastructure is expected to require investment of €34bn to cover 35-40 per cent of urban areas. Foundation e-laad. e  anaging access to charging stations. this is done through traffic monitoring equipment installed along urban roads. as only a small incremental improvement in vehicles’ speed was taken into account.nl 44 Carbon Capital . Selected example – e-vehicle charging large-Scale roll-out  utch grid companies created the e-laad initiative to roll-out e-vehicle charging stations in the netherlands with the aim of creating D 10. this will comprise both high-voltage e power supply stations and electricity storage infrastructure. notification boards).  rance is expected to generate the greatest investment in e-vehicle charging.g. m  &m oversight. this leads to a similar range of energy and e carbon savings for the five major european geographies: between two and four mt co2e. with most of the benefits being operational (e. 0-5% 25-30% 0-5% 2020 35-40% Key FindingS:  he roll-out of e-vehicle charging infrastructure and intelligent transport systems is estimated to require €35bn in procurement capital between 2011 t and 2020 for eu25. this transport infrastructure would W lead to a modest saving of 24 mt co2e in carbon emissions.  ith its (intelligent traffic system) only enabling emissions savings through vehicle route and speed optimization. this includes charging poles.  he foundation will own the network of stations and assume the following responsibilities: t  lectricity procurement. t 52 source: Bloomberg new energy Finance 53 information session. r&D projects.  ith e-vehicle charging stations being introduced in large european cities (seville has 75 stations. as it has the largest urban area and large pilot programs in development F (autolib). route or journey length). demand for W e-vehicle charging is likely to increase drastically in the next decade. battery replacement sites and electricity storage units to manage peak demand.000 charging stations is estimated to be between €10m and €30m.  t is important to note that the increase in traffic fluidity resulting from the implementation of its may incentivize additional use of vehicles and lead to i what is often referred to as “a rebound effect”. this could be re-assessed if additional benchmark data from large-scale implementation of its becomes available.  missions savings achieved by its are linked to the number of passenger-km’s covered by vehicles each year. Barcelona 191 and madrid 28052) . intelligent transport system infrastructure Dynamic control of traffic routing (through traffic lights.

0 3.5 3. EuroPE: €13Bn total procurement capital (€Bn) total emissions savinGs (mt co2e) France Germany Italy Spain United Kingdom 10 3 1 1 5 France Germany Italy Spain United Kingdom 3 4 3 2 3 4 0 2 6 8 10 0. europe (€Bn) total emissions savinGs 2011-2020. europe (mt co2e) 35 24 1 34 0 24 35 bn 24 mt c02e ToTaL DEVELoPmEnT CaPITaL 2011-2020.5 1.0 2.total procurement capital 2011-2020. EuroPE: €35Bn ToTaL CosT saVIngs 2011-2020.0 0.0 1.5 4.0 * PEnETraTIon of LCT as a PErCEnTagE of ThE aPPLICaBLE marKET – morE DETaILs In aPPEnDIx V Carbon Capital 45 .5 2.

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it provides a strong foundation for smart grid technology to be introduced in other cities around the world. representing the highest concentration of smart grid technology to date. colorado.  ntegrate different sources of electricity generation (wind. 26 overvieW oF smart GriD  nable remote fault identification on the network and mend e faults automatically.Delivering a smart grid in an Intelligent City – SmartGridCity in Boulder. tariffs D and consumption to customers. i solar. plug-in hybrid electric vehicles). xcel energy. two-way communications of p electricity consumption and production data between the end-customer and utility provider. xcel energy formed a consortium with developers. a us-based utility company. A Smart grid allows for more efficient use of energy. accenture’s role is to manage complex data extracted from the electricity grid to allow both xcel and the end-customer to benefit fully from the range of smart grid technology in a real-time environment. The objectives of the smart grid are to:  rovide for real-time. xcel partnered with accenture to help it manage the high volumes of data arising from the smart grid and integrate all the technological components into one infrastructure. xcel energy. most importantly. the smart grid went live in the summer of 2009 and is connected to nearly 47. integrators and operators to bring together the best expertise available and deliver one of the world’s most advanced smart grids54.000 premises throughout the city. equipment and systems providers and customers assess the challenges and benefits of a smart grid. accenture Power generation › Power Transmission › Power Distribution Grid load optimization › suBstation Power Consumption smart meter amr › smart appliances electricity active demand and supply management suBstation heatinG active control & monitoring of stations suBstation active control & monitoring of stations BuilDinG area netWorK (home anD Businesses) smart meter amm active display of variable tariff BacKhaul GriD inFrastructure automation transFormers DistriButers DistriButeD storaGe capacitors Batteries micro-generation from renewables remote fault identification Green electricity proDuction Green electricity sourcing through smart meter interface Dual flow load control synchronization intermittent power management DecentralizeD proDuction Carbon Capital 47 . helping utilities. enables micro-generation and much more this pilot represents the first time that integrated smart technologies have been introduced on a broad scale.  eliver real-time information on electricity sources. Colorado in march 2008. 54 xcel energy smartGridcitytm. p  rovide data on the environmental impact of electricity consumption. e  nable greater monitoring and automation of the electricity transmission and distribution networks. announced its plan to create the us first smartGridcity in Boulder.

the green investment Bank commission estimates that £550bn55 would be required by the UK only to achieve its 2020 carbon reduction targets. Development capital. purchasing LcT equipment or infrastructure. would provide purchasing LcT. it represents €164bn annually for europe or approximately €1. an o LcT providers. Based on this approach. either directly or acting as intermediaries. reduced technology risk and investor appetite combine to create a favourable environment for deploying capital to this space. taking this as a minimum requirement. while significant. Financing the procurement of LcT infrastructure and equipment will be taken from both internal sources (on balance sheet) as well as external sources. implying higher investment requirements.6trillion between 2010 and 2020. The stern report54 had estimated that one per cent of global gDP would be required annually to address climate change. represents a major financing challenge as well as a significant opportunity if supportive policy frameworks. Details on the methodology used to provide the analysis here can be found in appendix iii and iv. Private investments in Public equity (PiPe). With the caveat that future capital flows will depend on a range of factors including policy frameworks. Barriers to capital provision 54 stern Review on the economics of climate change. Remaining development  he provision of primary debt through asset leases.  equity and debt underwriting (iPos and bonds Both representing 61 per cent of the total investment required for respectively).3trillion of procurement capital required. mainly composed from asset finance – term loans and project finance debt will mezzanine. we have analysed existing transactions derived from the database owned by Bloomberg new energy Finance. This value is expected to be higher for developed countries but. Key messages:  f the €2. technology development and the macroeconomic environment. total development capital required. excluding capital re-invested from a company into R&D. T capital will originate from debt. apply to an estimated €1. green investment Bank commission. the analysis here provides an illustration of how the european low carbon transition could potentially be financed over the next decade. intermediated by banks. junior and senior corporate debt.3trillion of procurement capital and €0. originating from public equity initial Public estimated 73 per cent will be funded externally by entities offerings (iPo). in an attempt to provide a more granular view of the different capital flows into the sector. June 2010 The inFLoW oF capital to the LcT sector. 48 Carbon Capital . this section provides an analysis of the expected split between different equity and debt funding sources over the next decade. with most expansion capital and venture capital equity is expected to of this external funding being provided by corporate and provide €348bn in development capital – 59 per cent of the investment banks. Analysing existing capital flows to forecast future growth channelling €2. remains markedly below the minimum level we expect will be necessary to achieve wide-scale adoption of LcT in europe.6trillion of development capital in europe between 2011 and 2020. in contrast.Financing the low carbon economy IV Financing LCT development and procurement This secTion invesTigaTes the different financing streams that will support the provision of development and procurement capital for low carbon technologies considered in the report. 2006 55 Unlocking investment to deliver Britain’s low carbon future. public market access to capital estimated at €97bn and  quity provision to support the growth and development of e €147bn respectively.4trillion of procurement capital. one of the most comprehensive available. will be provided only by external sources.

as investments often have long-term pay-back periods. and emissions reduction commitments). eU commission. FiTs in France have been set up to provide an eight per cent iRR over 15 to 20 years for investments in solar-Pv66. tax-credits) and carbon policies (carbon tax. Deutsche Bank. This would need to be added to investments in transport.The Financial Times recently estimated that about €1trillion would be required from utilities to meet eU targets for renewables only. and introduced a cap on the maximum total capacity to be installed per year. governments around the world are increasing their budgets for environmental and climate change mitigation measures. $54bn. in europe. 2010 62 From green stimulus to green austerity?. guaranteed loans. government policies will need to continue to provide incentive frameworks until technology costs drop and become cost competitive. although the sector will become less dependent on incentives in the medium. up to 202056 (the eU has a 20 per cent target for renewables roll-out which includes biomass. national governments are under pressure to reduce sovereign debt. whilst critical.3bn of the american Recovery & Reinvestment act has been allocated to energy efficiency initiatives in cities. 2010 Carbon Capital 49 . The new York Times. in the Us. august. a new coal levy aims to raise $535m a year to fund a national clean energy Fund61. With investment payback calculated on periods of 15 to 20 years. which has led to drastic cutbacks in public spending. This illustrates how policy and incentive frameworks must be carefully designed to manage demand for renewables power without creating market instability. impacting on LcT investments.to long-term. currently. and unsettled the market by discussing retroactive change to existing subsidies. the recent economic downturn reduced the demand for carbon permits in regions with emissions trading schemes (eTs). however. Policy uncertainty The PUBLic secToR has invested heavily in LcT at both local and national levels. February 2010 57 Renewable energy Roadmap. incentives are essential to ensure investment in LcT is viable. London Development agency 65 spain keeps subsidies for existing solar power plants. and increase the perceptions of policy risk amongst investors. november 2010 66 investing in climate change 2009. The international Monetary Fund intends to create a $100bn “green fund” by 2020 to meet the financial needs identified at the coP15 conference in copenhagen63. March 2010 64 Re:FiT. hsBc global Research. January 2007 58 section 22. Furthermore. in the $537bn european stimulus package set out in 2009. and support innovative technology60. The investment required to effect energy diversification towards a lower carbon energy mix and increase energy efficiency is enormous due to the high capital intensity of many low carbon technologies. 56 Resources: The power bill arrives. examples include The amsterdam smart city initiative in the netherlands or the Re:FiT program developed by London64. the spanish government reduced subsidies by 20 per cent in 2008 on solar power. which were factored into financing for solar panels in previous years. as a result. spain’s recent changes to its incentive regime provide a clear reminder of the importance of policy stability in driving investment. but as we discuss later. however. heavy industries and buildings to achieve the desired eU 20 per cent carbon reduction target in 202058. Without the FiT. feed-in-tariffs have been used successfully to grow domestic clean energy markets in countries like germany. February 2010 61 india to Raise $535 Million From carbon Tax on coal. the absence of a view on the long-term carbon price further limits LcT investments. the tariff regime will be adjusted quarterly based on demand in the previous quarter. Three of the most significant barriers are reviewed here:  Policy uncertainty. $12. iMF. or 10 per cent. Bloomberg Businessweek. april 2010 60 The stimulus Plan: how to spend $787 Billion. stability and long-term public commitment of LcT incentives (FiT. european climate exchange. council of european Union Presidency conclusions. Local governments have also pushed for faster procurement of LcT by rolling out schemes. hsBc global Research. was allocated to “green” initiatives and infrastructure59. retroactive changes of subsidies or policy instability more generally can present a significant risk for renewable investments. the high cost of investing in Pv solar panels would not make it commercially viable.  Technology uncertainty. china has set aside an impressive 34 per cent share of its $649bn stimulus package to “green” investments. and also needs to be addressed in order to bring these emerging technologies to market. in the short-term. 12 December 2008 59 From green stimulus to green austerity?. wind and solar57). through to large infrastructure assets with mature technologies such as onshore wind. are yet to be achieved. venture capital has invested in some potentially transformative technologies which have not obtained the large level of funding necessary to develop on a commercial scale. the government decided not to implement retroactive reductions to previous fixed Feed-inTariffs. FT. many of the energy alternatives are not competitive on a cost basis with fossil fuels. There are significant barriers that are preventing capital provision at the levels required across the whole spectrum of financing sources. Recent drops in the carbon allowance (eUa) price to €13 in March 201067 on the eU eTs have provided poor incentives for large industries and the power sector to fund alternative energy infrastructure or equipment. spain had considered further reductions in subsidies for future investments. The results were a sharp drop in solar Pv investments in spain in 2009 compared to 200865.  Restrictions on capital lending. in 2011. Bloomberg news. Following very rapid growth in solar investment. hydro. Faced with increasing budget constraints. in india. from early-stage company developing innovative technology. october 2008 67 ecX eUa Futures contract: historic Data 2010. april 2010 63 Financing the Response to climate change. This funding gap is sometimes referred to as the “the valley of death”. demonstrating an increasing commitment to environmental measures62.

in the Us. they can be affected by the behaviour of the building’s occupants and lead to a “rebound” effect as costs are reduced).g. €/km for vehicles. with many small-scale projects each requiring funding. This means that it is often not viable for large corporate and investment banks to provide finance. The complexity and relative immaturity of LCT increase the risk attached to investing in it. the absence of secondary markets for LcT project finance debt has restricted the capital provision from private investors and institutions (excluding direct lenders 68 Dodd-Frank Wall street Reform and consumer Protection act. LcT is a largely maturing sector. the Dodd-Frank Wall street Reform and consumer Protection act will restrict investment in private equity and venture capital funds68. which in turn increases the investment risk. similarly. for example. Fitch recently downgraded the Breeze Finance bond which finances a number of wind farms in germany. The projected energy savings from installing LeD lighting or building management systems are also difficult to guarantee (e. technical. which allow investors to access secondary markets. which will increase under Basel iii. The requirement for banks to improve Tier 1 capital. transactions involved in both large and small projects require similar resources to conduct regulatory. Technology uncertainty The coMPLeXiTY anD relative immaturity of LcT increase the risk attached to investing in it. The Library of congress.g. less than a third of the 14 per cent theoretically achievable for the country under normal conditions73. european commission World energy Technology outlook – 2050 such as corporate and investment banks).Financing the low carbon economy Restrictions on capital lending goveRnMenTs have Been encouraging aggressive lending targets for banks to support economic growth. however. leases). is highly affected by weather conditions. make up less than three per cent of LcT asset financing69. in addition. e. 50 Carbon Capital . commercial and financial due diligence. JRc. Power Purchase agreements (PPas). several european cities are struggling to achieve sufficient critical mass in their retrofit programmes to attract private sector finance. assetbacked securities or bonds. iPMvP. general intermittent power output from renewables makes revenue streams more uncertain. at the same time. Financing the retrofitting of energy-efficient and microgeneration equipment in buildings. The roll-out of LcT is often fragmented and unstructured. it is difficult to estimate the future asset value solely based on the asset’s lifespan and its performance. This has filtered out a number of proposals. is often highly fragmented with the additional difficulty of the assets being often attached to the properties in which they are installed. March 2002 75 TechPoL database. for example. the power generated by solar Pv can fall below estimates: the average capacity factor71 of installed solar Pv in italy was 5.1 per cent in 200872. is likely to limit balance sheet lending further (e. april 2010 71 capacity factor defined as: MWh produced/MWcapacity x number of days per year x 24h 72 eurostat. €/hours-in-operations for building retrofits applications) can drastically reduce over time. The extreme example is fuel-cell-enabled power (€/kW) which is expected to drop by more than 55 per cent between 2010 and 202075. banks are also under intense pressure to reduce risk and build their deposit base in order to ensure there is enough capital to satisfy new or anticipated regulations. This is likely to restrict banks’ ability to fund the development of early stage LcT companies.org. however. sMe lending targets. Pvgis.g. european commission 74 international Performance Measurement & verification Protocol. primary junior or senior debt. Uncertainty in energy-saving measurements has been addressed through protocols such as the international Performance Measurement & verification Protocol (iPMvP)74. further complicating asset-based financing decisions. This will add further uncertainty to the future value. accordingly. This was the result of actual performance being lower than original forecasts: energy production during 2009 was 12 per cent and 19 per cent lower than the P90 and P50 forecasts initially made70. investors require the financial return on investment (from. Uncertainty around revenue generation and cost reduction of LcT will increase the risk in investing. The revenue streams associated with LcT are more complex to estimate than those of traditional technologies. Dow Jones. For example. onshore and offshore wind power. €/kWh for renewables. new regulations may also prevent banks from investing directly in private equity and numerous other types of privately offered funds. February 2009 69 as presented on Figure 5: capital raised to fund LcT assets ($bn) in europe between 2004 and 2009 by financing stream 70 Fitch downgrades Breeze Finance sa’s notes. This increases uncertainty of the assets’ performance and so heightens the risk associated with long-term cash flows. The rapid change of LcT procurement and implementation cost over time compared to its useful output (e. for example.g. outlook negative. derived from installed capacity and production output 73 geographical information system (gis) software. reduction in energy consumption) to be guaranteed over the often long timeframe required to match anticipated pay-back periods. rather than a small number of large-scale projects.

g. stable Carbon Capital 51 . €/vehicle)  ifficulty in quantifying energy-efficiency D cost savings given uncertainty in benchmarks  ncertainty in future revenues of U renewables due to impact of weather and public incentives increased risk associated with LcT assets impacting on RWas LCT is a largely maturing sector. it is difficult to estimate the future asset value solely based on the asset’s lifespan and its performance. Accordingly. a key requirement to secure financing.27 The BaRRieRs oF LcT Financing LCT financing requirements  ncreased cost of i carbon-intensive activities  arly-stage R&D public e incentives  arge-scale public L infrastructure financing  ublic incentives for selected P LcT investments  ncreased return on LcT i › Barriers  bsence of long-term view and a › Impact Policy uncertainty stability of carbon price on eTs  ifficulty to identify public incentives D which maximizes local gross-valueadded generation  ncreasing pressure on government public i funding and sovereign debt Limited shift to low carbon activities Limited investments in LcT companies and infrastructure  bsence of long-term stability of a Restrictions on capital lending investments through public incentives leverage  rivate investors access to P ciB primary investments  ow restrictions on ciB lending L for large-scale asset financing  ow restrictions on L early and growth stage companies financing  ransaction critical mass T  ow risk associated with L long-term LcT asset financing e  xpected asset future value e  xpected future energy cost savings achievable generation achievable e  xpected future revenue public incentives  bsence of secondary markets to transfer a ciB debt liability to private investors  ncreasing pressure to improve Tier 1 i ratio limiting ciB lending  egulatory limitations on venture capital R and private equity ciB investments  esources-intensity of small-size transactions R Limited bank lending to LcT companies and assets Limited access of private investors to LcT capital investments Technology uncertainty  ncertainty on future value of LcT assets U (on a per unit basis: e. €/kWp.

representing €182bn (76 per cent of total) which will mainly be used to fund capital spending on logistics. with €97bn (16 per cent of total) in funding predicted to come from iPos on these markets.200 transactions retrieved to support the development capital model (appendix v) 77 Derived from Bloomberg new energy Finance 78 q-cells will issue guaranteed convertible bonds due 2012 to institutional investors. most investments will be in the form of equity. q-ceLLs. mezzanine debt and corporate credit facilities. not debt. it then identifies and quantifies the financing streams relating to development capital. Most of them were small. manufacturing and sales for LcT developers. q-ceLLs. Primary equity provision from early and growth stage venture capital to PiPe. the german solar cell manufacturers. based on the demand for LcT in europe between 2011 and 2020. access to public markets remains essential for growing LcT providers to reach the public equity stage. more than 40 LcT companies floated on the stockmarkets. Between 2008 and 2010. the book building for the offering will commence today (7 February 2007). as the majority of LcT companies are still at growth stage.Financing the low carbon economy Development capital The sTUDY qUanTiFies the development capital raised by companies that produce and develop the 15 low carbon technologies analysed in the report (details on the methodology in appendix iv)76. These bonds will mature after five years and be converted into equity upon maturity. corporate debt makes up the largest share of debt financing. with an average transaction size of $84m77. the largest share of development capital required and 59 per cent of the total. Debt finance represents €243bn (41 per cent of total development capital) and is composed of junior (subordinated) debt. February 2007 28 28 cUMULaTive DeveLoPMenT caPiTaL PeR LcT segMenT – 2011-2020 (in €Bn) (eU25) Initial Public Offering (IPO) and secondaries Private placement and PIPE Seed and early- stage venture capital Late and growthstage venture capital Private equity (expansion capital) Junior and senior corporate debt Mezzanine debt Corporate credit facility transport infrastructure transport vehicles electricity production electricity distribution buildings 88Bn 23Bn 382Bn 63Bn 35Bn 0% 25% 50% 75% 100% 52 Carbon Capital . iPo and private equity can be expected to raise €348bn. more companies will look to public markets to raise equity from investors. issued guaranteed convertible bonds to “expand the production capacity in its core business”78. and most listed on secondary markets such as the London aiM stock exchange (most iPos valued under $100m are floated on secondary stock exchanges). senior debt. as the sector grows. 76 Bloomberg new energy Finance – over 1. companies have also been relying on convertible bonds to secure development capital. as an alternative to secured corporate debt (which often results in a high capital cost) or primary issuance of public equity (which can result in important dilution of current equity holders if public equity is traded at low price).

pu Primary capital provis 243 uity 182 €0. making up 25 per cent of external funding for procurement. or infrastructure. This is based on an analysis of more than 650 LcT asset financing transactions over the past two years. By contrast. This means that finance through secured term loans of less than €100m is likely to become the main source of debt. €1.65trillion (73 per cent) will be needed in external funding (details on the methodology in appendix iii).6trillion 74 25 51 Initial public offering (IPO) & secondari growth-stage Private placement & PIPE venture capital P r i m ar y c a p i ta l vi pro sio p n- a ri v te 177 eq u it 100 Seed and early stage venture capital Private equity Late and growth-stage venture capital (expansion capital) Private equity (expansion capital) Junior and senior Junior and senior corporate debt corporate debt Mezzanine debt y Mezzanine debt Corporate credit facility Corporate credit facility than €100m (for example. Procurement capital oF The €2. aggregated building retrofits and smaller scale solar Pv plants). particularly for smaller companies. combined with the average cost of procuring assets and the corresponding cost curves. are ideal collateral for asset-backed loans.3TRiLLion required for purchasing LcT in the eU25 to 2020.Equity investors will provide the majority of development capital. some types of LcT equipment can be purchased for less 29 cUMULaTive DeveLoPMenT caPiTaL PeR Financing sTReaM – 2011-2020 (in €Bn) (eU25) 29 14 Initial Public Pr i m ary c Offering (IPO) and ap it a lp d t eb secondaries Private placement and PIPE Seed- and early-stage venture capital Late- and v is ro -p riv a te ion 47 ion 97 171 q blic e . such as wind farms owned by a single entity. stand-alone equipment such as vehicles. The remaining 27 per cent is expected to come directly from the balance sheet of technology buyers. it is more difficult to secure finance against individual assets or equipment integrated 30 cUMULaTive PRocUReMenT caPiTaL PeR LcT segMenT – 2011-2020 (in €Bn) (eU25) buildings electricity distribution electricity production transport vehicles transport infrastructure 600Bn 30 529Bn 508Bn 582Bn Bonds primary issuance Short-term asset lending (bridge) Project finance-debt Asset finance-term loan Asset lease Project finance equity Internal financing (procuring entity) 35Bn 0% 25% 50% 75% 100% Carbon Capital 53 .

is estimated to contribute €405bn in combined debt and equity. lease schemes where the generated cost savings apply to the lease payments are possible. along with interest and administration fees. P  apital markets.3trillion 1436 - ion vis pro ital ap Primary c More interestingly. This will provide LcT investors with access to both primary and secondary markets. asset leases have proved to be suitable for purchasing LcT small-scale equipment. Project finance. which is the most suitable solution for large-scale renewables. including vehicles and solar Pv. 18 per cent of procurement capital. The role of corporate and investment banks can be broken down into four areas:  rimary capital provision. Bonds are increasingly becoming a viable alternative to project finance as bank balance sheet capacity may be restricted due to regulatory requirements. 31 cUMULaTive PRocUReMenT caPiTaL PeR Financing sTReaM – 2011-2020 (in €Bn) (eU25) Primary capital provision – public asset debt ing nc na Int ern al fi 147 147 604 31 604 51 338 Bonds primary issuance Short term asset lending (bridge) Project finance-debt Asset finance-term loan Asset lease Project finance equity Internal financing (procuring entity) Primary capital provision – private asset equity 482 68 68 €2. a  sset management.65trillion from external sources. within the range of conventional leases80. allowing access to financing streams through their products and services. for example. asset leasing will form the second largest source of external capital and is expected to contribute €482bn in funding. 79 Barclays specialist interviews 80 applied to both individual and aggregated LcT equipment purchase 81 Derived from model results analysis: on a per year basis the cost recovery ratio of LcT retrofit equipment is estimated at 14 per cent which suggests that only between seven and eight years would be required to pay back the equipment purchase pr iva te as set deb t 564 Based on an analysis of 650 existing transactions. as pay back periods of 10 years or less are expected81. The role of corporate and investment banking products and services coRPoRaTe anD invesTMenT banks will act as intermediaries. over a 10-year period this could mean repayment of a fully depreciated lease with no impact on the purchasing entity’s cash flow. transport and grid infrastructure generating a constant cash-flow and costing more than €100m. we estimate that technology buyers will need to raise ¤1. a 54 Carbon Capital . The role of banks in issuing bonds is limited to underwriting and placements and so does not require direct funding. unless the bank is associated with the conversion of a loan into a bond – construction loans. c  dvisory services. such as smart grids. Placing bonds with investors will therefore have minimal impact on banks’ balance sheets and will not affect their Tier 1 capital ratios. This payback period includes the purchase price of the asset itself. such as building retrofits or large-scale infrastructure.Financing the low carbon economy in properties. Most assets cost between €10m and €50m79 to procure. The model estimates that €147bn worth of bonds will be issued to support LcT procurement between 2011 and 2020.

the existence of secondary markets supports the issuing of primary capital. Asset management helps to define the most effective investment strategies while tax incentives drive demand for specialized LcT investment vehicles. financial and commercial due diligence issues for LcT transactions.and growthstage venture capital Private equity Private equity for development capital €177bn  abo ventures. accordingly. provide a liquid marketplace where financial instruments issued within the primary capital can be exchanged between investors. maturity and related regulations is critical in order to identify investment risks. investments. Advisory services are essential to provide expertise around technology. Understanding product complexities. Ultimately. regulatory. trends and strategies. and delivers capital from the bank directly to the developer or buyer. whether directed at procurement or development.and growth-stage cleantech companies  Barclays natural Resources investments (BnRi) fund invests private equity in renewables and smart grid developers  Barclays capital alternative energy group. 32 coRPoRaTe anD invesTMenT BanK PRoDUcTs anD seRvices (1/2) project finance and equity investments. corporate and investment banks typically engage third party expert consultants to provide technical support for due diligence. These two areas are pivotal for allowing LcT developers access to funding. focused on providing financing solutions to cleantech developers DeBT secURiTies UnDeRWRiTing anD PLaceMenTs notes primary issuance Bonds primary issuance Public debt for procurement capital €147bn * non-exhaustive list of ciB products and services Carbon Capital 55 .503bn Examples of LCT sector specific products and services  Partnership for “ › asseT Financing asset-secured debt and loan (balance sheet and syndication) asset-secured lease short-term asset lending (bridge) renewables” Joint venture between carbon Trust and hsBc for renewables project finance Junior and senior debt (balance sheet and syndication) coRPoRaTe DeBT Financing Mezzanine debt company credit facility Private debt for development capital €243bn seed and early-stage venture capital PRiMaRY caPiTaL PRovision Lending. General corporate and investment bank products and services* Project finance (debt and equity/balance sheet and syndication) › › LCT capital impact Private debt and equity for procurement capital €1.Primary capital provision covers all direct financing. and therefore a broader group of such service porviders will be critical in helping to expand the capital markets for LcT financing. both equity and debt. underwriting eqUiTY Financing (invesTMenT BanKing) Late. Capital market products. These services can be applied across a number of areas including asset finance. advisory services are critical for both banks and investors to understand this maturing and complex sector. venture R eqUiTY secURiTies UnDeRWRiTing anD PLaceMenTs initial Public offering (iPo) and secondaries Private Placement and PiPe Public equity for development capital €171bn capital fund of Rabobank which invests in early.

preferred and convertible stocks exchange traded fund (eTF) Fixed and indexed bonds or notes. securitization. structuring FiXeD incoMe  arclays capital B securitization of renewables assets using pass-through trust certificates (alta Wind) exposure. commercial. coverage. financial trends impacting development and procurement capital  arclays capital equity B Research on renewables provides market analysis for the solar and wind industry sectors  redit suisse global c indices used to track the performance of equity development capital Risk assessment of development and procurement capital BenchMaRK inDeX  arclays capital european B Renewables index Family provides exposure to the renewables industry Warming TR index  oldman sachs gs g RisK ManageMenT sustain which analyses the sustainability of corporate performance invesTMenT vehicLes asseT ManageMenT investment solutions WeaLTh ManageMenT Mutual fund – active and passive Fund of funds  eutsche Bank DWs D high-net-worth individuals investment advisory Fund structuring and investment strategy investment strategies in development and procurement capital invest climate change Lc fund invests in companies active in sectors involving carbon.Financing the low carbon economy 33 coRPoRaTe anD invesTMenT BanK PRoDUcTs anD seRvices (2/2) General corporate and investment bank products and services* commodities futures coMMoDiTies carbon market allowance futures common. Warrants custom hedging solutions › › LCT capital impact secondary market securities for development capital secondary market securities for procurement capital Examples of LCT sector specific products and services  Barclays capital environmental › Markets team provides carbon trading services for corporates. regulatory. hedging of procurement and development capital  oldman sachs weather g derivatives securities and trading used for hedging the future income of renewables invesTMenT BanKing seRvices Merger and acquisition advisory services strategic alliance and Jv carbon financing services industry sector research across different securities investment and portfolio strategy research Debt and equity benchmark index carbon and energy commodities benchmark index Regulatory. focused on providing financing solutions to cleantech developers caRBon ManageMenT aDvisoRY seRvices aDvisoRY seRvices Risk and opportunities assessment and tools ReseaRch analysis of technology. commercial and financial risk analysis consolidation and acquisition of development capital  arclays capital alternative B energy group. convertibles asset-back securities swaps DeRivaTives anD sTRUcTUReD PRoDUcTs options. or renewable or alternative energy * non-exhaustive list of ciB products and services 56 Carbon Capital . technology.or energy-efficient technologies. government and investors  shares s&P global clean i eqUiTY energy eTF which tracks the performance of equity held in renewables providers caPiTaL MaRKeTs Trade.

financing schemes have emerged to incentivize and support investment in LcT.  ax equity/debt schemes.  eveloping advisory services to improve LcT sector risks D and opportunities assessments. M&a and equity for the LcT sector. energy-efficient equipment leases also have securities) across europe between 2011 and 2020. 58 Carbon Capital . cent of total external procurement capital). This type of scheme is very attractive as it requires minimal to no capital expenditure from the purchaser of the technology and is highly suitable for in the sector. management can be used to support this adaptation.  nvesting equity in low carbon technology assets i and developers. eight per cent of total external procurement capital.  reating new investment vehicles for LcT asset c management. Building up this expertise will allow banks to tailor their offerings to improve access to research on iPos.65trillion required in external capital for LcT procurement and €591bn required for development (Figure 34). in it we investigate the functions. combined with the support of public incentives.  anks require sector-specific expertise on technology. globally. Key messages:  n estimated €1. B regulations and commercial dynamics to develop low carbon technology. This would also avoid harming their Tier 1 capital ratios and risk weighted assets (RWas).4trillion of procurement capital could be a building retrofits and decentralized power production securitized in “green bonds” (in the sense of asset-backed equipment. making the potential to aggregate large volumes of individual this the largest single financing instrument by value for the leases through partnerships between banks and utility or purchase of low carbon technology (expected to be 84 per equipment providers. specialist investment vehicles T  anks could provide primary debt. The study identifies €1. Capital markets will need to play a more important role in financing low carbon technologies.  nergy-efficient equipment leases will fund an estimated e €140bn of investment. This demand for capital is likely to lead to an important adaptation of corporate and investment banking products and services.Financing the low carbon economy V Emerging financing schemes to increase capital flows This secTion oUTLines emerging schemes expected to provide funding for the LcT sector using the financing streams outlined in Part iv. U  inancing energy-efficient and micro-generation assets F through leases. These schemes require banks to act as intermediaries and could benefit from tax incentives that leverage private investment. This has led to the development of specific banking products and services to address the need for capital. benefits and barriers of each scheme and offer examples of implementation. securitize it into “green B and low carbon technology eTFs will boost investment bonds” and place the securities on the mainstream public markets with minimal impact on their balance sheets. Financial sector innovation and prudent risk  nlocking access to LcT finance through capital markets. particularly through bond markets for low carbon assets.

the ability of institutions such as pension funds and insurance providers to access LcT investments has been limited. alta Wind) Private or public credit enhancement is needed to create project-backed bonds with an a rating Bonds backed by government or multilateral guarantees World Bank/ iFc and eiB climate Bonds are all on balance sheet and achieve the aaa rating of the issuer Carbon Capital 59 . Bonds secured on mature onshore wind or solar assets were issued before 2007.4trillion83 in finance that can be used to fund LcT equipment and infrastructure. asset finance – term loan. By unlocking access to 84 per cent of all external capital required for purchasing LcT. asset lease and bonds hIGhEr rIsK rATInG/rIsK LowEr rIsK bbb a indicative credit Rating aaa Project backed bonds with no credit enhancement Most existing project bonds fall within this range (e. eU25) Corporate debt facility Mezzanine debt Junior and senior corporate debt Bonds primary issuance Short-term asset lending (bridge) Private equity (expansion capital) m en ap tc l ita De ve lop Seed. including asset-backed securities82.6 Late.34 eXTeRnaL Financing sTReaMs FoR LcT DeveLoPMenT anD PRocUReMenT caPiTaL (cUMULaTive 2011-2020. but the further development of liquid bond markets was restricted during the financial crisis.and early-stage venture capital Private Placement and PIPE Initial Public Offering (IPO) and secondaries Project finance equity €0 . capital market products could form a significant share of institutional investments by 2020.2trillion As se 82 The euromoney environmental Finance handbook 2010. WesT LB 83 Derived from the sum of project finance – debt.g Breeze Finance.and growth-stage venture capital n llio tri Project finance . These asset-backed securities would be similar to primary bonds in terms of the underlying LcT assets they would finance. given small secondary 35 cLiMaTe BonDs – The sPecTRUM debt markets and the absence of liquid. investment grade (Figure 35) asset-backed securities. however. nt ca pit al t fi As s e na ce n te r m e loan External capital need €2. access to capital markets for financing LcT assets has been limited. at the end of 2008. however. We estimate that this could unlock €1. will significantly increase their liquidity. pension funds were estimated to hold $25trillion of assets under management globally with 24-40 per cent of portfolios dedicated to fixed-income.debt tl ea se rillio €1. primarily through investing in public and private equity. securitization of the long-term LcT loans and leases as asset-backed securities.6 t n* cu Pro rem * note: Financing originating from the entity procuring the LCT is not included in this figure (only external capital presented) Unlocking access to LCT finance through capital markets The aPPeTiTe oF institutional investors for low carbon technology has grown substantially over the past few years. which we refer to as “green bonds”. This represents 84 per cent of all identified external capital required for purchasing LcT technology.

4 t rillion ce -t e rm zation urtii sec nd nce bo t fina t jec deb - Liquid and uniformed securities . some recent transactions. This marks a shift from previous reviews as. were downgraded in 2010 by Fitch Ratings and placed on a negative outlook. but project bonds have not achieved ratings over BBB at the moment due to high risk and difficulty in reliably forecasting how much energy the project will generate.’s notes. alta Wind was the first private placement bond issuance for wind assets since 2005 (refer to case study on alta Wind on page 68 in this report). however. might point to some market appetite for a range of risk-return profiles for low carbon assets.1trillion Bonds primary issuance LTC equipment and infr astructure external financing Bonds placeme nt Corporate and investment banks: Primary financing. outlook negative.Financing the low carbon economy Examples of supporting schemes ThRee Main FUnDing models for bond financing of low carbon assets are currently used for the majority of existing transactions. some existing wind securitizations such as the Breeze 3 portfolio. supranational issuance – some multilateral development banks have issued climate bonds that are secured on their balance sheets and can therefore be rated aaa. such as the alta Wind pass-through certificates issued in June 2010. institutional investors require investment grade credit ratings. Fitch noted that the downgrades “reflect Fitch’s opinion that the original energy production forecasts somewhat overestimated the portfolio’s actually achievable energy yield. These bonds are not linked to specific projects but the 84 Press release: Fitch Downgrades Breeze Finance s. securitization and placement Institutional and individual investors: Securities acquisition and trading Pension funds Insurance funds Iinvestment funds Individual investors Gr ee Pr o n se c ur itiz 2 et a rk Sec sm d uritized green bon atio n n ee Gr Liquid and uniformed securities . Using a leveraged lease structure. as wind and solar assets are intermittent. aggregation vehicles may also become more important in bundling a range of smallerscale projects into a pool that is div ersified and at the scale necessary to access bond markets. eU25) Secondary market Primary market LCT capital demand Primary market Secondary market Primary green bonds market 2011-2020 (EU25): €0.exchanged on capital markets en Gre bo As se nd 01 . 01 april 2010 36 The “gReen BonD” seconDaRY MaRKeT (cUMULaTive 2011-2020. after approximately three years of operation. any residual funding requirement might be met by multilateral institutions. which issued three classes of notes in 2007 for an aggregate amount of €455m to finance the acquisition and completion of a portfolio of wind farms located in germany and France. 2.exchanged on capital markets 60 Carbon Capital bo nd tl ea se t fi As s e na n loan sec 1urit 20 i zati 20 on (EU 25) : €1. initially.a. The key will be securing adequate credit enhancement to achieve the kind of investment grade profile that institutional investors might be looking to buy as the senior notes. Fitch’s projections are now primarily based on actual performance rather than on the original forecasts”84. such as the eiB or export credit agencies taking the subordinated/first loss notes to enable institutional investors to purchase the bonds as part of their investment grade portfolios. 1. Project bonds – These are mainly issued for mature renewable energy generating assets (large-scale onshore wind and utility scale solar) that have limited construction risk and are at a sufficient scale to justify bond financing.

January 2010 88 Database of state incentives for Renewables and efficiency. Banks provide the initial debt (construction loans. take-up is likely to increase significantly as the end-user would benefit immediately from savings. June 2010 86 european investment Bank issues latest green bonds. These securities are then placed with individual or institutional investors through the capital markets (Figure 36). bonds have been issued at a discount or with additional interest payments in order to attract buyers88. 85 Unlocking investment to deliver Britain’s low carbon future. indeed.s. The impact on banks’ balance sheets is therefore limited to the interval between the initial financing of the project and the securities being placed. it recently launched a new €300m issue to Japanese retail investors86. Carbon Capital 61 .issuers have committed to match bond proceeds with their lending to the low carbon sector. May 2010 87 Bonds and the Recovery act. Additional requirements FoR This Financing scheme to grow. The World Bank and others have issued more than £1bn in climate bonds to back funding for carbon reduction projects85. the market is considerable and has the potential to grow far beyond this conservative estimate. eiB has an estimated £750m worth of “green bonds” outstanding.4bn. in practice. Funds are used to finance programs that reduce ghgs as well as for energy conservation purposes87. Us Municipal Bonds – Municipal authorities in the Us can also access dedicated bond issuance schemes. lease). with a 0 per cent interest rate. Financing energy-efficient and micro-generation assets through leases Financing eneRgY-eFFicienT or micro-generation equipment can be expensive. investors. energy-efficient leases would support €140bn in procurement capital while leading to savings estimated to be in excess of 350 Mt co2e. The cReB (clean and Renewable energy Bonds) and qecB (qualified energy conservation Bonds) are the main schemes available. cReBs may be used by issuers primarily in the public sector. rating agencies and public agencies. and the buyer receives federal tax credits instead of interest payments.org/ incentives/ incentive. with aaa rating to finance a broad range of projects from climate change adaptation to mitigation. achieving this uniformity would reduce the investment risk and lead to a progressive increase in issuing “green bonds”. a leasing scheme – “energy-efficient and micro-generation leases” – could be developed so that principal and interest repayments on the equipment are calculated based on the estimated amount of energy saved (Figure 37). cReBs are issued. the borrower pays back only the principal of the bond. Responsible investors. Recovery act from a national limit of $800m to $2. The role of risk sharing instruments to de-risk initial transactions will help build investor confidence and effective partnerships between banks. project sponsors. good Jobs new York. dsireusa. as investors become more comfortable with the new asset class. 3. giBc.cfm? incentive_ code=Us45F &re=1&ee=1 The role of banks as enablers “gReen BonDs” DePenD on banks to act as intermediaries between investors and purchasers. www. theoretically. a single set of standards is needed to specify and grade the characteristics of underlying investments. if equipment is provided without the need for capital upfront. our analysis shows that principal and interest repayments for a number of building retrofits could be met solely by savings on energy costs over a period of seven to 10 years (see buildings section). “green bond” securities will need to become more liquid and uniform. structured according to investment grade and convert the debt into asset-backed securities. however. With demand for building retrofits and decentralized power estimated to require €140bn in leases and loans (equivalent to fully depreciated leases). term-loans. ultimately creating liquidity on capital markets. cReB is a tax-credit bond program expanded under the U. This would lead to greater investment in “green bonds”. with Japan the main market for these types of products. To reduce the impact on cash-flow. Most of the bonds are issued for retail investors.

carbontrust. Additional requirements Using DeBT Finance to purchase equipment will have an impact on the balance sheet of both service providers and the bank providing the debt (if the special Purpose vehicle (sPv) which holds the assets is consolidated). companies have begun to develop leasing schemes which require no capital upfront.000 and £100. the carbon Trust is financing retrofits of LcT in equipment in new buildings using loans of between £3. These leases are often backed by public incentives for energy efficiency:  the UK. green home company 37 iMPacT on eLecTRiciTY cosT savings FRoM ReLiance on an eneRgY eFFiciencY anD PRoDUcTion Lease Cost of retail electricity purchase and lease repayment (€) Illustrative CAGr 3%* Energy cost savings Lease repayment (fully depreciated) retail electricity costs Lease repayment period (approximately 10 years for retrofits. stakeholder interview 91 sungevity. To make these types of leases possible. The carbon Trust bears the full cost of administration and loan management fees.000 per loan89. 89 The carbon Trust.uk 90 The carbon Trust. alternative structuring of the sPv or securitization of the debt onto public markets could provide alternatives. www. a large-scale debt facility of the type corporate and investment banks could provide is critical. individual projects. approximately 20 years for micro-generation) *Average retail electricity CAGr In EU25 for past 10 years (source: Eurostat) Post lease period The role of corporate and investment banks PRoviDing inDiviDUaL Leases for energy-efficient or micro-generation equipment is not viable from a bank’s perspective due to the small scale. a number of pilot programs have already been launched to demonstrate the viability of such schemes. 62 Carbon Capital . co. This is a major barrier as it would influence the credit rating and debt ratio of the service provider whilst affecting the risk-weighted assets of banks. sungevity in the Us and the green home company in the UK have designed solar electricity leases that eliminate upfront investment and lower energy bills91.Financing the low carbon economy Examples of supporting schemes eneRgY-eFFicienT anD micro-generation equipment leases are at present only used for small. Loans are interest-free with anticipated savings expected to offset the loan repayments. Large equipment providers or utilities could use these debt facilities to offer energy-efficient or micro-generation leasing schemes to their customers (Figure 38). with more than £70m provided in 201090.

Carbon Capital 63 . R additional tax incentives on LcT funds further stimulate the return on private investment whilst strongly leveraging public subsidies. regular bonds or liquid corporate debt. investment vehicles could also be formed to invest in LcT private equity. Examples of investment vehicles and supporting schemes LcT sPeciFic FUnDs provided by corporate and investment banks have emerged. DeManD for investment in LcT is growing and the emergence of new providers of products and services tailored to the sector will accelerate to meet demand. Fund managers will require an in-depth knowledge of the sector. specifically aspects around technology. social. as this occurs. individuals in the netherlands  apital gains tax exemption on disposal.38 eneRgY-eFFicienT anD MicRo-geneRaTion asseTs Leases Financing scheMe secondary market coRPoRaTe anD invesTMenT BanK asset-secured term loan (€) estimated market size : €140bn Potential securitization of asset-secured term loans into green bonds Principal and interest payments (€) equipment cost (€) eqUiPMenT oeM equipment provision eneRgY-eFFicienT oR PRoDUcTion eqUiPMenT sPv aggregated lease eneRgY-eFFiciencY eqUiPMenT seRvice PRoviDeR (e. D  abobank – new Power Fund. more investors are likely to seek exposure to fast-growing segments of the LcT sector. including  apital losses can be offset against income rather c green business. B  eutsche Bank – DWs invest climate change Lc fund.5 against their individual income tax liability. an estimated €171bn in public equity is expected to be raised through iPos or PiPe between 2011 and 2020 in eU25. existing public incentives schemes include:  he green Funds scheme in the netherlands allows T  he enterprise investment scheme (eis) in the UK allows T individual investors to buy bonds or shares in the “green investors to offset 20 per cent of the cost of buying shares Fund”.e. accepting a lower interest rate in exchange for 2. equity investment vehicles would support the demand for LcT equity common stocks by providing a tailored instrument to access these markets. “green bonds”). c can offset up to €55. UTiLiTY) aggregate lease payments (€) individual lease enD-UseR Lease payments (€) Creating new investment vehicles for LCT asset management as DeMonsTRaTeD. This includes: per cent tax advantage.000 per year against their annual  apital gains tax deferral by reinvestment. commercial and financial due diligence to ensure they are able to structure investment vehicles appropriately and are mitigating risks. asset-backed securities (i. for example:  lackRock – new energy Fund. This is likely to stimulate the demand for a broad range of LcT securities.g. c wealth tax liability for specific investments. regulations. than capital gains. cultural and seed capital.

governments need to commit to the scheme long-term to provide stability and support investment. 39 LcT anD cLeanTech BenchMaRK inDices 400 350 300 250 200 150 100 50 0 01/2004 39 FTSE ET50 S&P Global Clean Energy MSCI World noRMaLiseD inDeX 12/2005 11/2007 10/2009 Source: Bloomberg Additional requirements invesTMenT vehicLes ThaT rely on public incentives (e. can be tracked by eTF investment products which in turn need to purchase underlying securities (mostly common stocks) (Figure 39).g. tax benefits) to provide returns that satisfy investor expectations. considering equity and debt raised through iPo and bond issues. run the risk of having the incentive removed. eTFs could also track “green bonds” or corporate bonds if enough liquid securities were available on the market (this is unlikely for LcT corporate debt as most of the companies are small). 64 Carbon Capital . Investing equity in low carbon technology assets and developers DiRecT BanKing secToR investments in a number of LcT developers and large asset financing vehicles are essential to provide stability and security to the underlying investments. the study estimates LcT-specific eTFs could be formed of new underlying securities worth up to €244bn in public equity or bonds. such as Bloomberg Wind energy index or FTse impax eT50 index. eTFs will ultimately reinforce demand for common stocks and bonds in the LcT sector. as the investment profile of companies varies due to technology or regulatory risks. if the tax incentives are necessary to make the return competitive.Financing the low carbon economy ETFs to provide liquid securities for broad sector exposure inDices ThaT MeasURe LcT sector performance. eTFs provide an easy and liquid way for investors to gain exposure to the sector without the risks of investing in one individual company.

Long-term commitment from governments is vital to provide stability for tax-equity or tax loss schemes. any fall in profit typically leads to the investment being withdrawn. These schemes stimulate investments by allowing a write-off of a share of reported pre-profit taxes corresponding to investments in the LcT project. banks would generate returns should the company go through an iPo or require mezzanine finance. potentially supported by match funding from public institutions. invested $26m in tax equity F in spanish wind developer iberdola93. Morgan stanley. at present. while artificially increasing returns through tax write-offs. This would lower the debt–to-equity ratio and risks associated with the investment. Venture capital investment vehicle BanKs can PLaY a significant role in financing early and growth stage LcT.  ortis. the investment bank. For example. these schemes would help to raise equity investment. Banks will then be able to share in the returns as the company matures (Figure 40). €177bn in additional venture capital and private equity expansion capital is likely to be required by the eU25 between 2011 and 2020 to fund the growth of LcT developers. Morgan stanley’s acquisition of clean Technology venture investor ngen Partners94 demonstrates the desire of banks to play a more active role in early-stage firms. Demand for an additional €68bn in project finance equity was identified for the LcT infrastructure we considered between 2011 and 2020 in europe. bridge financing or additional capital. often used in the Us to stimulate equity participation of private investors. 92 Bloomberg new energy Finance 93 Bloomberg new energy Finance 94 Morgan stanley acquires stake in clean Technology venture investor ngen Partners. schemes only focus on investing equity in projects. This creates volatility and instability for companies seeking equity for large infrastructure projects.Tax-equity/debt schemes for large-scale asset financing TaX-eqUiTY/DeBT schemes. Examples of tax-equity schemes seveRaL coUnTRies have developed tax-equity schemes aimed at renewables to stimulate asset finance:  s – Tax-equity schemes: tax credits support the U introduction of renewables by allowing companies investing in the sector to write-off their investment against profits from other operations. given the strong expected take-up of large-scale projects. For example:  e energy Financial services and Wachovia invested g $387m in tax equity to refinance Babcock & Brown’s Us06 wind portfolio92. January 2008 40 venTURe caPiTaL invesTMenTs PosiTioning FoR coRPoRaTe anD invesTMenT BanKs coRPoRaTe anD invesTMenT BanK PRoDUcTs anD seRvices venture capital jointventure fund LcT company development stage Early stage › › › Mezzanine Bridge iPo secondaries M&a advisory services corporate debt Growth stage Maturity stage Further development › Carbon Capital 65 . extending tax-equity schemes to cover debt investments would artificially increase interest payments earned on the debt and lower the financial strain on the project to deliver returns when drafting new legislation. LLc. Additional requirements BecaUse TaX-eqUiTY/debt schemes are mainly used by institutions to offset their tax liabilities. would enable financial institutions to participate in the equity or debt financing of large scale LcT infrastructure projects. such as transport infrastructure or smart grids. a number of transactions have demonstrated high demand for tax-equity investments in the past. This will enable LcT companies to build stable levels of equity allowing them to attract new investors.

which may include venture capital funds (§ 619 of the Dodd-Frank Wall street Reform and consumer Protection act). Banks. it is important that governments recognize the positive contribution corporate and investment banks can achieve in this financing segment. which include a strong interdependency on public incentives. as early-stage LcT developers play an essential role in driving research.  credit suisse electric vehicles equity research97. examples of internal expertise or research capabilities developed by corporate and investment banks in the LcT sector include: Barclays capital cleantech and renewables  equity research96. evolving regulations. august 2010 97 equity Research. UKTi. financial and commercial expertise on the sector. additionally. This in turn supports a broad range of horizontal capabilities for the banking sector to provide external capital by improving investors’ understanding of the risk factors involved in both debt and equity-based LcT investments. credit suisse. Below is an example of a scheme in place in the UK: The innovation investment Fund (iiF) in the UK committed £125m in equity funding for early-stage LcT businesses.  abo ventures R (Focused on cleantech early capital). 66 Carbon Capital . energy Technology/ auto Parts and equipment. public schemes are in place to incentivize equity contribution for venture capital investments further.  organ stanley ventures Partners M (active in cleantech growth capital). Barclays capital equity Research. regulatory.Financing the low carbon economy Examples of corporate and investment bank venture capital vehicles eXaMPLes oF coRPoRaTe and investment bank venture capital investments in LcT include:  arclays natural Resource investments B (active in renewables). This works to de-risk investments by improving upfront risk and opportunity assessment in the development of low carbon technologies and infrastructure. investors and project sponsors will need to work in partnership to explore and create effective funding models. Private funds have matched public equity contributions and helped bridge with venture capital private investments. Recent announcements suggest the iiF will be increased by £200m in 201095. February 2010 96 global Renewables Demand Forecast 2010-2014e. Developing advisory services to improve LCT sector risks and opportunities assessments 95 global investment conference. A wide range of different debt and equity financing solutions will be required to mobilise capital across the LCT value chain. Additional requirements neW RegULaTions aRe emerging that prevent banking entities from investing in private equity funds and numerous other types of privately offered funds. october 2009 coRPoRaTe anD invesTMenT banking research into LcT provides technical. Building this capability is essential for banks to understand the complex dynamics of the LcT sector. innovation and growth. electric vehicles. and rapid technological developments.

41 aPPLicaTion oF Financing scheMes To The DeveLoPMenT anD PRocUReMenT caPiTaL neeDs iDenTiFieD Corporate debt facility Mezzanine debt Junior and senior corporate debt Private equity (expansion capital) Late.and growth-stage venture capital Seed.2trillion c Pro Ene s ase rgy n le efficie uctio ncy and prod * * study applied to building retrofits and decentralized energy production Carbon Capital 67 Gr ee nb € 1.Overall application of financing schemes to external capital needs BeLoW We MaP the financing schemes examined against the external LcT capital requirements (Figure 41).6 io n bill em ur e on ds nt c As se .and early-stage venture capital Private Placement and PIPE Initial Public Offering (IPO) and secondaries Venture capital fund Bonds primary issuance Short-term asset LCT inve stme lending (bridge) nt vehicle s LCT ET Fs me nt ve h e nt a pit ca l Ta x- icl es ty ui eq De ve lo p m LCT inve st €0 . ion rill 6t Pr oj ebt t d ce ec inan -f /d t eb e sch mes LCT ETFs Tax-equity/ debt schemes tl ea se ap ita l t fi As s e na ce n ter m loan Project finance equity External capital need €2.

bridge loans of $499m and $127m in other credit facilities. alta Wind holdings. credit agricole securities. Bloomberg new energy Finance 42 aLTa WinD FaRM Financing scheMe CAPITAL dEMAnd PrIMAry MArKET sECondAry MArKET Operator asset Corporate and investment bank Pass-through bond certificates issuance Principle and interests repayments (€) 1 Institutional and individual investors  Pension funds  Insurance funds  Investment funds  Individual investors MWh Operations Terra-Gen Power purchase agreement (€) Credit and bridge financing 2 3 alta Wind (SPV) 4 Construction loan 5 Asset lease Asset purchase (€) (€) (€) 68 Carbon Capital . a subsidiary of Terra-gen Power. will sell the $580m in bonds maturing in 2035 to individual and institutional investors. The permanent financing will be a leveraged lease under which citigroup had committed to buy the four projects once commissioned and lease them back to Terra-gen. citibank. including $580m of pass-through bond certificates. iii. Ultimately. ing and Rabo securities acted as co-managers. which issues the certificates. 98 Barclays. to cover the construction of the wind farm. iv and v are all accountable to a single unit called the alta Wind 2010 Pass-Through Trust. This confirmed the strong market demand for clean energy. alta was able to raise the value of the deal from $412m to $580m by including an additional phase of the alta Wind energy center. alta Wind iii. alta Windpower Development. was set up to develop the 3gW wind project. which would operate them under long-term agreements. The 570MW Phase ii wind farm consists of four wind farms: alta Wind ii.2bn. a special purpose vehicle (sPv). alta Wind iv and alta Wind v.2bn for the development of the 570MW alta Wind energy center Phase ii98.Financing the low carbon economy Case study: Innovation in financing renewables – the example of Alta Wind in JULY 2010. Barclays capital and credit suisse group ag led the issuing of the pass-through certificates. alta Wind ii. The offering was met with strong demand due to investors’ desire to purchase renewable energy project bonds. Phase ii financing consists of a total of $1. Mitsubishi UFJ securities. citibank. The final order book included high-quality insurance companies and moneymanagers and was significantly oversubscribed. Barclays and Bank of Montreal provided the credit facilities. Terra-gen secured $1.

such as emissions trading schemes.V1 Recommendations Policymakers The MaRKeT FoR low carbon technology has emerged in the past decade. For example. These incentives stem from a long-term commitment on the part of governments to improve energy security and reduce carbon emissions. in the absence of stability and clarity on carbon markets (such as the expected long-term cost of emissions allowances). a large number of fiscal incentives and a favourable regulatory environment. for a period of L time commensurate with the expected investment pay-back periods (i. a reduction in technology costs. 15-25 years). This will increase exposure to foreign energy imports and lead to only a partial reduction in carbon emissions (the shift from coal to gas power reduces emissions by approximately 40-50 per cent on a per MW basis99).e. This is preferred to an overly generous tariff. Leveraging public funding  oLicYMaKeRs neeD To set a range of fiscal incentives P and subsidies which improve returns on LcT-focused investment and make use of public funds to leverage private investment. which is likely to subsequently require a hard cap on installations as a corrective measure. perhaps more than once a year. direct subsidies are necessary to encourage investment in LcT. These measures must be both stable and adaptable if they are to support the LcT sector in becoming mature and commercially viable. sUch as FiTs and subsidies. and indirect measures.and long-term. - Direct regulation of the sale of green energy. should be carefully balanced. that lower the return of carbon-intensive industries. Direct subsidies. - Tax-equity/debt schemes. Support the introduction of emerging low carbon technologies - Feed-in-Tariffs (FiTs). efficiency gains and procurement cost reduction.  UPPoRT scheMes TaRgeTing the roll-out of emerging low carbon technologies not yet commercially viable such as: s - Tax deductible interest on finance for energy-efficient equipment purchase. through. 99 Derived from enerdata power mix database General policy on tax incentives  ong-TeRM coMMiTMenT to public incentives is vital to prevent any retroactive modification of incentives. adaptation of the incentives would progressively lead the technology to be commercially viable without any public support on the medium. Carbon Capital 69 . a long-term agreement on carbon reduction targets and a global financing framework is still needed to provide long-term visibility on emissions regulations. for example: - capital gains tax credits (direct equity or funds). as is currently seen in germany. such as FiTs or public equity are essential in promoting the technologies that best satisfy environmental and energy security strategies. thanks to the increased cost of carbon intensive activities. the absence of incentives for renewables and the presence of a moderate carbon price may result simply in a shift from coal to gas power. Policy stability is a priority DiRecT MeasURes. FiTs should be adjusted based on installed capacity. Policymakers can take additional measures to support the initiatives highlighted in this study. - alternative or low-carbon vehicle subsidies. - Matching participation in venture capital equity investments.

D This can be achieved privately through an auditing firm or publicly through a dedicated organization. This will require banks to find B appropriate projects.Financing the low carbon economy Standardisation of “green bonds”  eFine sTanDaRDs FoR “green bond” securities and enforce compliance for securities that benefit from public incentives. - Long-term tax incentives or guarantees may be needed to improve returns on securities. - Public or private risk-sharing instruments. then structure. Corporate and investment banks The LcT MaRKeT will require €2. - Banks can use secondary markets for asset-backed leases and loans to reduce the impact on their balance sheets.g. requirements and barriers: - global and national standards will be necessary to define “green bonds” as a security class. presenting corporate and investment banks with an unprecedented opportunity as the finance will derive primarily from banking products and services. decentralized D electricity production and others to stimulate the demand for LcT equipment. underwrite and place securities with a range of investors. - high volume of debt will be required to conduct securitization. Providing debt finance for energy-efficient and micro-generation asset leases  anKs WiLL neeD to develop partnerships with energy-efficient or micro-generation equipment providers (e. and so providing access to funds supporting the introduction of low carbon technology. Green bond securitization  anKs neeD To develop capabilities for securitizing debt backed by LcT assets. 70 Carbon Capital . building retrofits. This equipment will ultimately be leased to consumers. Local government infrastructure initiatives  eveLoP LaRge-scaLe LcT infrastructure programs for e-vehicle charging systems. utility B or any large service providers) to fund aggregated large equipment purchases. There will be leaders and laggards in the emerging low carbon economy. our study details a number of initiatives which could be considered in order to achieve this. along with the barriers that would need to be overcome. requirements and barriers: - a high volume of LcT equipment financing will be necessary for leases to be aggregated into a single.9trillion in investment over the next 10 years. corporate and investment banks can take a leading role by unlocking primary and secondary capital markets. This will require them to develop tailored products and expertise in LcT. large debt facility.

They could set up dedicated investment funds (based around public or private equity. creating a more liquid marketplace and broad B sector exposure for investors. Carbon Capital 71 . Structured LCT investment products  anKs coULD PRoviDe bespoke eTFs to support the demand for securities. DoddFrank Wall street Reform and consumer Protection act). - i n-depth expertise of publicly listed LcT companies would be required to form benchmark indices.g. - LcT sector benchmark indices are required for eTFs to track a representative benchmark index of the sector. regulations and commercial dynamics or partnerships with sector specialists. - Pe and vc LcT investments are small and complex transactions which can lead to a resource intensive due diligence process. intermittent power from adverse weather). requirements and barriers: - Tier 1 risk-based capital ratio requirements associated with debt provision would drastically increase with LcT equity participation and limit investment from banks. - i ntegration of insurance coverage will be necessary to mitigate the increased risk profile associated with equity investment. requirements and barriers: - Regulations governing banks’ private equity and venture capital investments in strategic industry sectors. Banks will benefit T from the synergies offered by carrying out due diligence across both financing streams. - i ncreasing investment in equity will require internal expertise on technology. - LcT securities would need to be liquid to allow funds to adapt to sector dynamics and changes such as emerging technologies or regulations impacting current LcT developers or operators.Using equity to provide capital for development  anKs WiLL neeD to increase equity investment in small and medium-sized LcT companies through partnerships with B existing venture capital or private equity firms. such as LcT. This will secure long-term return and protect against volatile incomes (for example. requirements and barriers: - i nternal eTF and investment fund product structuring and commercialization capability is required. or debt) to provide investors with strategic LcT sector exposure and access to tax-credits for qualifying investments. present barriers to speculative investments (e. - securing long-term public commitment to tax-incentives targeting LcT-focused investments would be a crucial factor. Integrated project finance  his eXTenDs PRoJecT finance for LcT infrastructure projects to include equity rather than simply debt. Products to achieve this include weather derivatives or other types of hedging products indexed on a production indicator of the LcT infrastructure.

Bio-diesel vehicles (private/commercial/freight/public) 29.Financing the low carbon economy Appendix I Full list of initially considered LCT 1. heating. Wave power 20. Electric vehicles (private/commercial/freight/public) TRANSPORT VEHICLES 27. New design and fuel-efficient container freight sea vessels TRANSPORT INFRASTRuCTuRE 36. CNG fuel vehicles (private/commercial/freight/public) 30. 6. cooling control and automation Smart buildings new builds – integrated smart building solution (equipment and design) Decentralized energy production – Solar PV panels for electricity generation 4. Tidal power 21. 2. Telematics-enabled navigation system retrofit in freight and logistics vehicles for network optimization 35. Geothermal power 22. Biofuel provision 31. Carbon capture and storage ELECTRICITy PRODuCTION 17. Bio-ethanol vehicles (private/commercial/freight/public) 28. 9. 7. Advance metering system infrastructure for electric smart meters (AMI with AMM meters) 14. Decentralized energy production – Geothermal power for heating and ‘cooling’ generation ELECTRICITy DISTRIBuTION 12. Onshore wind power 19. Offshore wind power 18. PV solar power 24. 10. Smart grid infrastructure – Advanced control and management of electricity grid 13. Distributed storage in households to support decentralized intermittent power generation and e-vehicles charging 15. CSP solar power 25. 5. BuILDINGS High-efficiency condensing boilers Micro-combined heat and power units (CHP) Retrofit of high-efficiency insulation material Retrofit of next generation LED lighting High-efficiency HVAC cooling and heating system for commercial buildings Smart appliances in “connected homes” (refrigerator/washers) Integrated building management systems (BMS) for lighting. LED lighting infrastructure to cover road network 72 Carbon Capital . Virtual power plant infrastructure system and to manage large volume of urban decentralized power 16. Telepresence system infrastructure for large organizations 33. Plug-in hybrid vehicles (private/commercial/freight/public) 26. Intelligent urban traffic system 38. 3. Telematics-enabled navigation system retrofit in vehicles to support energy efficiency applications 34. Waste to energy 23. Decentralized energy production – Solar thermal panels for heating and ‘cooling’ generation 11. Telecommuting system infrastructure for large organizations 32. e-vehicle charging infrastructure with distributed batteries and charging stations 37. 8.

AMR functionalities. some steps are not required for all LCTs. The example of smart metering infrastructure for electric smart meters (AMI with AMM meters) in Germany in 2012 is used to illustrate the calculations steps of the model. direct load control equipment) (€) 2 012 procurement capital required by added smart meters (€) Electricity consumption – Commercial segment (kWh) Electricity consumption – Residential segment (kWh) E lectricity distribution – Transmission distribution losses (kWh) C ommercial properties load control and operation efficiency gains (%) P rivate consumer behavioural change and load control efficiency gains (%) O ptimal transmission and distribution network loading efficiency gains (%) Price of electricity (€/kWh) 2012 cost savings enabled by added smart meters (€) E lectricity grid carbon emissions intensity (kg CO2e/kWh) 2 012 carbon savings enabled by added smart meters (€) Main input 1 Main input 2 Low Carbon Technology (LCT) considered Considered geography Applicable market where the selected LCT is commercially applicable Applicable market segmentation Applicable market growth 2011-2020 adoption rate definition for LCT applicable market penetration Considered year for LCT roll-out Incremental LCT market in considered year Cost of LCT equipment and associated infrastructure Procurement capital Applicable energy consumption and production to be impacted Energy efficiency gains to be achieved Energy price Energy cost savings Energy carbon intensity Carbon savings Main input 3 Main output 1 Main output 2 Main output 3 18 19 20 21 22 23 24 25 26 27 28 Carbon Capital 73 . However. The key steps presented in the example are as generic as possible to demonstrate the model’s applicability to other LCTs. emissions and cost savings sizing model THE SIzING MODEL developed is illustrated below.g.g. IHD. Enterprise system. e. Generic key model steps Example of model parameters for smart metering in Germany in 2012 1 dvance metering infrastructure for electricity (AMI A with AMM) meters 2 Germany 3 Total number of electricity meters installed 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Commercial segment Residential segment 2004-2008 CAGR of total number of meters (%) 2010 market penetration (% of smart meters) Mid-2010-2020 adoption year Strength of adoption at mid-year (% changed) 2020 market penetration (% of smart meters) 2012 2011 applicable market (number of meters) 2011 market penetration (% of smart meters) 2012 applicable market (number of meters) 2012 market penetration (% of smart meters) I ncremental 2011-2012 LCT market (number of smart meters) C ost per meter of AMI infrastructure with AMM smart meter components (e.Appendix II Capital. there are no energy efficiencies achieved by end-consumers or utilities from sourcing wind power versus gas power. It estimates the procurement capital and carbon and cost savings between 2011 and 2020 in Europe for all LCTs and globally for renewables. HAN.

number of vehicles acquired) Capital intenstity of LCT application acquisition (€m) (eg. emissions and cost savings sizing model: LCT equipment for infrastructure (eg. Internal financing Methodology: Avg. €/MW-capacity. equipment. €50-60m Range of applicability of external streams per LCT segment €10-120m Asset lease Avg. etc) and value range of financing streams Values displayed are in the range of average transaction values for the different LCT segments considered. € per wind farm project construction. €80-90m  ange and R €50-190m Asset finance term loans Avg. nature of the LCT (infrastructure vs. €140-150 €80-400+ m Bonds Primary Issuance averages of financing streams for LCT applications derived from analysis of LCT transactions on Bloomberg New Energy Finance  anges and R averages vary for the different LCT segments considered  ange and R averages values were adjusted based on interviews with subject matter experts at Barclays and Accenture Short-term asset lending (bridge) (€m) Assets leases (€m) Assets finance term loans (€m) Project finance (equity and debt) (€m) Bonds primary issuance (€m) Internal Financing (€m) 74 Carbon Capital . € per biodiesel vehicles in fleet) Capital split between external financing streams and internal Methodology: Analysis based on capital intensity of LCT equipment and infrastructure. nature of the LCT and current applicability of external financing streams for LCT procurement financing External financing streams Methodology: Allocation of financing streams based on the LCT’s capital intensity. biodiesel vehicles) Sizing model output 1: Cost per unit (Acquisition capital) (eg.Financing the low carbon economy Appendix III Financing streams for procurement capital model THE BELOW SCHEMATIC illustrates the process of allocating financing streams to the procurement capital identified in the Capital. €/transport vehicle) Volume of units acquired by the purchasing entity (eg. MW-capacity/ project. Onshore wind farm. €120-130m €70-400+ m Project finance-debt/equity Avg. €70-80m €1-200m Short-term asset lending (bridge) Avg.

corporate debt. alternative LCT segments or financing streams closely correlated were used as proxies and adjusted based on the maturity of the segment Private Placement & PIPE % reakdown of financing streams were B Private equity (expansion capital) Late- and growth-stage venture capital Seed- and early-stage venture capital % % % or segments and financing streams F Debt Debt Junior & senior corporate debt % % % Mezzanine debt Corporate credit facility IPO & secondaries (€m) Private Placement & PIPE (€m) Private equity expansion capital (€m) Seed- and Late- and early-stage VC growth-stage (€m) VC (€m) Junior & senior corporate debt (€m) Mezzanine debt (€m) Corporate credit facility (€m) Carbon Capital 75 . IPO and secondaries provided on Bloomberg New Energy Finance by LCT segment between 2004 and 2009 based on interviews with subject matter experts at Barclays and Accenture cost savings sizing model otal investment figures adjusted for sector with low volume of data available T 2004-2009 Total acquisition capital 009 level of acquisition capital retrieved through the capital. private equity. emissions and 2 004 level of acquisition capital assumed to be between 10 and 20% of 2009 level 2 otal acquisition capital between 2004 and 2009 computed using a linear T growth between both years Average development to acquisition capital ratio Acquisition capital (€m) Sizing model output 1 Development capital (€m) Development capital financing streams Development capital financing streams Methodology: Allocation based on analysis of 2004-2009 breakdown of development capital financing streams’ share (in %) by LCT segment Methodology: Breakdown of development capital financing streams by LCT i segment Initial Public Offering (IPO) & secondaries % reakdown of financing streams was B Equity Equity derived based on 2004-2009 total investments in venture capital. IPO and secondaries provided on Bloomberg New Energy Finance by LCT segment adjusted based on interviews with subject matter experts at Barclays and Accenture where captured investments were low. corporate D debt. biodiesel vehicles) 2004-2009 Total development capital  erived from total investments in venture capital.Appendix IV Financing streams for development capital model THE BELOW SCHEMATIC illustrates the process of estimating development capital for LCT applications and of allocating financing streams: LCT equipment or infrastructure (eg. private equity. Onshore wind farm.

commercialization or decommissioning of the LCT application are not included in the analysis (exception applies to biodiesel and bioethanol vehicles where a carbon emissions credit is included based on the carbon sequestrated by biofuel crop). heating. i.Financing the low carbon economy Appendix V Individual LCT models’ details and assumptions THIS APPENDIx PRESENTS the key parameters which are included in the calculation steps of the LCT models along with key assumptions used and range of adoption rate used. emissions associated with production. Global assumptions (applies to all models):  rid carbon emissions intensities are derived from  G Enerdata’s power mix forecasts (Appendix VI).  he cost of electricity was assumed fixed in time (average  T July-December 2009). Pike Research  SMART 2020:  “ Enabling the low carbon economy in the information age”.e.  EFRA is the primary source of data for fuel  D emissions factors.  missions factors only account for GHG Scope 1 and  E 2 emissions of the application analysed. The Climate Group  S Energy  u Information Administration: “Commercial Buildings Energy Consumption Survey” Calculation Factors General factors  verage number  A of retrofitted applications per building  verage building  A floor space Capital factors  ost per retrofitted  C application Energy factors  enchmark energy  B consumption per building floor space  fficiency premium  E for application Cost and carbon factors  rid carbon  G emissions factors  Cost of electricity Key Assumptions Applicable market grows at average CAGR of 2005-2008 year range Split of total floor space according to size and type of buildings Cost of retrofitted applications is fixed in time Cost and carbon savings computed on the basis of efficiency premiums for each application Applicable Market Building floor space Specific S egments Building type Commercial  Floor space size  Large  Medium  Small 76 Carbon Capital . cooling  I control and automation Adoption Rate Outlook* Adoption rate range:  2010: 0-5%  2020: 20-25% Main Sources: nternal subject I  matter experts analysis Secondary Sources:  Energy Efficient “ Lighting for Commercial Markets”.  urostat is the primary source of data for energy  E cost figures. Global sources (applies to all models):  urostat is the primary source of data for applicable  E markets and specific segments. EA and Enerdata are the primary sources of data for  I power production and consumption figures. * Adoption rate outlook note: sources listed in tables are non-exhaustive and only the range of adoption is provided Smart building – LCT equipment retrofit for commercial buildings  icro combined heat and power units (micro-CHP)  M  ext generation LED lighting  N  igh-efficiency HVAC cooling and heating system  H ntegrated building management systems (BMS) for lighting.

Smart building – Integrated solution for new commercial buildings  onstruction (new-builds) of smart commercial buildings which integrates  C BMS. LED lighting. low-carbon Europe”. Deutsche Bank  hare of energy  S used by households  hare of energy sold  S to grid Cost and carbon factors  G  rid carbon emissions factors  Cost of electricity Carbon Capital 77 . The Climate Group  Energy Efficiency  “ in Buildings”. optimal design for natural air circulation and heat convection. World Business Council for Sustainable Development Calculation Factors Capital factors  C  ost of construction of smart building Energy factors  enchmark energy  B consumption per building floor space  fficiency premium E for smart buildings new builds Cost and carbon factors  rid carbon  G emissions factors  Cost of electricity Key Assumptions Applicable market grows at average CAGR of 2005-2008 year range Cost of construction included – premium cost of embedding LCT estimated at 5-7% of conventional construction costs Cost and carbon savings computed on the basis of efficiency premiums for smart building relative to conventional building Applicable Market Specific S egments New building floor Building type Commercial space constructed  per year Floor space size  Large  Medium  Small PV solar panels for decentralized power generation for households  V solar panels  P Applicable Market Number of households Specific S egments Building type  ouseholds H only Adoption Rate Outlook* Adoption rate range:  2010: 0-5%  2020: 5-10% Main Sources: nternal subject I  matter experts analysis Secondary Sources:  Roadmap 2050. high-efficiency HVAC.  “ A practical guide to a prosperous. new insulation material. green roof (where appropriate) and additional embedded LCT applications Adoption Rate Outlook* Adoption rate range: 2010: 5-10%   2020: 50-55% Main Sources: nternal subject I  matter experts analysis Secondary Sources:  SMART 2020:  “ Enabling the low carbon economy in the information age”. European Climate Foundation Calculation Factors General factors  verage surface A of solar panels coverage on households  ower intensity P of solar panels per surface unit  apacity factor C (production/ capacity ratio – on a per country basis) Capital factors  ost per kW  C of solar power capacity Key Assumptions Applicable market grows at average CAGR of 2004-2007 year range Assumed half of electricity is sold back to grid and other half is substituting conventional electricity supply (essentially due to time of use) Cost savings are calculated based on substituted power consumption Rooftop PVs are assumed to have a 25% higher cost compared to ground-mounted PVs A cost savings premium was added for countries with a FIT to account for additional revenues generated from installation of solar power  Paying For  “ Renewable Energy – TLC at the Right Energy factors Price”.

IT infrastructure) – based on Accenture Smart Grid Services data Energy factors  otal electricity  T production  ransmission and  T distribution losses  eduction in losses  R from optimal loading Cost and carbon factors  rid carbon  G emissions factors from Enerdata  Cost of electricity Key Assumptions Applicable market grows at average CAGR of 2004-2007 year range Number of primary substations directly related to number of households in grid location Reduction in losses only impacts non-physical losses Cost of electricity fixed in time Cost of smart grid infrastructure equipment is assumed fixed in time Number of primary Grid location urban  substations  Non-urban Advance metering infrastructure for electric smart meters (AMI with AMM meters)  dvance metering infrastructure for electricity consumption to optimize  A loading  MM Smart Meter roll-out to provide advanced consumer electricity  A monitoring functionalities Adoption Rate Outlook* Adoption rate range: 2010: 5-10%   2020: 80-85% Main Sources: nternal subject I  matter experts analysis Secondary Sources:  Smart metering  “ – a review of experience and potential across multiple geographies”. AMI infrastructure. Accenture Calculation Factors Capital factors  C  ost of smart grid infrastructure per each subcomponent (back-up. Datamonitor  Delivering smart  “ metering in the uK market”. etc) Energy factors  otal electricity  T consumption  otal electricity  T production  ransmission and  T distribution losses  hange in consumer  C behaviour (AMM)  perational efficiency  O gains for businesses  etwork loading  N optimization Cost and carbon factors  rid carbon  G emissions factors from Enerdata  ost of electricity  C Key Assumptions Applicable market grows at average CAGR of 2004-2007 year range Number of private meters directly related to number of households Number of commercial meters derived from “The European Wireless M2M Market”. Accenture and Vodafone  Delivering smart  “ metering in the uK market”. European Smart metering Alliance. Accenture  The journey to  “ smart grid communications infrastructure”. January 2010 Calculation Factors Capital factors  C  ost of smart meter infrastructure per each subcomponent (AMM smart meter. Berg Insight Cost of equipment and efficiency savings derived from pilot and implementation projects – Accenture Smart Metering experts reviewed Applicable Market Number of meters Specific S egments Meter use  ousehold H  ommercial C 78 Carbon Capital . Accenture Annual Report  “ on the Progress in Smart Metering”.Financing the low carbon economy Smart grid infrastructure – Advanced control and management of electricity grid  onitoring and control of electricity distribution infrastructure  M  emand and Supply Management infrastructure for electricity distribution  D automation and control Applicable Market Specific S egments Adoption Rate Outlook* Adoption rate range:  2010: 0-5%  2020: 40-45% Main Sources: nternal subject I  matter experts analysis Secondary Sources:  Carbon  “ Connections” report. substation. load control system.

e.Large-scale wind power generation  Offshore wind power  Onshore wind power Applicable Market Gross electricity production per year (kWh) Specific S egments Electricity production sources  O  ffshore wind power  nshore  O wind power Adoption Rate Outlook* Adoption rate range (Onshore): 2010: 0-5%   2020: 10-15% Adoption rate range (Offshore):  2010: 0-5%  2020: 0-5% Calculation Factors General factors  ercentage of P useful power of capacity. capacity) POLES model  urostat and IEA  E Capital factors database  ost of technology  C per kW of capacity as a function of year (projections from TECHPOL) Energy factors  otal electricity  T consumption  otal electricity  T production Cost and carbon factors  rid carbon  G emissions factors Carbon Capital 79 . i. capacity factor (production/ capacity) Key Assumptions Applicable market grows at average CAGR of 2005-2008 year range Operation of renewable electricity generation produces zero carbon emissions Assume linear decrease of technology cost between year data points provided in TECHPOL Capital factors  ost of technology  C Main Sources: per kW of capacity  nerdata 2020 E  as a function of year power mix forecasts.e. Main Sources: capacity factor  nerdata 2020 E  (production/ power mix forecasts. i. (projections from POLES model TECHPOL)  arclays Capital B  Renewables 2015 Energy factors Outlook  otal electricity  urostat and IEA E   T database consumption  otal electricity  T production Cost and carbon factors  rid carbon  G emissions factors Large-scale geothermal power generation  arge-scale geothermal power  L Applicable Market Gross electricity production per year (kWh) Specific S egments Electricity production sources  N/A Adoption Rate Outlook* Adoption rate range: 2010: 0-5%   2020: 0-5% Calculation Factors Key Assumptions Applicable market grows at average CAGR of 2005-2008 year range Operation of renewable electricity generation produces zero carbon emissions Assume linear decrease of technology cost between year data points provided in TECHPOL General factors P  ercentage of useful power of capacity.

i. i. POLES model Capital factors  urostat and IEA  ost of technology E   C database per kW of capacity as a function of year (projections from TECHPOL) Energy factors  otal electricity  T consumption  otal electricity  T production Cost and carbon factors  rid carbon  G emissions factors Large-scale solar power generation  Concentrated solar power – thermal (CSP)  hotovoltaic solar power (PV)  P Applicable Market Gross electricity production per year (kWh) Specific S egments Electricity production sources CSP   PV Adoption Rate Outlook* Adoption rate range: 2010: 0-5%   2020: CSP: 0-5% PV: 0-5% Calculation Factors General factors P  ercentage of useful power of capacity.  ost of technology  C POLES model per kW of capacity  urostat and IEA  E as a function of year database (projections from  arclays Capital  B TECHPOL) Renewables 2015 Outlook Energy factors  otal electricity  T consumption  otal electricity  T production Cost and carbon factors  rid carbon  G emissions factors 80 Carbon Capital . capacity factor (production/ capacity) Key Assumptions Applicable market grows at average CAGR of 2005-2008 year range Operation of renewable electricity generation produces zero carbon emissions Assume linear decrease of technology cost between year data points provided in TECHPOL Main Sources:  nerdata 2020 E  power mix forecasts.e.Financing the low carbon economy Large-scale biomass power generation  Large-scale biomass power generation Applicable Market Gross electricity production per year (kWh) Specific S egments Electricity production sources N/A  Adoption Rate Outlook* Adoption rate range (Onshore): 2010: 0-5%   2020: 5-10% Calculation Factors General factors P  ercentage of useful power of capacity.e. capacity factor (production/ capacity) Key Assumptions Applicable market grows at average CAGR of 2005-2008 year range Operation of renewable electricity generation produces zero carbon emissions Assume linear decrease of technology cost between year data points provided in TECHPOL Main Sources:  nerdata 2020 E  Capital factors power mix forecasts.

Alternative fuel light commercial vehicles  Plug-in hybrid vehicles – PHEV  Electric vehicles – EV  Bio-ethanol vehicles – BE  Bio-diesel vehicles – BD  CNG fuel vehicles – CNG Adoption Rate Outlook* Adoption rate range (Onshore): 2010: 0-5%   2020: PHEV: 5-10% EV: 0-5% BE: 0-5% BD: 20-25% Calculation Factors General factors A  verage distance travelled per vehicle per year Key Assumptions Applicable market grows at average CAGR of 2004-2007 year range Applicable Market New registration of lorries Specific S egments Lorries capacity  <1. per vehicle type (for credit is allocated to Accenture and World the vehicle’s fuel of biodiesel and bioethanol Economic Forum alternative energy to account for carbon supply) sequestration  Roadmap 2050.500kg >1. electricity)  Supply Chain  uel consumption “   F Lifecycle emissions Decarbonization”. lowCost and carbon factors carbon Europe”. “  for fuel type Energy Technology / Auto Parts and Equipment.500kg  Engine type  Plug-in hybrid  Electric  Bio-ethanol  Bio-diesel  CNG fuel Cost of alternative Capital factors vehicle decreases  ost premium for  C linearly overtime to alternative fuel converge towards diesel vehicles compared vehicle cost by 2030 Main Sources: to standard diesel nternal subject commercial light I  Fuel consumption vehicle added to matter experts calculated assuming a standard vehicle cost fixed energy requirement analysis per unit distance across Energy factors Secondary Sources: all vehicle types  Carbon Connections”  rice of fuel per “   P report. Electric Vehicles”. A “  practical guide to a prosperous. Accenture and type of fuel (or Price of fuel or electricity Vodafone alternative energy is assumed fixed in time supply – i.  ost of fuel or  C European Climate alternative energy Foundation supply  missions factor  E  Equity Research.e. Credit Suisse Carbon Capital 81 .

Energy factors Accenture and World  rice of fuel per  P Economic Forum type of fuel (or Price of fuel or electricity  Roadmap 2050. Credit Suisse alternative energy supply  missions factor  E for fuel type 82 Carbon Capital .Financing the low carbon economy Alternative fuel public transit vehicles  Electric vehicles – EV  Bio-ethanol vehicles – BE  Bio-diesel vehicles – BD Applicable Market New registration of public buses and coaches Specific S egments Vehicle type Public buses   Coaches Engine type  Electric  Bio-ethanol  Bio-diesel Adoption Rate Outlook* Adoption rate range:  2010: 0-5%  2020: EV:15-20% BE: 0-5% BD: 15-20% Main Sources: nternal subject I  matter experts analysis Calculation Factors General factors A  verage distance travelled per vehicle per year Capital factors  ost premium  C for alternative fuel vehicles compared to standard diesel public vehicle added to standard vehicle cost Key Assumptions Applicable market grows at average CAGR of 2004-2007 year range Cost of alternative vehicle decreases linearly overtime to converge towards diesel vehicle cost by 2030 Fuel consumption calculated assuming a fixed energy requirement per unit distance across all vehicle types Secondary Sources:  Supply Chain “  Decarbonization”. low F carbon Europe”. per vehicle type (for is allocated to biodiesel European Climate the vehicle’s fuel of and bioethanol to account Foundation alternative energy for carbon sequestration  Equity Research.e. electricity) practical guide to a  uel consumption Lifecycle emissions credit prosperous. A alternative energy is assumed fixed in time “  supply – i. “  supply) Energy Technology/ Auto Parts and Cost and carbon factors Equipment. Electric  ost of fuel or  C Vehicles”.

trailers Specific S egments Vehicle type Lorries >1.5t   Lorries <1.5t  Semi-trailers Engine type  Electric  Bio-ethanol  Bio-diesel Adoption Rate Outlook* Adoption rate range (Onshore): 2010: 0-5%   2020: EV: 0-5% BE: 0-5% BD: 15-20% Main Sources: nternal subject I  matter experts analysis Calculation Factors General factors  verage distance A travelled per vehicle per year Capital factors  ost premium  C for alternative fuel vehicles compared to standard freight public vehicle added to standard vehicle cost Key Assumptions Applicable market grows at average CAGR of 20042007 year range Cost of alternative vehicle decreases linearly overtime to converge towards diesel vehicle cost by 2030 Fuel consumption calculated assuming a fixed energy requirement per unit distance across all vehicle types Price of fuel or electricity is assumed fixed in time Lifecycle emissions credit is allocated to biodiesel and bioethanol to account for carbon sequestration Secondary Sources:  Supply Chain “  Decarbonization”.  Roadmap 2050. IHS Global Insight. optimal energy management systems) Adoption Rate Outlook* Adoption rate range: 2010: 10-15%   2020: 40-50% Calculation Factors Key Assumptions Applicable market grows at average CAGR of 2005-2009 year range Price of fuel is fixed in time Only new ships registered in Eu countries were taken into account – efficiency gains on foreign ship movements has not been included Applicable Market Number of new vessels constructed per year Specific S egments Vessel type  Container  Vehicle  Roll-on/roll-off Capital factors  C  ost premium for new energyefficient vessel compared to Main Sources: alternative standard nternal subject matter I  vessel added to cost experts analysis of standard vessel Secondary Sources:  Liner Industry “  Valuation Study”. World Shipping Energy factors  verage fuel  A consumption  nergy efficiency  E premium for new vessel Cost and carbon factors  rice of fuel  P  missions factor  E per fuel type Carbon Capital 83 . the vehicle’s fuel of European Climate alternative energy Foundation supply) Cost and carbon factors  ost of fuel or  C alternative energy supply  missions factor  E per fuel type New design and fuel-efficient container freight sea vessels  ew design and fuel-efficient container freight sea vessels (includes electric N driven propellers.e. combined heat and power systems. semi trailers. A “  electricity) practical guide to a  uel consumption  F prosperous. lowper vehicle type (for carbon Europe”. Energy factors Accenture and World  rice of fuel per type  P Economic Forum of fuel (or alternative energy supply – i.Alternative fuel freight vehicles  Electric vehicles – EV  Bio-ethanol vehicles – BE  Bio-diesel vehicles – BD Applicable Market New registration of lorries.

Japan. Accenture Calculation Factors General factors  umber of charging N stations per city  ity size in terms of C road network  harging stations C required per km of road  umber of N distributed batteries required per station Capital factors  ost of charging  C station (from benchmark of charging stations implementation projects) Key Assumptions Applicable market grows at CAGR of past four years Cost of charging stations fixed in time Relative proportion of distributed batteries. June 2008) Impact on urban speed improvement is proportional on ITS coverage General factors  otal distance T travelled by passengers per year Main Sources:  hare of distance  S nternal subject I  travelled in matter experts urban areas analysis  umber of ITS units  N required per km Secondary Sources:  Carbon “  Capital factors Connections” report.  ost of ITS  C Accenture and unit including Vodafone subcomponents  SMART 2020:  “ Enabling the low Energy factors carbon economy ncrease in urban  I in the information speed from ITS age”. stations and pylons is assumed fixed for all areas Applicable Market Length of urban road network Specific S egments Road type Communal   Regional  National Equipment type  harging C pylons  harging C stations  istributed D batteries Intelligent transport system infrastructure ntelligent urban traffic system for traffic control I Applicable Market Length of urban road network Specific S egments Road type  Communal  Regional  National Adoption Rate Outlook* Adoption rate range  2010: 5-10%  2020: 25-30% Calculation Factors Key Assumptions Applicable market grows at CAGR of past four years Reduction in fuel consumption is inversely proportional to speed increase within the range of urban speeds (Ministry of Economy. Credit Suisse  missions factor per  E fuel type 84 Carbon Capital .  “ increased speed Energy Technology/ Auto Parts and Cost and carbon factors Equipment. Electric  Price of fuel Vehicles”. International Meeting on Mid-Long Term Strategy for Climate Change.Financing the low carbon economy e-vehicle charging infrastructure  -vehicle charging end-points with high-voltage. high-amperage  e grid connection  istributed batteries and super-capacitors to reduce stress and peak  d demand on grid loading Adoption Rate Outlook* Adoption rate range 2010: 0-5%   2020: 35-40% Main Sources: nternal subject I  matter experts analysis Secondary Sources:  Betting on “  Science Disruptive Technologies in Transport Fuels”. The Climate  eduction in  R Group emissions from  Equity Research. Trade and Industry.

305 Base case Base case S1-Recovery-H Gro S1-Recovery-H Gro Base case S2-Depression-L G S1-Recovery Base case S2-Depression-L G S1-Recovery-H Gro H Growth / L Carbon Base case S3-Renewal-H Gro S1-Recovery-H Gr S3-Renewal-H Gro S2-Depression-L G S1-Recovery-HGrow Base case S4-Struggle-L Gro S2-Depression S2-Depression-L S4-Struggle-L Grow S3-Renewal-H Gro S2-Depression-L G L Growth / L Carbon S1-Recovery-H Gro S3-Renewal-H Gr S4-Struggle-L Gro S3-Renewal-H Grow S2-Depression-L G S3-Renewal S4-Struggle-L Gro S4-Struggle-L Grow S3-Renewal-H Gro H Growth / L Carbon Base Case S4-Struggle 2006 2008 2010 2012 2014 2016 2018 2020 2004 2006 2008 2010 2012 2016 2018 2020 2004 2006 2008 2010 2012 2014 2016 2018 2020 2004 2006 2008 2010 2012 2014 2016 2018 2020 2004 2006 2008 2010 2012 2014 2016 2018 2020 2004 2006 2008 2010 2012 2014 2016 2018 2020 2004 2006 2008 2010 2012 2014 2016 2018 2020 Carbon Capital 85 S4-Struggle-L Grow L Growth / H Carbon . technology and climate change issues.Appendix VI Power mix forecasts methodology THE POLES MODEL – Prospective Outlook on Long-term Energy Systems – was used to forecast the mix of energy sources for the electricity grid on a per country basis.2 0. but where there is a moderate impact from climate change regulations.4 ELECTRICITy GRID CARBON EMISSIONS INTENSITy – Eu27 0. The model simulates the energy demand and supply for 32 countries and 18 world regions.4 Eu-27 0. For the demand side. More details: http://www.3 0.2 0. There are 15 energy demand sectors (main industrial branches.4 0. An illustration of the different scenarios provided by the POLES model for Eu-27 and the chosen base-case is presented below in terms of the electricity grid carbon emissions intensity: ElectricityElectricity carbongrid carbon emissions ElectricityElectricity carbon emissions grid carboncarbon carbon emissions grid grid grid Electricity emissions ElectricityELECTRICITy GRID emissions grid emissions CARBON EMISSIONS INTENSITy intensity [kg CO2e/kWh][kg CO2e/kWh] intensity [kg CO2e/kWh] intensity [kg CO2e/kWh] intensity [kg CO2e/kWh] intensity intensity [kg CO2e/kWh] 0. The base case scenario is generated by a linear combination of the results from the Renewal (S3) and Recovery (S1) scenarios.4 0. The POLES model provides a valuable tool for addressing the long-term energy.2 0. Its world dimension makes explicit the linkages between the energy demand and supply.4 0.2 0. IN COLLABORATION with LEPII (formerly IEPE – Institute of Energy Policy and Economics) and IPTS.3 0. emissions and cost savings sizing model.3 0.net/enerdatauk/tools/ Model_POLES. The weighting in the linear combination was chosen based on consultations with internal experts.3 0.4 0.3 0.3 0.2 0.4 0.1 0.2 0. This is required to estimate the emissions savings which result from a reduction or substitution of electricity consumption in the capital. technical and economic constraints and technological trends.3 0.1 2004 2004 0.1 0.2 0.html Scenario calibration THE POLES MODEL provides four scenarios of long-term power mix forecasts: R   enewal: sustained economic recovery and global implementation of climate change regulations and policies.4 0.3 0.4 0.4 0.1 0. transport modes.2 0. and which seeks to capture a world where economic recovery is confirmed. Model details ENERDATA.2 0. The capital. about 40 technologies of power and hydrogen production.3 0.2 0.  truggle: poor economic recovery further damped by S  restrictive climate change regulations.3 0.2 0.1 0.3 0. coordinates studies on long-term energy outlooks at world level with the POLES model.4 0.2 0.2 0.3 0.3 0.  ecovery: sustained economic recovery and no consensus R  on international climate change policies.enerdata.1 0.1 0.4 0. behavioural equations take into account the combination of price and revenue effects.  epression: strong economic downturn and no consensus D  on international climate change policies. residential and service sectors).4 (KGCO2e/KWH) 0. emissions and cost savings sizing model has been calibrated using a base case which is an intermediate scenario that combines the Renewal and Recovery POLES model scenarios.

Financing the low carbon economy

Appendix VII
Bibliography
Action amid uncertainty: The business response to climate change, Ernst & young, May 2010 Barclays Capital Global Carbon Index Guide, Barclays Capital, May 2008 Barclays PLC 2009 Responsible Banking Review, Barclays PLC, 2009 Betting on Science: Disruptive Technologies in Transport Fuels, Accenture, 2009 Carbon Connections: Quantifying mobile’s role in tackling climate change, Vodafone; Accenture, July 2009 Carbon Disclosure Project 2009 – Global 500 Report, Carbon Disclosure Project, 2009 Cleantech comes of age, PricewaterhouseCoopers, April 2008 Cleantech matters: Going big: the rising influence of corporations on cleantech growth, Ernst & young, 2009 Cleantech matters: The Future of Energy, Ernst & young; Bloomberg New Energy Finance, 2010 Climate Change 2007: Impacts, Adaptation and Vulnerability, IPCC Working Group II Report, 2007 Climate change – a business revolution? How tackling climate change could create or destroy company value, The Carbon Trust, 2008 Climate principles progress review, PricewaterhouseCoopers, January 2010 Deciding the Future: Energy Policy Scenarios to 2050, WEC, 2007 Delivering the low-carbon economy – Business opportunities for UK manufacturers, EEF; Deloitte, January 2008 DWS Climate Change Fund Prospectus, Deutsche Bank, October 2009 Energy Efficiency in Buildings: Business realities and opportunities, WBCSD, July 2008 Energy Efficiency in Buildings: Transforming the market, WBCSD, August 2009 Equity Research, Energy Technology/Auto Parts & Equipment, Electric Vehicles, Credit Suisse, December 2009 Financial Risk Management Instruments for Renewable Energy Projects, uNEP, 2004 Financing a private sector recovery, Department for Business, Innovation & Skills, HM Treasury, July 2010 Financing the Response to Climate Change, IMF, March 2010 Five Emerging U.S. Public Finance Model: Powering Clean-Tech Economic Growth and Job Creation, Clean Edge, October 2009 Focus for success: A new approach to commercializing low carbon technologies, The Carbon Trust, July 2009 GET FiT Program: Global Energy Transfer Feed-in-Tariffs for Developing Countries, Deutsche Bank Group, April 2010 Global Climate Change Policy Tracker: An Investor’s Assessment, Deutsche Bank, October 2009 Global Industry Surveys – Banking: Europe, S&P, January 2010 Investing in Climate Change 2009: Necessity and Opportunity in Turbulent Times, Deutsche Bank Group, October 2008 Investing in Climate Change: An Asset Management Perspective, Deutsche Asset Management, October 2007 Low Carbon Refurbishment of Buildings: A guide to achieving carbon savings from refurbishment of non-domestic buildings, The Carbon Trust, 2007 Paying for Renewable Energy: TLC at the Right Price. Achieving Scale through Efficient Policy Design, Deutsche Bank Group, December, 2009 Private Financing of Renewable Energy: A Guide for Policymakers, UNEP; SEFI; Bloomberg, New Energy Finance; Chatham House, December 2009 Profiting from the low-carbon economy, McKinsey, 2009

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Roadmap 2050: A practical guide to a prosperous low-carbon Europe Vol.1, The European Climate Foundation, April 2010 Seizing the Opportunities in the Low-Carbon Economy, Accenture, 2010 Smart 2020, The Climate Group, 2008 Supply Chain Decarbonization, Accenture; The World Economic Forum, January 2009 The Business of Climate Change: Challenges and Opportunities, Lehman Brothers, February 2007 The Stern Review on the Economics of Climate Change, Stern, Nicholas, October 2006

Transformation Cleantech: enabling the business response to climate change, Ernst & young, 2008 Transitioning to a Renewable Energy Future, International Solar Energy Society, 2003 Unlocking investment to deliver Britain’s low carbon future, The Green Investment Bank Commission, June 2010 World Energy Technology Outlook – 2050: WETO-H2, The European Commission, 2006 World energy, technology and climate policy outlook 2030: WETO, The European Commission, 2003

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Financing the low carbon economy

Glossary of terms
Financial services terminology
Asset Backed or Securitized Bonds Similar to ordinary bonds but have a specific set of revenue generating assets, which are put into a special purpose vehicle (entity) and pay the bond holder their interest and principal Feed-in-Tariff (FIT) Asset Management Management of various securities (shares, bonds and other securities) and assets which can be structured in funds made available to investors Bonds Debt securities which are similar to loans, usually providing access to debt on a long-term basis to fund large assets or corporate development. Bond usage (and debt in general) helps limit shareholders’ equity dilution Corporate and Investment Bank (CIB) A financial institution that provides banking, finance, trading, investment, risk management and advisory services to large corporations and investors Cost of Capital The weighted average of a firm’s costs of debt and equity, in turn linked to risk involved in the underlying project or company Credit Ratings Rating of debt borrowers which reflects the likelihood of defaults (usually provided by one of the major rating agencies: Moody’s, Standard and Poor’s (S&P) and Fitch) Debt Securities such as bonds, mortgages and other forms of notes that indicate the intent to repay an amount owed. A cash payment of interest and/or principal is made at a later date Development Capital Capital provision for growth or expansion of a company, supporting commercialization of its products and services and financing of its operations Equity An investment in exchange for part ownership of a company entitled to the earnings of a company after debt-holders have been paid European Investment Bank (EIB) European Union’s long-term lending institution established in 1958 Mezzanine Finance Lending which sits between the top level of senior bank debt and the equity ownership of a project or company. Mezzanine loans take more risk than senior debt because regular repayments of the mezzanine loan are made after those for senior debt; however, the risk is less than equity ownership in the company. Mezzanine loans are usually of shorter duration and more expensive for borrowers, but pay a greater return to the lender Pay As You Save (PAYS) A finance solution that gives an entity the opportunity to invest in energy efficiency equipment and micro-generation technologies Joint Venture (JV) A venture undertaken by a partnership in which risks and profits are shared between participating entities Investment Vehicle An investment structure such as a fund which is legally distinct and combines securities, assets or other financial instruments Initial Public Offering (IPO) Process of raising equity capital from public markets where common stocks of a company are issued to investors which can then hold these securities or trade them Green Investment Bank Commission (GIBC) An independent group which advises the UK Government on best practice for higher investment in low carbon infrastructure and technologies Green Bond A bond which results from the securitization of the debt of low carbon technologies infrastructure and equipment roll-out. The bond’s underlying assets can be required to comply with environmental requirements to retain this label and benefit from fiscal incentives A common policy mechanism to encourage the adoption of renewable energy sources. A FIT is essentially a premium rate paid for clean energy generation (e.g. from solar panels or small wind turbines), typically on a small scale, and is often guaranteed for a long-term period Exchange Traded Fund (ETF) An investment fund traded on stock exchanges, much like stocks, which holds assets such as stocks, commodities, or bonds

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for their facilities, and pay back the capital expenditure based on the energy cost savings achieved Private Equity (PE) Equity capital invested in companies that are not publicly traded on a stock exchange Private Investment in Public Equity (PIPE) The purchase of privately issued securities directly from a publicly quoted company, typically at a discounted rate Procurement Capital Capital provision for procurement of equipment or roll-out of infrastructure Project Finance Debt and equity made available for a large project financing, usually linked to the revenue the project will generate over a period of time used to pay back the debt

Risk Weighted Assets (RWA) Total of all assets held by a bank which are weighted for credit risk according to a formula determined by regulators Special Purpose Vehicle (SPV) A discrete business entity created around a project, in a legal form, to permit lending and equity investments, disconnected from other obligations or activities of a parent company Tier 1 Capital Assets that banks declare as its Tier 1 Capital (i.e. “core capital” used as the primary measure of a bank’s financial strength), as defined in Basel II, must be purely composed of shareholders’ equity and retained earnings Tier 1 risk-based capital ratio Ratio of a bank’s Tier 1 capital to its total risk-weighted assets Venture Capital (VC) Early-stage or growth-stage financing of a company’s development where product or service is being conceived, tested, piloted and progressively commercialized

Low carbon technology terminology
Advanced Metering Infrastructure (AMI) An infrastructure supporting and including AMM smart meters which includes meter data management Advanced Meter Management (AMM) AMM configuration of smart meters enables the end user to optimize its energy consumption behaviour and adjust daily consumption usage and allows the utility provider to improve electricity distribution efficiency across the network Capacity Factor The ratio of energy production output over installed production capacity Cleantech The panel of technologies which, once implemented, lead to a significant positive impact on the environment. These mainly include applications in renewables, information technology, alternative transport, waste, water and agriculture Combined Heat and Power (CHP) Recovery of waste heat from power generation to provide heating, also known as cogeneration Concentrated Solar Power (CSP) A technology that converts solar energy into electricity by concentrating solar radiation Photovoltaic (PV) A technology that converts solar energy into electricity using solar cells Plug-in Hybrid (PHEV) Hybrid vehicles with a battery which can be charged directly when plugged in Low Carbon Technology (LCT) Equipment and infrastructure which enable direct or indirect carbon emissions reduction, with application in buildings, electricity distribution, electricity production, transport vehicles and transport infrastructure (the full range of applications considered in this study is presented in Appendix I). Examples include bio-fuel vehicles, intelligent transport infrastructure, smart buildings, smart grid and renewable energy Light-Emitting Diode (LED) Semiconductor light source originally used as a light indicator and now increasingly used for lighting HVAC Heating, ventilating, and air conditioning Decentralized Electricity Production Generation of electricity from a number of small capacity electricity production units which are usually solar panels or CHP (also referred to as micro-generation)

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Financing the low carbon economy Low carbon technology terminology Renewable Energy Energy sources which include (for the purpose of this study): solar. leading to an increase in temperature.000 MWh = 1 GWh Mt CO2e A million tonnes of CO2e. heating.000 W = 1. also known as one giga-tonne earth’s surface. hydro fluorocarbons (HFCs).000.000 kWh = 1. before the accession of Romania and Bulgaria in January 2007 EU ETS Emissions trading scheme in the EU. Smart buildings can also integrate a number of additional features which improve energy efficiency and energy autonomy. wind. methane (CH4). air ventilation and cooling to achieve optimal energy efficiency within buildings.000.000. biomass. including micro-generation. geothermal. The scheme requires companies in selected industries (power. and materials) to limit their GHG emissions to a certain allowance and to purchase additional permits from the ETS market if they exceed this allowance Green House Gas (GHG) Gas which results in increased solar radiation reflectivity to the kWh. origin and usage. Six GHGs are defined by the IPCC: carbon dioxide (CO2). nitrous oxide (N2O). transport.000. MW and GW Watts (W) is the unit used to provide the power intensity of an energy production site: 1. and sulphur hexafluoride (SF6) 90 Carbon Capital . tidal and wave energy Renewable Energy Certificate (REC) Digital certificates which hold details on electricity generation.000 Wh = 1. new insulation material and more General terminology Business as Usual (BAU) Business as usual projection in the context of forecast scenarios Carbon Dioxide Equivalent (CO2e) Expression of greenhouse gas emissions in equivalent units of carbon dioxide emissions EU25 countries The 25 European member countries of the European Union.000. They are used to provide a financial incentive to encourage investment in renewable energy production Renewable Obligations Certificate (ROC) REC scheme applied in the UK Smart Grid Infrastructure improving efficiency of electricity grids through active monitoring and control of the transmission and distribution network Smart Building Automation and control of lighting. chemicals. perfluorocarbons (PFCs). MWh and GWh Watt-hours (Wh) is the unit used to provide the power output over a fixed amount of time of an energy production site: 1.000 kW = 1.000 MW = 1 GW Gt CO2e A billion tonnes of CO2e. also known as one mega-tonne kW.000.