Sunday, November 24, 2013

Green Bond Funds and the role of R&E networks

Around the world universities, R&E networks and researchers in general are looking at an increasingly austere future of budget cutbacks and reduced funding for higher education.
 This environment is unlikely to change, even if the current global economic situation improves.  Healthcare, long term debt and aging populations are continue to put enormous pressure on government budgets for the foreseeable future.  In times of budget constraints education and research usually always gets the short shrift, even though it is argued that it is an investment in our future economic growth.

The only bright spot in terms of new funding are various public and private sector programs related to climate change.  Even “denialist” governments as in Ottawa, Washington and now Canberra have launched several programs to fund new initiatives in energy, GHG abatement,  green programs etc.  The private financial sector has also started to launch several new instruments in this area with the development of Green Bonds and revolving funds.  Many of these funds are also supported by generous tax breaks.

Green Bond, revolving funds and related initiatives are usually used to underwrite the capital costs of large renewable energy or energy efficiency projects.  Examples include deploying large solar arrays, wind farms, etc.  The funds earn their return on investment through the payback on energy savings or from feed in tariffs to the electrical grid.

Green bonds in the United States got a major boost from the America Jobs Creation Act of 2004. It was designed to provide funding - in the form of $2 billion worth of AAA-rated bonds issued by the United States Treasury - to finance environmentally friendly development. Many individual states are also issuing Green Bond funds.  Some countries like the Netherlands Green Fund programs also fund innovation through the use of these funds.

There is a significant opportunity for universities and R&E networks to tap into this programs.  But the challenge for most universities is their relative small size and lack of experience or knowledge in negotiating with Green Bond brokers.  Most Green Bond and Revolving funds are several hundred million dollars in size.  It is very hard for even a large university to come up with green projects of sufficient size to attract the attention of such investment vehicles.  

This is where R&E networks can play an important role, by partnering with Green Bond brokers to aggregate demand from many institutions to put together a sizable enough package to attract large institutional investors such as pension funds etc.  In essence it is very similar to offering a Net+ service to the institutions.  Many universities, particularly in the US, are also part of a $1 billion green revolving fund which can be leveraged in a similar manner.

To this point there seems no obvious role for the R&E network, other than aggregating demand.  But this could be argued could be done just as easily by the university business offices or  associations of university financial officers and/or presidents.  The big advantage that R&E networks bring is significantly increasing the project’s return on investment of the green bond or revolving fund by leveraging Net+ services to reduce a university’s energy footprint.  Computing and networking represent anywhere from 25-40% of an institution’s electrical budget.    Every initiative that reduces or eliminates that electrical consumption footprint, can be applied directly to improving the ROI of the green bond investment, either to the benefit of the investors or better as an additional revenue stream to the institution and R&E network.  And where Green Bonds also fund innovation, the use of ICT to reduce an institution’s environmental footprint can be significant.

I have blogged many times in the past about ICT technologies that can reduce electrical energy consumption on the campus such as the use of commercial clouds, NREN managed WiFi services, campus IT outsourcing, solar power recharging stations for tablets and smart phones, dynamic charging of campus utility vehicles, etc, etc.  Bundling these technology solutions with their projected energy savings as part of a Green Bond package could make for a very attractive vehicle for investors of all kinds.

For more information please see

Green Bonds:  Victory Bonds for the Environment

Dutch Green Bond Funds