Green Bond Street

Ieuan Williams

09 August 2018

From humble beginnings over a decade ago, the popularity of green bonds has boomed over the past five years to a global worth in 2017 of $155bn, as financiers battle to market themselves as green.

But why the surge? No sector is immune from the effects of climate change; flash floods, hurricanes and forest fires are just some of the things that are already significantly hitting the insurance and finance sectors, costing billions in pay-outs and reinsurance. Elsewhere Facebook, Google and Microsoft are now building solar and wind farms to run their servers and premises on 100% renewables, and in 2016 Apple issued $2.5bn in green bonds to fund solar farms and improve energy efficiency in buildings.

Up until now nuclear has been excluded from such bonds due to the sheer scale of financing large plants, which is why it has mostly been left to governments to support them. This brings me nicely onto the publication this week by the Expert Finance Working Group. Chaired by Fiona Reilly, the group has reported on the market framework for financing small nuclear.

Key points for me include the opening recommendation: “HMG should enable the small nuclear sector through a clear policy and a market framework” as well as that “HMG should work with the finance industry to make Green Bonds available to small nuclear.”

The report makes it clear that the first generation of SMRs should receive the same support from government, as other nascent technologies have had, so they can eventually be a subsidiary free, low-carbon technology.

Over the last 12 months nuclear has provided 21.5% of the UK’s electricity, with gas and coal contributing 40.6% and 6.1% respectively. Considering that electricity demand is forecasted to at least double by 2050; we need to completely move away from fossil fuels; with the planned expansion of renewables and storage (and their intermittency) nuclear has the potential, by the middle of this century, to be providing a greater share of secure, reliable, low-carbon electricity within a balanced energy mix.

Should the government, as the report recommends, facilitate the availability of green bonds for SMRs, it could present new opportunities for investors, hedge funds or even pension funds to position themselves to make steady and reliable profits, while keeping the lights on, and cars moving. It’s a win-win.

Green bonds are predicted to continue their rapid growth, and could even hit $5 trillion globally by 2025. By then they might even be able to fund large scale plants, time will tell. Subject to a positive formal response to the Reilly Report from the government, this is certainly something to keep an eye on.