3rd Annual OECD Green Investment Financing Forum

1. How to boost green energy
development ?
Role of Financing
Farhad Taghizadeh-Hesary, Ph.D.
Faculty member, Keio University
Visiting Professor, The University of Tokyo
Oct 14, 2016
ADBI - OECD
1
Naoyuki Yoshino, Ph.D.
Dean, Asian Development Bank Institute (ADBI)
Professor Emeritus, Keio University, Tokyo, Japan
10/14/2016

2. 10/14/2016 2
Outline:
1- ADB report on sustainable energy for all
2, Asian Situation of renewable energy
3- How to cope with the current slowed growth in the
renewable energy supply?
4, Financing method of Renewable Energy
and Green bond

3. 1.
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4. 410/14/2016

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6. 610/14/2016

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10. 10
3. How to cope with the
current slowed growth in
the renewable energy
supply?
10/14/2016

11. 1. Raise the renewable energy subsidy
by raising tax on CO2, NOX etc.
2, Raise the governmental R&D expenditures
on technologies related to the renewable
energy resources
3. Introducing new way of financing
HTIT = Hometown Investment Trust Fund
Green bond
4. Removing trade barriers (FTA,..)
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12. Wind Power Fund
Construction costs = 2 million US $
Future Environment
Relies on You

13. •
•
•
•
•
•
•
Various Wind power generators were constructed in Japan
The fund constructed more than 16 regions of wind powers
Tsunami and earthquakes
Accident of Nuclear power
FUKUSHIMA 2011-3-11

14. Private Financial Scheme of Wind Power
Collected by Individuals (started in 2001-Sept)
Hokkaido
Green
Fund
Construction
Costs =
2million
US $
Investors
2000
people
Each person
1000 US$
Sell to
Power
Company
Final
User
PE
1+0.05
5%
surcharge

15. Financial Scheme of Wind Power
Collected by Individuals
Hokkaido
Green
Fund
(60%)
Senior
Bank Loans
(20%)
Donation
Investors
(249) Sell to
Power
Company
Final
User
PE=5%
surcharge
Sales
Of
PowerGovernment
Fund, Carbon
Tax (20%)

16. Structure of Wind Power Fund
249 people participated (donation and investment)
Total cost of one wind power = 2 million US $
5% extra price is charged = (1+0.05)X PE
People should reduce Energy consumption by 5%
so that total energy costs remain the same
<Bank Loans to environmental projects>
Revenue : sales price of electric power supply
cannot set the price based on MC (Price=MC)

17. Revitalization of Tsukubane Hydro Power
(Nara state)
250 investors, total 525 thousand US dollars, Japan
Original
Dam was
constructed
more than
100 years
ago

18. Solar Power Panel
Funds
in Japan
(Iida city)

19. Scheme of Financing for Power
Panel
Local Government
Subsidies (2/3)
Private Individuals
Hometown Trust Funds
1000 US$ -– 5000 US $
Power
Company
377
power
panels

20. 8-years’-Fund - per person 1000 US $:
Expected Dividends
125 US$
140 US$
Total = 1090 US $

21. Solar Powers
in Japan

22. Government Financing (Externality Effects)
1, Measure the negative external effects of CO2 and NOX
2, Levy Tax on CO2 and NOX
 Transfer to renewable energy
3, Provide R&D subsidy to renewable energy projects
 Injection of tax revenues to investors in renewables
 R&D (renewable energy sector)

23. Infrastructure Investment
Highway
Railway
Non-affected
region
Non-affected region
Private investment
SME development
Agricultural farmers
Employment
Human capital
Positive
Spillover
effect
Spillover effect
23

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26. Spillover effects  Return to investors
1956-60
1961-
65
1966-70 1971-75 1976-80 1981-85
Direct Effect (Kg) 0.696 0.737 0.638 0.508 0.359 0.275
Indirect Effect (Kp) 0.453 0.553 0.488 0.418 0.304 0.226
Indirect Effect (L) 1.071 0.907 0.740 0.580 0.407 0.317
20%Returned 0.3048 0.292 0.2456 0.1996 0.1422 0.1086
%Increment 43.8 39.6 38.5 39.3 39.6 39.5
26
1986-90 1991-95 1996-00 2001-05 2006-10
0.215 0.181 0.135 0.114 0.108
0.195 0.162 0.122 0.1 0.1
0.193 0.155 0.105 0.09 0.085
0.0776 0.0634 0.0454 0.038 0.037
36.1 35.0 33.6 33.3 34.3

27. Financing for Energy Projects
Accumulation of long term domestic saving is required
Renewable
Energy
Government
Subsidy
Government Loan
Tax on CO2, NOX
Postal Insurance
Institutional Investors
(Pension Funds
and Insurance)
Individual contributions
Hometown Trust Fund
Green Bond (Patient Investors)
long-term bonds
revenue bonds (rate of return)

28. Long term and Patient investors are required
(Institutional Investors)
1, Bank deposits – Bank loans (2-5 years)
2, Life insurance (20 years, 30 years)
3, Pension funds (20, 30, 40 years)
Long term financing
4, Utilize post office network to Insurance etc.
5, Post office receives commissions and fees
6, Sell private bank deposits and insurance
7, Financial education has to be developed
8, “Tsunami and earthquake”  Big increase
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29. Asset Allocation (USA, JAPAN, Europe)
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30. Green Bond and Revenue Bond
1, Frequent Issue
2, Various maturities (5 years, 10 years, 20 years)
3, Rate of return and Principal guarantee
4, Secondary Market (Retail government bond)
5, Credit Rating of each green bond
6, Sales channels (Post office, Regional banks)
7, Internet, mobile phone
Hometown Investment Trust Funds
8, Small scale renewable energy
(sell through Internet)
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31. 31

32. Mutual Funds – Holding Period
Fee Structure is important
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33. 33
Holdings of Mutual Funds By family
Ratio of US and Japanese households’ holdings
Investment trusts and Mutual Funds

34. 34
Possible Solutions
Financing for renewable energy
10/14/2016

35. Hometown investment trust funds a new way to
finance for Wind power generators, solar power
panels etc.
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36. Financial Scheme of Wind Power
Collected by Individuals
Hokkaido
Green
Fund
(60%)
Senior
Bank Loans
(20%)
Donation
Hometown
Investment
Trust
Funds
(HTIF)
Sell to
Power
Company
Final
User
PE=5%
surcharge
Sales
Of
PowerGovernment
Fund, Carbon
Tax (20%)

37. No Efforts Efforts to improve
No Efforts
(50, r)
Operating Company investors
(50, αr)
Operating Company investors
Efforts to
improve
(100, r)
Operating Company Investors
(100, αr)
Operating Company investors

38. Removing Trade barriers: i.e. TPP
-TPP and Energy
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• The TPP negotiations initially included four countries with which the
United States already has bilateral FTAs (Chile, Peru, Singapore,
and Australia, which is also Japan’s largest supplier of coal and
LNG),
• Two oil and gas exporters: Brunei and Malaysia
• And New Zealand and Vietnam.
• Canada and Mexico, neighboring U.S. energy trading partners and
members of the North American Free Agreement (NAFTA), joined
negotiations in October 2012.
• Japan joined in July 2013.
• Prior to that, however, the leaders of the then nine TPP countries on
November 12, 2011, announced that they had achieved agreement on
numerous issues and released a detailed outline of the TPP framework,
which never once mentioned the word “energy.”

39. The Energy Products Sector includes products such as turbines, solar cells,
static convertors, civil nuclear equipment, and high-voltage electric
conductors
Removing Trade barriers: i.e. TPP
Source: International Trade Administration, Department of Commerce, U.S.
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40. TPP Implementation Offers
New Opportunities for U.S. Exporters
Japan’s efforts to diversify its energy sources is expected
to generate significant growth in the renewable energy
sector, including solar power, wind power, geothermal,
and biomass. Projections indicate that Japan will install
more renewable energy capacity over the next two years
than any country but China. While the Japanese renewable
energy market has always been important to U.S.
companies, Japan’s decision to use policy incentives to
adjust its energy mix has increased the demand for
renewable energy technologies over the last three years,
providing additional opportunities for U.S. exporters
Market Opportunity Spotlight
Japan – Renewable Energy
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41. Reference
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1. “Monetary Policy and the Oil prices” (2016). N. Yoshino and F. Taghizadeh-Hesary. eds. Tokyo:
Springer
2. N. Yoshino and F. Taghizadeh-Hesary. (2016), Causes and Remedies of the Japan's Long-lasting
Recession: Lessons for China. China & World Economy, 24: 23–47. doi: 10.1111/cwe.12149
3. F. Taghizadeh-Hesary. and N. Yoshino and (2015) “Macroeconomic effects of oil price
fluctuations on emerging and developed economies in a model incorporating monetary
variables”. Economics and Policy of Energy and the Environment. Issue 2: 51-75, DOI:
10.3280/EFE2015-002005
4. N. Yoshino and F. Taghizadeh-Hesary (2015) “Effectiveness of the Easing of Monetary Policy in
the Japanese Economy, Incorporating Energy Prices”. Journal of Comparative Asian
Development. 14(2): 1–22. DOI:10.1080/15339114.2015.1059059
5. N. Yoshino and F. Taghizadeh-Hesary (2015) “An Analysis of Challenges Faced by Japan’s
Economy and Abenomics”. The Japanese Political Economy. 40: 1–26.
6. DOI: 10.1080/2329194X.2014.998591
7. Yoshino, N. and Taghizadeh-Hesary, F. (2014), ‘Monetary Policies and Oil Price Fluctuations
Following the Subprime Mortgage Crisis’. Int. J. Monetary Economics and Finance, 7(3), 157-
174, 10.1504/IJMEF.2014.066482
8. Taghizadeh-Hesary, F. and Yoshino, N. (2014), ‘Monetary Policies and Oil Price Determination:
An Empirical Analysis’, OPEC Energy Review, 38 (1): 1-20, DOI: 10.1111/opec.1202
9. Taghizadeh-Hesary F., Yoshino, N., Abdoli, G. and Farzinvash, A. (2013), ‘An Estimation of the
Impact of Oil Shocks on Crude Oil Exporting Economies and their Trade Partners’, Frontiers of
Economics in China, 8(4): 571–591, DOI: 10.3868/s060-002-013-0029-3

42. Thank you for your Attention
nyoshino@adbi.org
farhadth@keio.jp
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