The transition from fossil to renewable energy demands enough capital to develop and release new solutions. This means that investors are needed. The last years, private investors in clean energy have experienced a rising demand in the market. This session will give the participants thoughts on how we can make sustainable investments profitable.

1. Investmentsfor SustainableDevelopment:
Can SustainabilityMake BusinessSense?
Dr. Satyajit Bose
June 13, 2013 ISES Panel

2. What sectorscompriseGreen Investments?
Innovative technologies designed to optimize the use of
natural resources and reduce environmental impact:
Cleantech
• Power generation: solar, wind, hydro, geothermal, biomass
• Energy storage: batteries, hydro, flywheels
Resource Management
• Water infrastructure
• Green buildings
• Energy efficiency, demand management
Transportation Infrastructure
• Bus rapid transit, railways, bike sharing

3. Green Investment Challenges
Why is clean energy so difficult to finance?
This portfolio of innovative technologies requires:
• Significant upfront capital: $46 trillion in incremental
investment by 2050 (Source: IEA)
• Some technologies early in the heuristic learning
process
• Challenging cash flow profiles
• Numerous, complex and sometimes unstable
incentives
• Regulatory uncertainty on monetization of carbon
externality

4. Recent Decline in Investment

5. Oil Price Context
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$20
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$160
jan-2004
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jan-2012
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6. Forms of Financing
Project Financing
• Off-balance sheet funding for large infrastructure and
pooled small distributed capacity
• Predictable cash flows
• $228bn (85%) of new investment in 2012 (Source: BNEF)
• Up 7% year on year
Balance Sheet Financing
• Venture capital, private equity and R&D funding for
prototypes and demonstration technologies
• Small scale, with minimal and highly uncertain cash flows
• $40bn (15%) of new investment in 2012 (Source: BNEF)
• Down 15% year on year

7. Investor Funding for Innovation
Drying Up
New Investment in Clean Energy
($ in billions)
2011 2012 Change
Venture Capital 6$ 4$ -33%
Corporate R&D 13$ 15$ 15%
Government R&D 13$ 15$ 15%
Private Equity 3$ 1$ -67%
Public markets new equity 12$ 5$ -58%
47$ 40$ -15%
Asset finance 146$ 149$ 2%
Small Distributed Capacity 74$ 80$ 8%
Reinvested (6)$ (1)$ -83%
214$ 228$ 7%
261$ 268$ 3%
Source: Bloomberg New Energy Finance

8. Investment Drivers for Corporate
Sustainability
Green Consumers
• Form of product differentiation, price discrimination and
consumer loyalty
Strategic Over-compliance
• Pre-empt regulation
• Shape regulation to raise rivals’ costs
Green as a Signal
• Employee recruitment and retention
• Investor relations and lowered cost of capital
Government failure
• Territoriality of jurisdiction
• Capture by interest groups

9. Investment Appraisal
Standard Methods:
• Payback
• Return on Investment
• Net Present Value/Internal Rate of Return
• EROEI
Enhanced Methods:
• Monetization of uncertain or intangible benefits
• Real option analysis
• Strategic leadership potential

10. The Value of Options
Real Option Analysis:
Option values in alternative energy generation
• Dual sourcing
• Demand management
• Energy storage
• Interconnection of grids

11. Government and Multilateral Assistance
• Renewable portfolio standards and/or feed-in-tariffs
• Innovation grants
• Subsidies
• Clean energy funds with loans and mezzanine financing
• Carbon pricing

12. Promising Developments
Crowdsourcing
• JOBS Act in USA
Open Data Initiatives
• Green Button Initiative in USA
Small Distributed Capacity Business Models
• Turnkey retail solar installations
Demand Management
• Internet of things, Efficient peak use pricing