1. Financing the Clean Energy Sector in the GCC with Green Bonds and Green Sukuks: Is a market being born?
Aaron Bielenberg
Latham & Watkins
Founder and Director of the Clean Energy Business Council (CEBC) - MENA

2. Global new investment in renewable energy 2004-2010 ($bn):
Clean Energy Investment, Growing Globally and in MENA and Looking for New Financing Sources
In 2010, global investment in clean energy reached $211 billion (28% year on year increase) FN1
Investment in clean power assets alone could reach $2.3 trillion during period if policy priority for clean energy is well-placed FN2
The MENA region is currently seeing an explosion of Clean Power projects in planning and implementation, along with significant planned investment in energy efficiency and carbon reduction projects
Governments and sponsors are looking for innovative ways to finance this emerging clean energy sector
Various barriers for large scale low-carbon investments – small secondary debt market, absence of liquid, investment grade asset-backed securities
Bond financing makes up a small proportion of clean energy financing currently
Estimated 24-40% of institutional investors’ assets under management dedicated to fixed-income debt, including asset-backed securities FN3
FN1 Source: Bloomberg New Energy Finance
FN2 Source: The Pew Charitable Trust
FN3 Source: Barclays Capital/Accenture
Global new investment in renewable energy ($bn):
Source: Bloomberg New Energy Finance

3. What are Green Bonds?
Debt instruments issued to raise capital to fund specific clean power projects or projects aimed at reducing climate change risk
Total issuance value approximately $3.5 billion globally in 2010 – principally issued by international financial institutions (e.g. World Bank)
Investors range from pension funds with environmental mandates to socially responsible investment-focused retail investors
If investors are offered two investments with same risk/reward profiles, one “brown”, one “green”, they will choose green
Example structures:
Green gilts
Green retail bonds
Green investment bank bonds
Green corporate bonds
Green infrastructure bonds
Rainforest bonds
Index-linked carbon bonds
Water bonds

4. Why Green Bonds? Selected investors:
Investors unlikely to invest capital directly into individual projects – market driven by investor demand for low-risk products from respected issuers
Direct Investment brings exposure to regulatory uncertainty, technology risk and there are limited investment grade opportunities of significant scale
Investor demand for ways to invest in the high-growth clean energy sector other than through equities and funds
Fixed-income structure – relatively easy place to integrate environmental investing policies into portfolio strategy
Investors attracted to risk/return characteristics of conventional bonds
Similar in design, risk and return to existing products in investment portfolio
Opportunity to integrate environmental, social, and governance criteria throughout portfolio, and to signal commitment to stakeholders and policy makers
Solid credit ratings – International Financial Institutions and Governments as principal issuers
Selected investors:
New York State Common Retirement Fund
California State Teachers’ Retirement System
California State Treasurer’s Office
Swedish National Pension Funds
UN Joint Staff Pension Fund
Trillium Asset Management
State Street Global Advisors

5. Bond structures Commercial Bank
Asset-linked to a portfolio of wind project loans
Ring-fence value of assets to internal cost centre
Corporate bond ‘linked’ to qualifying assets
Utility/ Manufacturer Bonds linked to facility or wind farms
Project development bond
Special purpose vehicle owns the asset
Financing construction and operation of wind farms
Securitisation vehicle of loans and/or assets
Portfolio bond
Aggregator - re-financing for pool of wind farms or wind loans

6. Key provisions Money flows Linked assets matching bond amount
Assurance around use of proceeds, budget allocation
Traceability
Eligible physical assets/projects
Wind farms, Solar Farms, manufacturing, energy efficient infrastructure
Guarantees Necessary
Completion Support, Debt Service, Short Fall,
Terms and Conditions
Match benchmarked conventional bond terms in the market
The Sovereign Green Bond?

7. History of Green Bonds
Green bonds pioneered by the World Bank in 2008 as part of its “Strategic Framework for Development and Climate Change”
Objective to tap into large global pool of assets allocated to fixed-income investment held by pension funds and sovereign wealth funds
First green bond issued in 2008 by World Bank for SEK billion (approx US$350m), 6-yr maturity, 3.5% interest
World Bank Green Bonds outperformed conventional bonds on secondary market – investors looking for differentiation
Various bonds have since been issued by the World Bank in various currencies, and by others, including European Investment Bank, US Government agencies, International Finance Corporation and Asian Development Bank
Future proposals for further green bond issuances from governments including UK, Canada, Ireland and India

8. World Bank Green Bond Programme
Since inaugural bond issue in 2008, the World Bank has issued over US$2bn in green bonds through 43 transactions and 16 currencies
Proceeds of issue deducted from special “green account” each quarter and added to the World Bank's lending pool to support “Eligible Projects”
Eligible Projects:
Selected by World Bank environment specialists and meet specific criteria for low-carbon development
Promote the transition to low-carbon and climate resilient growth in the recipient country
Include projects that target:
(a) mitigation of climate change, including investments in low-carbon and clean technology programs; or
(b) adaptation to climate change, including investments in climate-resilient growth.
Example Eligible Projects:
Mexico: Rural Renewable Energy
US$15 million
China: Eco-farming
US$120 million
India: Energy Infrastructure
US$600 million
Dominican Republic: Disaster Risk Management
US$80 million

9. Climate-themed issuance to date
$16 billion Leaders:
Thematic portfolios: WB, EIB
Tax preferencing: USA
ABS: Breeze
Only 5% retail, mostly Japan
Clean energy corporate
$30 billion +
Rail, etc - $10bn +

10. Precedent Issuances Issuer Year Type Value (USD)
European Bank for Reconstruction and Development (EBRD)
2011
Environmental Sustainability Bond
23,000,000
International Finance Corporation (IFC)
Green Bond
135,000,000
Sunpower/Andromeda Finance
2010
Solar Project Bond
260,000,000
Asian Development Bank
Water Bond
640,000,000
Novachem
EE Corporate Bond
1,540,000
Nordic Investment Bank
Environmental Support Bond
200,000,000
African Development Bank
Clean Energy Bond
220,000,000
US municipal governments
Property Assessed Clean Energy Bonds
9,690,000
US Government agencies and utilities
Clean Renewable Energy Bond Programme
2,200,000,000
World Bank
Green Bonds
1,896,700,000
2008
CER-Linked Uridashi Bond
31,500,000
European Investment Bank
Climate Awareness Bonds
1,630,000,000
Eco 3+ Notes
360,000,000

11. Green Bond Proposals
UK Government – “Green Investment Bank” to issue green bonds and build framework to provide certainty and incentives to attract private sector investment in green technologies
United Nations Framework Convention on Climate Change (UNFCC) – green bonds issued by developing countries to investors from developed countries; future revenue streams to be securitized
Comhar (Irish Sustainable Development Council) – “Green New Deal” for Ireland funded by green bonds, carbon tax, and the auctioning of carbon permits
Canadian Government – “Green Stimulus Package” of Can$41 billion funded by green bonds, to be modelled on existing Canada Savings Bonds
Climate Change Capital – advocating issuance by OECD governments of ‘environment bonds’ offering secure but modest returns, and be invested in renewable energy and low-carbon industrial initiatives
Climate Bonds Initiative – launching first set of standards for verifying the credentials of green bonds

12. Key Issues and Challenges
Liquidity – currently a small number of investors holding green bonds; pension funds and other institutional investors traditionally require a robust secondary market
Standards – need for standards and verification systems for measuring performance of green bonds and acceptable use of proceeds. Also need to establish standard terms and conditions.
Policies & Government Support – green infrastructure is dependent on policy instruments lacking a long term track record and government funding, with associated political risks which are frequently complex and volatile
Transactional Risk – greater technological risks associated with constructing and operating green technologies
Risk and reward – higher yields required to offset the illiquidity of the green bond market and any preconceptions of higher political or technical risk
Government backstop – issue as to whether green bonds will require a government guarantee

13. Future Trends (1)
Increase in number and scale of green projects – solar and wind projects dramatically increasing in size and number and require multi-tranche financing sources
Proven Technology – track record established for many clean energy technologies reducing risk profile of the sector
Green Investment Banks – will assist in the creation of a liquid market in green bonds by insuring bonds and temporarily purchasing sub-tranches of subordinated debt (EIB Project Bond Programme)
Green Indices – index providers will begin to place green bonds into fixed-income green index as number of issuers increases
Increased complexity – development of green bonds into a complex product that appeals to investors with different risk appetites (e.g. high yield green bonds)
Expanded universe of issuers – Governments and financial institutions will look to the Green Bond market for funding their clean energy commitments.

14. Future Trends (2)
Securitization – estimated $1.9 trillion in financing could be created globally by renewables securitization; renewable energy companies making high profile moves to prepare solar panel, EV leases and energy bill contracts for securitization
Standardization – recent draft proposal published by Climate Bonds Initiative, London for an industry-wide compliance standard to allow for more transparency and consistency in green bond issuances
Market reform – electricity market reform could reduce policy risk and improve revenue certainty of low-carbon assets, in turn improving risk profile of green bonds
New source of financing – conventional market is saturated for some issuers and green bonds allow issuers to reach a specific investor base
Competitive pricing – demand for well-structured green bonds could make them a lower-cost option for issuers

15. Clean energy drivers in the Middle East
Power demand projected to outstrip supply – Utility demand in the GCC is expected to grow 7 per cent to 8 per cent every year, with Gulf countries expected to spend $45 billion (Dh billion) before 2015 in order to add 32,000 megawatts of capacity
Need to diversify feedstock – gas rich nations have contracted-out gas output for near term and oil is most valuable as an export commodity; coal and biomass generally unavailable; good solar resources widely available in GCC
Projected feedstock shortages and bottlenecks – major infrastructure development to develop new distribution networks to serve power generation
Strong infrastructure spending pipeline – estimated at over $215 billion, significant portion of which is focused on power generation and related infrastructure
Sovereigns pushing ahead – most regional governments have stated intent to devote resources to local renewable energy programs over the short and medium term
Knowledge transfer – very limited local R&D and technology; regional governments and developers are looking to import expertise and technology
Global investment from MENA – Most MENA based investors have allocations and interest in global and regional clean energy sector investments

16. Recent Middle East Clean Energy Developments
Abu Dhabi – Masdar. 100 MW Shams CSP in construction. 100MW Noor PV plant in procurement. Also, planning "smart grid" infrastructure with up to 1.2 million smart meters and substation monitoring and control systems; subsidies for homeowners to install solar panels on their roofs with target total output capacity of 500 megawatts.
Saudi Arabia – planning investment of at least $100 billion into clean energy resources over the next decade, including a target to achieve 5 GW of solar-generated power. Announced 10 percent green energy target by 2020.
Kuwait – Ministry of Electricity and Water has set target to generate 10 percent of its electricity from sustainable sources by 2020.
Qatar – Qatar Solar Technologies announced plans to build a US$1 billion polysilicon manufacturing plant in Ras Laffan Industrial City, producing over 3,500 tonnes per annum
Tunisia – plans to implement 40 solar energy projects within a public-private partnership over the period encompassing all fields of energy efficiency and renewable energies
Morocco – government pledged US$9 billion towards biggest solar-thermal energy project in a single country, aiming to produce 2,000 MW by 2020 (nearly 40 per cent of its electricity needs). World Bank recently committed to funding initial 500MW CSP Project

17. The Middle East Bond Market
Well-established bond market for Middle East sovereigns (e.g. Abu Dhabi, Dubai, Qatar, Jordan) and sub-sovereign entities (e.g. DEWA, ADWEA, SEC) engaged in clean energy development
Middle East sovereign bonds backed by large petroleum and natural gas reserves
Sovereign issuance volume set to increase in 2012 following reduced appetite in 2011 (Arab Spring)
Project bonds have been successfully issued in the middle east (e.g. Dolphin Energy, RasGas)
Investors have deployed capital into the Middle East power sector (ADWEA project financings, Shams 1 solar power plant, DEWA Thor Asset Purchase)
Recent Middle East Sovereign Issuances:
December 2011 – Government of Qatar (US$5bn bonds)
June 2011 – Government of Dubai (US$500m bond)
December 2010 – Ras Al Khaimah (US$400m sukuk)
March 2010 – Kingdom of Bahrain (US$1.25bn bond)

18. Application of Proceeds in the Middle East
Solar power projects
Wind projects
Polysilicon manufacturing
Energy efficiency technologies
Smartgrid installation
Solar rooftop programs
LEED Green Building systems
Feed-in tariffs/Green Payments

19. Standard & Poors/Hawkamah Pan Arab ESG Index
Established in February 2011 by Standard & Poors and Hawkamah; funded by IFC
First tradeable index for MENA equity markets relating to Environmental, Social and Corporate Governance performance
Index ranks and tracks performance, transparency and disclosure of regional companies on ESG issues
Constituents drawn from 150 largest and most liquid companies listed on 11 national stock exchanges in MENA region
Provides incentive to MENA companies to pursue sustainable ESG business practices

20. Green Sukuk
Islamic green bond would connect environmentally focused conventional investors and Shari’ah-compliant investors
World Bank is currently exploring potential in a number of developing countries to issue first ever Green Sukuk to fund low carbon development or environmental projects
Sukuk market suited to channel glowing global pool of Shari’ah-compliant capital to fund renewable energy and climate change projects
Islamic finance and Shari’ah-compliant investment products traditionally backed by assets (e.g. green infrastructure projects)
Renewable energy projects structured in a Shari'ah compliant manner in order to attract investment from private equity investors looking to diversify portfolios

21. Potential Issuers in the Middle East
Governments / Sovereigns
Government authorities (e.g. utility providers)
The World Bank
International Monetary Fund
International Finance Corporation
Arab Monetary Fund
Islamic Development Bank
Arab Bank for Economic Development in Africa
Arab Fund for Economic and Social Development

22. Launch of Middle East Green Bond/Sukuk Consultative Process
The Climate Bonds Initiative, the Clean Energy Business Council and the Gulf Bond and Sukuk Association have initiated discussions to launch a consultative process to develop standards, recommendations and best practices to facilitate the issuance of the first Green Bond/Sukuk in the Middle East by the end of 2012.
Stakeholders will be brought in from previous consultative processes run by the Climate Bonds Initiative globally and the CEBC and GBSA regionally
First meeting will be first quarter 2012

23. The Clean Energy Business Council (CEBC) is…
an association of leading local and international organisations participating in MENA’s emerging low carbon energy sector.
unique in the region as a peak industry body for the clean energy sector and in its reach across the MENA region.
an inclusive forum
As developers, investors, and governments in MENA increasingly focus on low carbon energy solutions, an inclusive forum will help businesses and the public sector share ideas to promote effective policies and best practices.

24. Incorporated in Masdar City, CEBC is a nonprofit organisation with a mission to:
Establish a leading forum for companies and government entities focused on the development and deployment of clean energy in the MENA region
Promote the clean energy industry beginning to flourish in the region and inform the wider community of the benefits of the sector
Collaborate with government agencies and other stakeholders in policy development and regulation of this rapidly developing and exciting sector
Develop a series of strategic alliances with research institutions, international associations, media and others to drive the delivery of clean energy solutions for MENA
Coordinate the gathering of data and information on the sector to ensure relevant benchmarking and transparency in the sectors development
Support and assist governments, industry and the community in the region to meet low carbon targets and sustainability goals

25. Membership
CEBC is a membership based non-profit organisation registered in the Masdar Free Zone in Abu Dhabi
Membership is currently 10, 000 USD for Founding Members
Members have access to technology based sub-committees, research and reports, research and media networks, access to government and ability to influence government and policy development through a neutral forum
Companies can register their interest in becoming a Member of CEBC by visiting our website at
For more information