Christophe Mianné: Supporting renewable energies
The challenge of financing the energy transition will have to be tackled by civil society, without the “Marshall Plan” called for by a pocket of French government representatives since the Grenelle Environnement Forum. European states, facing the evidence of the recession, prefer taking the regulatory route to tap into private capital sources and channel a portion of savings into the green economy. Capital market intermediation and private banks therefore play a key role in the development of future technologies. Societe Generale’s Christophe Mianné, Deputy Head of Global Banking and Investor Solutions, knows better than anyone that without banks, the energy transition could very well amount to nothing more than a pious hope.
What role exactly does a corporate and investment bank like Societe Generale play in financing the energy transition?
Through the three types of services we offer – namely, advisory services, financial structuring and financing - we support numerous greentech projects.
For instance, since 2007 Societe Generale has provided financial support to an array of offshore wind farms in Belgium, Germany, the UK, the US, and soon France as part of its 2018 ambition to finance some 3 GW, which is enough energy to power some three million households.
In 2015 we helped the company Neoen finance Europe’s biggest solar park, in Cestas near Bordeaux, as well as new wind farms in Hornsdale, Australia, with a total capacity of 170 MW. The new facility is of strategic importance to the Australian Capital Territory, as it will cover close to 20% of the region’s energy requirements, helping the region reach its 90% renewable energy target by 2020, and will create over 250 local jobs during the construction phase.
Then in 2016 Societe Generale advised Canadian energy sector leader Enbrige on its 50% acquisition of three offshore wind farms from EDF and Dong. More recently, we were involved in financing the biggest offshore wind farm in Germany - the “396 MW Merkur” - held by the consortium comprising Partners Group, InfraRed Capital Partners, DEME and GE.
Are new technologies in energy and the environment set to become a strategic, standalone sector for banks?
In 2016 we expect over 82% of our new commitments in the energy sector to be in renewable energy projects. We have also committed to doubling our support to the renewables sector by mobilising up to ten billion euros between now and 2020. This is a serious commitment, as it’s the bank that incurs the risk. But given the stakes for society and the climate, Societe Generale will take on these risks with resolve and pragmatism. Our vision is that the willingness of banks to finance the energy transition will determine its success.
Why wouldn’t banks want to finance the energy transition?
Some renewable energies are more mature than others, and some are still in the development stage. Then there are the sometimes unstable regulatory environments put in place by the countries that have begun their energy transition. All this gives the renewables sector a particular risk profile that some banks might shy away from. That said, a lot of progress has been made recently in the supporting technology and regulatory frameworks, and at the same time renewable energy generation costs continue to decrease. Some industrial projects are becoming economically viable as a result, even without State subsidies, making the environment favourable to bank financing. The degree of each bank’s commitment to greentech will depend, however, on whether it sees green energy as a passing fad or as a structural, long-lasting transformation of our society.
What is Societe Generale’s position?
It is our long-held conviction that the energy transition is the groundswell that will revolutionise the sector for decades to come. Since 2003 Societe Generale has taken an interest in the relevant technologies and issues, and has invested in understanding and supporting the renewable energies projects of its corporate clients. This experience is what makes us one of the pioneering banks in the financing of the energy transition. Today the banking sector as a whole is following suit, not to an equal extent of course, but it looks to be the start of a new direction which we welcome wholeheartedly.
You are openly assertive about accelerating the energy transition. Does that mean that there is enough demand to sustain the sector’s economy in the years to come?
From a purely forward-looking perspective, energy is an indispensable resource to everyday life, and today access to electricity is an absolute priority for over one billion people on Earth. The global population is growing, and so are needs. And there is a tremendous need to finance massive renewables-based electricity generation projects.
Today the political will is there. It started in the early 2000s and first took form with the EU climate package that sets targets for greenhouse gas emissions, energy efficiency, and the share of renewables in the EU’s energy mix, then more recently with the “2030 Package”. In 2014 new European rules were established to strengthen and stimulate the development of the energy transition. These rules have been rolled out country by country, the Energy Transition for a Green Growth act in France being one example, and we now have a legislative framework for the whole of Europe to secure the energy transition.
The numbers confirm this trend: in 2015 alone, 330 billion dollars were invested in renewable energies worldwide, which is five times more than 10 years ago. In 2015 close to 90% of new electricity generation came from renewable energy sources.
And there are immediate gains for industry, as the operating costs of solar, onshore and offshore wind turbine technologies have fallen sharply over the last five years. In fact, the International Renewable Energy Agency and the International Energy Agency have openly confirmed their highly ambitious scenarios for the next few years, forecasting considerable growth in renewable energies.
What is the bank’s role when it comes to advisory services and financial structuring?
An investment bank helps its clients seek investment opportunities and financing.
In the new industry of offshore wind farms, turbine and foundation technologies are developing at an extremely fast pace, and with new projects come unexplored options in underwater installation methods. It is therefore essential to establish solid legal frameworks with suppliers and installers in order to reduce the risks borne by investors and banks. Societe Generale acts as an advisor for many projects of this scale, and we will be raising several billion euros in debt over the next few months for these projects.
Bearing in mind that these projects are often spread over several years of construction and operation, our financial structuring service involves organising debt according to maturity, currencies, and hedging risks, such as those linked to interest rate and sometimes commodity price fluctuations (especially iron). We then raise debt either with other banks, or with investors who buy project bonds or green bonds.
What do you make of green bonds? Are they a passing fad?
Green bonds are bonds issued by companies dedicated to protecting the environment. It is an effective means of promoting the energy transition. The issuer expresses its full commitment to that end in a precise mission statement, and ensures that funds go towards eligible projects only. It also has to provide regular progress reports on the projects, as well as impact assessments.
At the end of 2015 Societe Generale successfully issued its first positive impact bond. The funds raised are used exclusively to finance projects that help combat climate change. In drawing on its expertise in financial structuring and distribution, Societe Generale is playing its part to help build a sustainable bond market by diversifying the sources of funding on the capital markets for sustainable development projects. The issue attracted strong investor demand and had a final order book of over three billion euros from more than 170 investors. This is proof that the future is bright for green bonds.
Another example of the rise of green bonds: in June 2016 we helped Zhejiang Geely issue the Chinese automotive sector’s first offshore green bond. The proceeds will be used to finance and refinance design, development and production projects for zero-emission vehicles via Zhejiang Geely’s UK subsidiary London Taxi Company, the manufacturer of London’s famous black cabs. We kept up the momentum in 2016 by issuing our second successful positive impact bond. So, we are not looking at a passing fad, but rather a real step forward for the energy transition.
What are the advantages for issuers?
Green bond issues are a way of diversifying the investor base by including new SRI funds and widening geographic distribution. Because there is a lot of liquidity on the capital markets at the moment, the additional diversification does not offer a tangible price advantage, although this could change should investors become more selective.
Another upside is that green bonds resonate positively in the press, which boosts issuers’ leadership in ESG (Environmental, Social and Governance) matters and in innovation on the capital markets.
Do public authorities have a part to play alongside banks to finance the energy transition?
They most certainly do, and they are already playing it. Firstly, by implementing an incentivising legislative framework by which project sponsors can sell energy generated in acceptable conditions. For example, renewable energy facilities can have priority when feeding into the power grid. This preferential right is pivotal.
In July 2014 the European Union established a framework applicable to all member States. Its purpose it to harmonise the renewable energy support mechanisms, and achieve the ambitious goals that the EU has set for itself collectively. Each member State then transposes the directives into local energy transition law.
In terms of financial support, the most innovative technologies must also be eligible for development subsidies. For example, France recently launched a call for expressions of interest to develop pilot floating wind turbines and tidal stream generators off the French coastline.
Translated from an article published on www.rse.magazine.com