Goldman on track to hit $1 billion Japan clean energy bond goal

Goldman Sachs Group Inc. is on track to reach its target of arranging $1 billion of renewable energy bonds in Japan, buoyed by a market attracting more developers with overseas experience.

The investment bank, seeking to offer an alternative to traditional bank loans for project developers, announced in 2015 that it aimed to achieve the $1 billion in the next few years. That goal is likely to be met this year, Toru Inoue, vice president at the company’s Infrastructure & Structured Finance Financing Group, said in an interview.

Goldman Sachs has sold about 30 billion yen ($277 million) of solar bonds since 2013, a year after the Japanese government introduced an incentive program to boost clean energy, Inoue said.

“The target is within reach for us barring a major setback as we have a backlog worth tens of billions of yen,” Inoue said. From the second half of this year through next year, the investment bank may add other types of clean energy such as biomass and wind to its pipeline, he said.

Japan Asia Group Ltd. and Japan Renewable Energy Corp., a company affiliated with Goldman, are among developers who’ve raised capital through solar-project bonds.

In March, Goldman Sachs arranged a 5.4 billion yen bond for Canadian Solar Inc. for a 19-megawatt solar power project in central Japan with two different maturity dates.

The arrangement was made as Canadian Solar mulls listing its solar power plants on the Tokyo Stock Exchange’s Infrastructure Fund market, according to Inoue.

“We came up with this product to offer flexibility in case Canadian Solar decides not to list its infrastructure fund,” Inoue said. “The market is still new and investors are closely watching developments.”

Stable Assets

The infrastructure fund market was set up in 2015 to meet demand for investments in stable assets such as solar power plants and ports. Three funds have been listed so far. The three are hovering around or below the prices of their initial public offerings.

Canadian Solar’s note is the first project bond in Japan to be labeled as a green bond. Goldman Sachs plans to issue more green bonds almost every month, Inoue said.

The move comes amid growing interest in environmental bonds in Japan.

“Japan is getting ready for green bonds, though the pace has been slow,” said Megumu Murakami, manager of the ESG research center for the Japan Research Institute, which reviewed the green bond for Canadian Solar.

The Tokyo Metropolitan Government said in January that it plans to issue 20 billion yen of bonds to fund clean energy and energy efficiency projects. That follows the issuance of A$125 million ($95 million) of bonds for environmental efforts in November.

“Issuance of green bonds and investment in such notes are emerging in Japan,” the country’s Ministry of the Environment said in a set of guidelines for green bonds released in March. “But not enough bonds are being offered compared with other countries despite the need for a large amount of private funds.”

Global View

Still, investor demand for green notes in Japan is weak, Inoue said.

China, the world’s largest emitter of greenhouse gases, led the $95.1 billion global green bond market in 2016, setting a new annual issuance record of $27 billion, according to a Bloomberg New Energy Finance report in January. Green bond sales are likely to reach a record this year, Moody’s Investors Service said in February.

Nearly five years after the introduction of an incentive program for clean energy, the Japanese solar market has matured, Inoue said.

“It is becoming a market for professionals,” he said, adding that lower tariffs for solar projects are pushing out those without management skills and attracting developers from countries in Europe, the Middle East and Asia where tariffs are lower.

“Some say solar in Japan is over and others say it has yet to begin,” he said. “We are seeing a generation shift.”

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