US$2.24 trillion for green bonds coincide with standards for marine hydrokinetic risk management

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Standards and transparency. Managers who oversee trillions of investment dollars now have similar goals with those who are dedicated to marine hydrokinetic (MHK) development from the U.S. Department of Energy (DOE) and U.S. National Renewable Energy Laboratory (NREL).

Dec. 16, in an announcement made from London, England, investors with joint US$2.24 trillion of assets under management who are committed to grow a large and robust climate bonds and green bonds market, in part, demand “transparency around the use of proceeds and their impact,” according to the Climate Bonds Initiative.

Amongst the many components of sound investment in climate change, fund managers must have confirmation of the asset’s use of proceeds and resulting climate benefits.

Although not purposely related, a draft of standards that meet areas of the green bond and climate bond requirements was discussed on Dec. 16, by DOE and NREL along with other stakeholders seeking to set MHK development guidelines.

Framework

The MHK Technology Development Risk Management Framework is currently in draft form. But, the purpose of the framework is an effort to supply clearly understood and transparent information about the status of a given MHK project.

“The purpose of this risk management framework is to increase the likelihood of successful development of a MHK technology by addressing negative and positive uncertainties,” according to a section of the draft document. “It is designed to be applicable to all MHK projects of any Technical Readiness Level (TRL) or Technical Performance Level (TPL) and all risk types (e.g. technological risk, regulatory risk, commercial risk, etc.) over the entire scope of the development project.

“This framework is intended for use with development and deployment of a single MHK technology — not for multiple device deployments within a farm.”

The statement released by the group of signatories investing US$2.24 trillion in climate bonds also said, “The response to climate change requires substantial investments in areas such as clean energy, low-carbon transport, water infrastructure; and in adaptation measures for communities and to improve existing infrastructure. It requires a rapid transition to a low-carbon and climate resilient economy.”

Success needs time

MHK technologies suffer setbacks because of the length of time needed from conception to research to implementation. Notwithstanding, in the research phase an extraordinary amount of modeling is needed for tidal environments.

According to information in the draft, the MHK industry has suffered a number of technological and commercial setbacks, including some that resulted in bankruptcy for organizations and companies developing the technology for commercialization.

To help reduce the risks of industry failures and advance the development of new technologies, DOE and NREL developed an MHK technology reliability and survivability risk assessment framework. The framework emphasizes design and risk reviews as formal gates to ensure risks are managed throughout the technology development cycle and it includes six major categories:

• The recommended technology development cycle
• Tools to assess the MHK technology readiness level
• Tools to assess the MHK technology performance level
• A risk management process with design and risk reviews for actively managing risk within the project
• A detailed description of a risk registry to collect the risk management information into one living document
• Recommendations for collecting and using lessons learned throughout the development process

The MHK framework’s planned steps may help stimulate climate bond and green bond investment from fund managers who are able to weigh the risk of investment after being able to clearly understand the potential return on investment.

The statement's signatories called on:

• Governments and corporations to develop projects that can be financed by green and climate bonds
• Climate science experts to develop clear standards for the climate change impacts and benefits of bond finance projects
• Issuers to ensure transparency around the use of proceeds and their impact

Green bonds are innovative financial instruments that fund projects or assets with climate benefits. The market experienced an outstanding growth in 2014, with $35 billion issued to date, which triples the 2013 figure. The market is expected to reach $100 billion in 2015 and to triple again in 2018, according to the Climate Bonds Initiative.
 

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