Goldman Sachs Triples Its Clean Energy Target to $150B
November 6, 2015
Goldman Sachs has more than tripled its target for clean energy financing and investment, forecasting that the sector will mobilize $150 billion by 2025.
The expanded goal comes as the bank closes in on its original target of $40 billion after just four years.
Goldman Sachs' updated Environmental Policy Framework says it will continue to look for opportunities across various mechanisms to invest in clean energy, including securitization, YieldCos and green bonds. It will also look for novel investment structures to bring energy to the more than 1 billion who lack access to modern energy services.
The spectrum of low-carbon technologies that could receive some of Goldman Sachs' additional $110 billion is wide: solar, wind, sustainable hydro, biomass, geothermal, advanced biofuels, energy efficiency, energy storage, LEDs, electric vehicles and renewable energy transmission.
It will not just be energy. Access to clean water and water scarcity were both also outlined as opportunities ripe for investment, whether through green bonds, public-private partnerships, or debt financing for the municipal market.
The money will not all be provided directly by the bank, but also includes investments and deals that Goldman Sachs has facilitated. So far, the bank has made large investments in wind and solar companies such as Dong Energy, SolarCity and First Solar and worked on IPOs for cleantech companies such as Opower and Silver Spring Networks.
At Goldman Sachs' Environmental Finance Innovation Forum on Tuesday, the mood was decidedly bullish on the global clean energy market, despite the recent tumult faced by many YieldCos and short-term volatility in the U.S. given the looming ITC cliff.
For Goldman Sachs, the focus is on areas where the bank can be catalytic. Some of those areas are the energy storage and grid edge spaces, which may also include efficiency and demand-side management, said Kyung-Ah Park, head of environmental markets at Goldman Sachs. The bank has an initial target of $500 million to finance and co-invest in advanced grid technologies. Park called the opportunity in energy storage "very significant."
Others at the Goldman Sachs forum, including NextEra Energy's SVP of development Mike O'Sullivan, were also excited about the cost curve on utility-scale storage in the near term, and storage for more than he could even imagine in the future.
"The young and mid-career folks at NextEra are very eagerly committing their time to this," said O'Sullivan. Although O'Sullivan was still proudly carrying a flip phone, he compared the advent of more ubiquitous energy storage to the evolution of the iPhone.
"In 2008, you bought an iPhone to make calls; now that's like the sixth or seventh thing you might do with it," he said. "We will look back five to seven years from now and laugh that we deployed batteries just for frequency regulation."
For Goldman Sachs, energy storage is just one technology that will receive more attention. Another focus is energy access. Goldman Sachs will launch a Clean Energy Access Initiative to scale up clean energy solutions in underserved markets. Park said investment will likely come in the form of grants and working with impact investors to de-risk opportunities and help drive the for-profit opportunities.
Although there are for-profit businesses scaling up in this sector, "That's still developing over time," said Park. The off-grid energy landscape is evolving quickly, however. A range of investors, from DBL Partners to the Overseas Private Investment Corporation, have recently made relatively large commitments to individual off-grid companies that work in Africa.
There are challenges, particularly around bringing lower costs of capital to the potential consumers of these services, who already spend billions of dollars every year on dirty energy sources.
Even so, the private market is moving. Cathy Zoi, CEO of Sun Edison's rural electric utility company Frontier Power, said at the Goldman Sachs forum that her company expects the off-grid power opportunity to be an $800 million business within five years. Although there are some challenges with expanding the financing options in this emerging sector, it is an issue the private sector is ready to tackle.
"We have 20 years of microfinance under our belts, and we can learn from that," she said.
For Goldman Sachs, underserved energy markets are not just about the 1.3 billion who lack access to electricity. It will also mean expanding clean energy access where the grid exists. The bank pointed to previous deals that addressed underserved markets that included $40 million to PosiGen, a New Orleans company that offered solar to low-income residents and more than $320 million in capital to Indian renewable energy company ReNew Power.
When Park was asked about the possibility that the target of $150 billion could be scaled up further within the decade, she couldn't rule it out. "It's possible," she said. "I hope so."