Green investments, which has grown by leaps and bounds in recent years, provides a strong linkage between the financial industry, environment protection and economic growth. Private equity, as an independent player, is playing a vital role in financing green projects and is now well-positioned to fund development projects worldwide. Last year, the venture capital and private equity investment in clean energy firms was a whopping USD7.5billion.
Green private equity helps project developers and entrepreneurs in securing venture capital for sustainable and green projects. Investors and funds make direct investments into private companies which lead to delisting of public equity.
Equity for renewable energy projects can come from a utility that is financing the whole project; or from the developer who is contributing partial equity (usually 20% to 40%) of the investment cost; or it may originate from outside investors such as infrastructure funds, private equity funds and insurance companies. Capital for private equity can be used to finance new technologies, expand working capital, make acquisitions, or to strengthen balance sheet.
Whether they are venture capital in a start-up electric vehicle company or the financing of a solar power project, green technologies represent investments that are crucial to our transition to low-carbon economy. The prime beneficiaries of private equity are renewable energy, energy efficiency, clean transport, forest management, water management, sustainable land use and other low-carbon projects, all of which are urgently required in the developing world.
Green investments are a major enabler for local, regional and international financing needs of green projects. In recent years, environment awareness has rapidly increased in the developing countries and it is expected that business opportunities for private equity firms will also show an upward trend.
Short-term sustainability issues, such as water management or energy management, and longer-term issues like renewables and waste management, are already on the radar and the coming years will witness a heightened activity from private investors and equity firms in developing countries. To sum up, green private equity promises to play a big role in aligning financial systems with the financing needs of a sustainable world.