Renewable Energy Memo

September 30, 2009

An Asset-Backed Solution for Renewable Project Finance

Filed under: Biofuels,CleanTech investing,Energy Blog — Tags: , — Jonathan B. Wilson @ 6:33 am

Our friends at Biofuels Digest have offered a modest proposal for the problem of finding funding for biofuels and bioenergy projects: asset-backed securities. 

It would work by having a bank loan funds to a project.  The bank would then pool its loan with other renewable energy loans from other banks.  A finance company (either newly-formed or perhaps government-backed) with then issue securities to investors that represent a participation in the performance of the pool of loans.  Banks participating in the pooling process would be required to pay a premium into a insurance-like fund that, in turn, would guarantee a portion of the loans.

It’s a creative approach and one that we would support if it were available, but as it’s describe it would require an act of Congress (quite literally) to get off the ground.  A public-financed securitization vehicle, like Fannie Mae and Freddie Mac for mortgages, can only be created by Congressional authorization.

There is a private market solution, however, but it would still require the participation of a number of sizeable funds.  It would be possible for a group of funds or some very well-financed investors to form a holding company that could buy pools of renewable energy loans and then sell publicly-traded securities that represent participation interests in those loans.  The holding company would likely be covered by the Investment Company Act and investors buying securities in the process would have an experience similar to that of a standard mutual fund. 

All that would be required is the financial backing and the leadership to bring such an entity into existence.

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