Solar Energy and the Climate Bond Standard
Background Paper to eligibility criteria
Solar Technical Working Group

Version 1: July 2013

Author:Padraig OliverOpen for publication

Funded in part by Bank of America Merrill Lynch
Please do not circulate.

Climate Bond Standard and Certification Scheme: Solar Technical Working Group

Contents

CONTENTS

2INTRODUCTION

3SOLAR BOND MARKET AND POTENTIAL FOR GROWTH

3

HOW MANY BONDS EXIST ALREADY?
HOW CAN BOND CERTIFICATION HELP GROW THE MARKET?

33

KEY ISSUES IN DEVELOPING CRITERIA5OUR STARTING POINT
ENVIRONMENTAL IMPACTS OF SOLAR ASSETS
TREATMENT OF HYBRID SOLAR ENERGY ASSETS
LINKING SOLAR-SPECIFIC ASSETS IN THE MANUFACTURING SUPPLY CHAIN TO BONDS

5
5
7
7

PROPOSED ELIGIBILITY CRITERIA (SUBJECT TO UPDATES)

9APPENDIX

10ABOUT THE CLIMATE BOND STANDARD AND CERTIFICATION SCHEME
MEMBERS OF THE SOLAR TECHNICAL WORKING GROUP

10
11

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Climate Bond Standard and Certification Scheme: Solar Technical Working Group

Introduction
This paper provides context to the work of the Solar Technical Working Group (TWG) under the Climate
Bonds Standard and Certification Scheme. The Solar TWG has explored the issues around developing lowcarbon eligibility criteria for bonds linked to solar energy. This paper present these issues considered by the
TWG in arriving at the proposed eligibility criteria, and describes the next stages in developing further
criteria on other solar sector assets
These issues include: Criteria for different types of solar assets e.g. solar PV plants, concentrated solar power (CSP) andmanufacturing Considering environmental impact of solar assets
Accompanying this background paper is a first stage of proposed eligibility criteria solar energy assets
linked to certified Climate Bonds. This criteria allows solar assets where a minimum of 85% of the electricity
generated is from solar energy. It follows that fossil fuels may provide back-up or hybrid electricity
generation to a limit of 15% of the total annual electricity generated.
Criteria for manufacturing assets will be developed in later stages in Autumn 2013.

Solar bond market and potential for growth
Solar energy is a priority because of its pivotal importance in achieving a low carbon economy. The
International Energy Agency conservatively predicts that solar power (photovoltaic and concentrated solar
power) can contribute 22% of global electricity supply by 2050. In the near term this would require annual
investments of US$65 billion out to 2020.1
In the longer term, it has been estimated that solar energy could provide up to 67% of global primaryenergy consumption by 2100 in a world aiming to limit temperature increase to 2°C.2
How many bonds exist already?
Research conducted by the Climate Bonds Initiative and HSBC has identified up to US$8.9bn of bonds
outstanding clearly aligned with solar energy.3
62% of this figure are corporate bonds from pureplay solar industry players such as PV manufacturers. 38%
derives from project bonds such as the US$850m Topaz solar bond issue in the US. These project bonds are
attractive to institutional investors as they attain investment grade ratings of BBB or above due togovernment guarantees or strong counterparty credentials. Municipal bonds from the US market make up
the rest of the 1% of bonds identified for solar power deployment, again with strong credit ratings.
How can bond certification help grow the market?
The scheme will not only allow solar bond issuers to be part of a broader investment-grade climate bondportfolio including transport, property and water investments. It will also facilitate the issuance of bonds
from issuers who would otherwise find it difficult to gain recognition for their low carbon investments.
Investment-grade electricity utilities could link their ‘A’ or ‘BBB’-rated corporate bonds to their solar power
generation portfolio. Financial institutions such as commercial banks could link their corporate bonds totheir solar loanbook. And large conglomerates in the upstream segment of the solar supply chain, such as

1
2

3

IEA Energy Technology Perspectives 2012
WBGU 2004 World in Transition: Towards Sustainable Energy Systems
http://climatebonds.net/resources/our-publications/bonds-climate-change-2013/

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Climate Bond Standard and Certification Scheme: Solar Technical Working Grouppolysilicon production, glass and chemicals, could link the their solar product divisions to a corporate bondissuance.
This would grow the market of investment-grade bonds that are clearly identifiable as solar bonds andallow investors to easily incorporate them into low carbon investment strategies. It will also support thedevelopment of a securitisation market for solar assets through gradual investor education on asset
performance and familiarity.
Table 1 provides an overview of these potential bond-types, issuers, and revenue streams of bonds that
could be eligible for certification due to financing solar energy deployment.
Table 1: Map of potential Solar-linked Climate Bonds
Bond-types Issuers

Revenue Streams

PurposesPotential Examples

Treasury revenues

Solar FiT support or
subsidy policies

Potential NAMA
bonds

Treasury revenues

Roll-out of solar power
generation on public
lands/buildings

US muni bonds

Financial Institution Development Banks and Treasury revenues
Bonds Commercial Banks
Solar project loans

Solar power generation,

World Bank green
bonds

Public Sector Bonds Sovereign
Public Agencies
Municipal authorities

Solar manufacturing
facility
Solar grid connection

Portfolio Bonds Aggregator: Assetbacked Securities (ABS)

Project Bonds Project SPVPower purchaseagreements on power
plants (PPAs), rooftops

Solar power generation

E.g. Solarcity

Solar project loans

Solar power generation,

E.g. Aggregated fundSolar infrastructure fees

Solar grid connections

PPAs

Solar power generation

Topaz Solar Farm

Solar grid connections;
Corporate Bonds Utilities

Feed-in tariffs

Solar power generation

E.g. any electricalutility

Solar manufacturers

Treasury revenues

Solar manufacturing
facility

Sunpower Corp

Solar supply chain
te1chnology providers

Treasury revenues

Polysilicon; solar glass
production etc.

E.g. Applied Materials

Solar Deployment
Property Owners

Treasury revenues

Commercial building
rooftop roll-out

E.g. Tesco

Lease Finance contracts

Notes: Some bonds may be a combination of two approaches e.g. asset-backed securities backed by government agencies or
local authorities; or covered bonds with FI and portfolio bond characteristics.
Treasury – denotes balance sheet finance of issuer
PACE – Property Assessed Clean Energy Bonds

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Climate Bond Standard and Certification Scheme: Solar Technical Working GroupKey issues in developing criteria
Our starting point
The approach for developing criteria is defined in the introduction to the Climate Bond Standard. 4 To the
maximum degree possible, it aims to adopt a positive technology or fixed asset approach by specifically
including, “projects or assets that directly contribute to-developing low carbon industries, technologies and practices that achieve resource efficiency consistent
with avoiding dangerous climate change-

essential adaptation to the consequences of climate change”

After wind energy criteria, solar energy is the clearest low carbon solution for eligibility in the scheme.
However, there remain three key issues that the technical working group consider in order to develop andfinalise the criteria: Potential environmental impacts of solar assets
 How to treat hybrid plants or plants with fossil fuel back-up
 Identifying solar specific assets from potential issuers in the supply chain
Environmental Impacts of solar assets
Solar plants have been subject to numerous environmental impact concerns in recent years. These can
include inter alia:
 Land use rights and land access: where land is subject to native title or cultural heritage conditions
restricting use or where projects cross borders.
 Water requirements: depending on geographical location PV modules and CSP plants require periodic
rinsing to remove dust. Solar thermal plants also often require substantial water resources to operate
 Environmental sensitivities: Costly habitat relocation or remediation and additional permitting can berequired if sites are located on environmentally sensitive land.
 Downstream land impacts: Ensuring the facility does not have an adverse effect on downstream
stakeholders during flooding events
 Visual impacts: PV modules absorb as much light as possible yet reflectance remains. This can have an
impact on the ability of birdlife to navigate and can potentially impact pilots when located near airports
Any bond applying for Climate Bond certification is required to show that the relevant low carbon assets
operate in accordance with relevant national environmental laws and regulations (clause 4 of the Climate
Bond Standard).
Environmental Impact Assessments (EIAs) are common requirements in most jurisdictions for solar power
plant developments, which might include studies of threatened species; land disturbance; historical andarchaeological studies and visual impact etc.
In this section, we outline the key evidence base in consideration of environmental impacts of solar assets.
Carbon footprint
The lifecycle emissions of solar plants are low enough to allow solar energy to be designated as a low
carbon solution. Lifecycle emissions include all emissions related to the construction, operation (including
upstream and downstream fuel emissions) and decommissioning of the power plants. Table 2 provides acomparison across different fuel sources. The emissions are quoted in terms of CO2-eq (or carbon dioxide4

http://standards.climatebonds.net/wp-content/uploads/2011/11/ClimateBondStandard_Text_24Nov11.pdf

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Climate Bond Standard and Certification Scheme: Solar Technical Working Groupequivalent), which normalises the greenhouse effect of other gases released in the process (e.g. methane)to that of CO2.
Table 2: Comparison of normalised lifecycle emissions (g CO2-eq / kWhe) for power plants using various fuel sources.

Fuel Source

Lifecycle
Emissions(g CO2-eq / kWhe)Coal
Natural Gas
Nuclear
Solar PV
Solar Thermal

850-1300
400-650
10-40
35-10010-35

Solar Thermal / Gas Hybrid
Wind
Hydro
Biomass
Marine234-345
10-20
7.5-2065-35015-25

5Intensity

The Solar TWG notes that the high end of the solar PV estimate relates to a typical residential PV
installation in the UK and that the carbon footprint of solar PV in general has decreased approximately 50%
in the last 10 years due to performance improvements, raw material savings and manufacturing process
improvements.6 The group also note that the lifecycle emissions of solar thermal plants remain relatively
low to fossil fuel alternatives, even when the emissions of the fossil fuel hybrid element are factored in,provided the extent of fossil fuel use in the hybrid plant is controlled.
Energy payback
Energy payback periods are also improving. For solar PV systems, the energy payback period includingbalance-of-system components, measured in 2004 was between 3-4 years depending on the type of basematerial used.7 A more recent study estimated the period at between 6 months and 1.4 years.8 For CSP
plants, it is estimated that the energy payback period ranges from 5 months to 1 year.9 Both systems havelife times of approximately 30 years.
Water requirements
The withdrawal of water of in the lifecycle of solar PV systems, that is water diverted or withdrawn fromgroundwater or surface water sources, is relatively lower than in other forms of electricity generation.
Assuming strong sun locations, water withdrawal use ranges from 0.8 l/kWh to 1.9 l/kWh. Other forms ofhigh carbon energy range from 1.2 l/kWh to 230 l/kWh.
In terms of water consumption, that is water permanently withdrawn from sources and no longer available,solar PV consumes 0.1 l/kWh. This compares to ranges of 0.75 l/kWh to 75 l/kWh for high carbon electricity
generation.10

5

Weisser, D. (2006). A guide to life-cycle greenhouse gas (GHG) emissions from electric supply technologies. Vienna: PESS / IAEA.;
Parliamentary Office of Science & Technology (UK). (2011). Carbon Footprint of Electricity Generation. London: Houses ofParliament (UK).; Jacobson, M. Z. (2009). Review of solutions to global warming, air pollution and energy security. Energy &Environmental Science (2), 148-173.; Lechón, Y., de la Rúa, C., & Sáez, R. (2008). Life Cycle Environmental Impacts of Electricity
Production by Solar Thermal Power Plants in Spain. Madrid: CIEMAT.
6
7
8

E.A. Alsema, E. Nieuwlaar, Energy viability of photovoltaic systems, Energy Policy 28 (2000) 999-1010
NREL (2004) PV FAQs available at: http://www.nrel.gov/docs/fy05osti/37322.pdf
EPIA (2011) The Energy Pay Back Time, available at www.epia.org

9Geyer et al (2005) Concentrated Solar Power Now, SolarPACES, ESTIA, Greenpeace International; Burkhardt et al (2011) Life Cycle Assessment of aParabolic Trough Concentrating Solar Power Plant and the Impacts of Key Design Alternatives, NREL.
10

V. Fthenakis and al., (2010) Life-cycle uses of water in U.S. electricity generation, Renewable and Sustainable Energy Reviews 14 2039–2048; E.
Lebre La Rovere and al., (2010) Sustainable expansion of electricity sector: Sustainability indicators as an instrument to support decision making,Renewable and Sustainable Energy Reviews 14 422–429; N. Onat, (2010) “The sustainability indicators of power production systems,” Renewable
and Sustainable Energy Reviews 14, no. 9 3108-311; R Saidur and al., Environmental impact of wind energy, Centre of Research UMPEDAC, Level 5,

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Climate Bond Standard and Certification Scheme: Solar Technical Working GroupFor CSP however, there is a broader range of different technologies with differing water withdrawal andconsumption requirements. According to NREL, dish-type Stirling CSP plants have extremely low water
consumption factors of 5 gal/MWh, while CSP technologies using a cooling tower at the upper range at
1000 gal/MWh.11
Land use impacts
Ground-based solar plants require land at approximately 2.5 to 3.5 hectares per MW depending ontechnology and location.12 Life-cycle analysis over 30 year periods shows this can still be less than land than
the average power plant using surface-mined coal.13
Siting in environmental sensitive areas of wildlife, conservation, and cultural heritage can be another factor
in solar assets. Regulatory frameworks around environmental impact assessments are improving in key
solar markets, particularly in South and Southwest US as well as Europe and Australia. The Solar TWG
therefore notes the proliferation of projects and alliances in this area in local markets. For example, in the
US the US Bureau of Land Management conducts Solar Energy Study Areas, the California Renewable
Energy Transmission Initiative and the EPA RE-powering America’s Land project.14
Recycling
In Europe, solar PV systems are covered under the Waste from Electrical and Electronic Equipment (WEEE)
Directive since July 2012. Associations such as PV Cycle, covering 90% of the module manufacturingindustry allow for easy compliance across member-states of this requirement. In the US, leading
manufacturers such as First Solar are implementing company-specific recycling and collection programmes.
Environmental Impacts Conclusion:
The Solar TWG notes the existing requirement in accordance with clause 4 of the Climate Bond
Standard on adherence to environmental and social laws and regulations. Given the focus of the Solar
TWG on establishing low-carbon eligibility criteria for solar assets, combined with the safeguards inclause 4 of the Standard, as well as existing industry initiatives in environmental impact areas, theSolar TWG does not consider it necessary to adopt specific criteria in relation to environmental
impacts for solar assets.

Treatment of solar energy assets with fossil fuel back or hybrid plants
According to the IEA, virtually all concentrated solar power plants (CSP), with or without energy storage,
are equipped with fossil fuel-powered backup systems that help to regulate production and guarantee
capacity – especially in peak and mid-peak periods.15 In addition, solar power systems such as PV may behybridized with existing or purpose-built fossil fuel generators.
For the purposes of this working group, it was important to identify the suitable role that back-up or
hybridised power may play in supporting more solar power generation.
Firstly, the group considered whether the bond certification should apply solely to the solar-specificinvestment in a plant with fossil fuel back-up or hybridisation, or to the entire investment linked to theEngineering Tower, Faculty of Engineering, University of Malaya ; Macknick et al, (2011) "A Review of Operational Water Consumption andWithdrawal Factors for Electricity Generating Technologies", NREL
11

Macknick et al (2011) "A Review of Operational Water Consumption and Withdrawal Factors for Electricity Generating Technologies", NREL

12

Turney et.al., (2011), Environmental impacts from the installation and operation of large-scale solar power plants, Renewable and Sustainable
Energy Reviews 15 3261-3270
13

Fthenakis, V.M. and Kim, H.C. (2009), Land use and Electricity Generation: A life cycle analysis, Renewable and Sustainable Energy Review, 13,1465-1474
14
15

DOE (2012) Sunshot Vision Study, Washington D.C.
IEA (2010) Technology Roadmap – CSP, Paris 2010

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Climate Bond Standard and Certification Scheme: Solar Technical Working Groupbond. It was considered that to provide practical implementation of the certification against project
investments, it was important to provide criteria that would incorporate the entire investment cost.
Secondly, it was important to consider in the case of fossil fuel back-up or hybridisation under the bond, towhat threshold should this be allowed in total electricity generation and the appropriate metric used.
The group referred to the feed-in tariff legislation developed in Spain where several CSP plants with fossilback up have been established. Decree 436/200416 applies a 12-15% threshold on back-up fuel, stating:
Subgroup b.1.2 Installations that use solar radiation as primary energy for electricity generation.
These installations may use equipment that use a fuel to maintain the temperature of the heattransmission fluid in order to offset the lack of solar irradiation that might affect the forecastdelivery of energy.
Electricity generation using that fuel must be less than 12% as an annual calculation of the total
production of electricity if the plant sells its energy in accordance with option a) of article 22.1. That
percentage may be as high as 15% if the plant sells its energy in line with option b) of article 22.1.
(Article 22.1 relating to whether the offtake price is set at a flat rate through the grid company(option a) or whether the operator sells electricity in the pool market where prices change daily(option b).
The group also discussed the emissions-intensive nature of the fuel, noting the potential greater
proliferation of shale gas has in increasing emissions compared to conventional gas production.

Role of fossil fuel back-up and hybridisation Conclusion:
Given the precedent set down the by the law, it was considered most appropriate to adopt a flat
threshold rate of 15% for annual electricity generated by the plant to be allowed from the fossil fuel.
Working group experts developed a 4-step guideline to clarify how the 15% rule is applied to plant
operators:
 Calculate annual net electricity production output of the plant in MWh,
 Calculate the 15% share of this output
 Apply conversion efficiency of the plant in question to derive thermal energy delivered in MWh
 Apply lower heat value ratio and heat conversion factor of the fuel to estimate allowable annual
consumption in the plant.
In addition, the group agreed that a review on the role of shale gas would be conducted by the groupno more than 2 years after the publication of the criteria. However, no retrospective changes would
apply to existing certified bonds.

Linking solar-specific assets in the manufacturing supply chain to bonds
A background note and specific eligibility criteria on this area will be published in due course.

16

http://www.futurepolicy.org/fileadmin/user_upload/PACT/Laws/Spain_436_2004_english.pdf

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Climate Bond Standard and Certification Scheme: Solar Technical Working Group

Proposed eligibility criteria (subject to updates)
The Solar Technical Working Group is proposing a first version of low-carbon eligibility criteria for solar
assets, for a 30-day public consultation period.
The following criteria is added to Part B – Low Carbon Criteria, under clauses 8 [Eligible projects andphysical assets] and clause 9 [Technical criteria] of the Climate Bond Standard version 1.0.
For a bond to be certified as a Climate Bond, the funds raised under it must be used to finance or re-finance:
Solar Energy Generation – that is, activities to generate electricity directly from solar resources, specifically:-

The development, construction and operation of solar electricity generation facilities, where a minimum of
85% of electricity generated from the facility is derived from solar energy resources.*-

Wholly dedicated transmission infrastructure for solar electricity generation facilities.

*Refer to Climate Bond Solar criteria guidelines to calculate allowed non-solar fuel use under the 85% rule.

During the prototype phase, bonds may be certified using the proposed eligibility criteria.
The criteria will be reviewed by the technical working group in Q2 2015.
No retrospective changes will apply to bonds certified through the current criteria.
Guidelines on calculating allowable non-solar energy use under Climate Bond Standard and Certification
Scheme:Step-by-step guideline

Example implementation for solar plant with gas back-up

1. Calculate the annual net electricity production outputof the plant

E.g. 150,000 MWh

2. Calculate 15% of this net output

E.g. 150,000 MWh*0.15 = 22500 MWh

3. Apply total plant conversion efficiency to the 15% net
output to derive thermal energy delivered

E.g. Plant energy conversion efficiency is 40%.

4. Apply applicable lower heat value ratio and heat rate
conversion factor of fossil fuel to estimate the allowablefossil fuel annual consumption.

E.g. lower heat value of natural gas = 0.9

22500/0.40 = 56250 MWh

Thermal energy equivalent of natural gas use in plant is:
56250/0.9=62500 MWh

Heat rate conversion factor of gas to electricity is 3.413
MMBtu/MWh.

Allowable annual natural gas consumption limit of
62500*3.413 = 213312.5 MMBtu/yr.

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Climate Bond Standard and Certification Scheme: Solar Technical Working Group

APPENDIX

About the Climate Bond Standard and Certification Scheme
The Climate Bond Standard and Certification Scheme (‘the Scheme’) is a project of the Climate Bonds
Initiative with the cooperation of major investor groups, environmental NGOs and corporations from thefinancial sector.
Its aim is to assure investors that their funds are being used to deliver a low-carbon, climate resilient
economy. This is achieved through:-Supporting the credibility of the Scheme through the organizations publicly supporting andendorsing the project.

-

Transparent
governance-

Ensuring the technical low carbon
credibility of the Scheme across different
sectors
throughevidence-based
deliberation.

-

Ensuring the practicality and accessibilityof the Scheme through easy-to-use, lowcost product offering.

andstakeholder-focused

Deploying climate change solutions requires
some $1 trillion of investment in energy,transport, industry and building sectors eachyear, above business as usual17.
Bonds are particularly suited for providing thecapital for infrastructure required to build theclimate economy, notably in buildings, energy,transport, waste and water. Bonds can provide
the long-term, low-cost capital needed for
deployment of proven technologies and also free
up corporate balance sheets for new
developments.

Climate Bond Standard and Certification Scheme– organisational structure

In order for this market to grow, new tools need
to be at hand to:-assist bond issuers in meeting investor demand for climate-themed bonds;-

assist investors in recognising such bonds; and-assist governments to easily support investments in such bonds.

Certified Climate Bonds against an easy-to-use Climate Bond Standard will provide integrity and reduce
reputational risks for all those involved in participating in a new asset class.
Progress to date
The Climate Bond Standard prototype version was officially launched in November 2011. Over the course of
the 2012, numerous milestones on the way to building a credible standard and certification scheme wereachieved including:17

World Energy Outlook 2011. www.iea.org

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Climate Bond Standard and Certification Scheme: Solar Technical Working Group

Building a broad-based coalition of supporters for the Scheme.



Establishing a Climate Bond Standards Board of six not-for-profit organisations balanced between large
institutional investors and reputable environmental NGOs.



Establishing an Industry Working Group of rating agencies, banks, fund managers, assurance providers
and consultants.



Launching the final approved prototype text including supplementary materials of a report on a 60-day
public consultation and a brochure highlighting the benefits of the Scheme.

Registering the Climate Bonds Certified mark for copyright use by the CBI.



Finalising the certification of a first ‘test’ bond linked to wind assets including the development of acontractual agreement between the CBI and the issuer.

How bond certification works
In the prototype phase of the Scheme,
we have proposed a straightforward 7step process for bond certification as
illustrated in the chart right.
Issuers must firstly link the bond to low
carbon project assets or activities.
These activities are listed in Part B of
the Climate Bond Standard.
A prospective issuer of a Climate Bond
would be required to secure averification statement from a 3rd Party
Verifier that the bond is in compliancewith the Climate Bond Standard. The
issuer then submits both an application
for certification and the verification
statement to the Climate Bond
Standards Board and Secretariat forreview.
Beyond the prototype phase, thecertification and assurance model of the Scheme will be finalised by a dedicated Assurance working groupthat will consider accreditation for verifiers; complaint resolution mechanisms; and the role of verifiers visà-vis the Standard Board.
Members of the Solar Technical Working Group
Alexander Boegle, Finance, Desertec Industry Initiative
Pietro Caloprisco, Policy Officer, European Photovoltaic Industry Association (EPIA)
Dr. Chiara Candelise, Energy Economist, Imperial College London
Jenny Chase, Manager, Solar Insight, Bloomberg New Energy FinanceMichael Mendelsohn, Senior Financial Analyst, Market and Policy Impact Analysis Group, National
Renewable Energy Laboratory (NREL)
Neil Perry, CFO, Solarcentury
Cecilia Tam, Senior Energy Analyst, Energy Technology Policy Division, International Energy Agency
Sven Teske, Engineer/Dipl-Ing, Energy [R]evolution Campaign, Climate & Energy Unit, GreenpeaceInternational
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Climate Bond Standard and Certification Scheme: Solar Technical Working Group
Bettina Weiss, Vice President, Business Development, SEMI
Philip Wolfe, CEO, WolfeWare
Sean Kidney, Chair, Climate Bonds Initiative
Padraig Oliver, Research Manager, Climate Bonds Initiative.

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