The World's Greenest Bank ranking by Bloomberg

World Top 20 "Green" Bank in 2012 Slide Show by Bloomberg  and the report
Go Green? How Green? and what is the role of banks into this?
As a Taiwanese national, I clearly recall the solar "mania." Analysts back then stressed the importance of "Green" energy and the "potential" of its future. Retrospectively, none of them really did well in these days. And most of them could never recover to the price in the peak. I just randomly picked up a few and show how they performed since then.

Top(Left to Right): 3452:TT, 3514:TT, 6244:TT; Bottom:3576:TT, 3561:TT 

There are a few big issues in green energy industries, and even nowadays these problems did not really get solved yet. However, in the Bloomberg news, we can still see banking groups are still making a good deal of investment into it.

First things first, what's the problem of green energy industries?
1.) Heavily dependent on government policies: One of the major reason why Taiwanese solar industry went bust was due to European Union policy, especially right after the European countries went into credit crisis. A huge blow on EU's ambitious plan, Desertec, has various troubles(reported by BBC) Other green energy plans might be the same, these projects would have to deal with policy consistency problems over time.

How Desertec Plan looks alike, A dream can come true??

2.) the power output is not fully-reliable: Apart from the policy issues, green energy has the problems of reliability. Solar panel and wind turbine depends heavily on the weather. Ethanol output has to compete with the food supply (animal feeds etc.) and weather. (good harvest/bad harvest) which makes the price volatile. Of course fossil fuels has it output problem  and capacity issues, yet given the industrial involvement so far, there is relatively easier to managed such risk in other energy sources.

So, as the first 3 question marks at the beginning, I am not going to answer the first two since I cannot argue on the technical part. Yet, the third one, is quite an interesting practice of arguments.

What is the role of banks into this?

1.) Debt-financing: streams of cash flows from governments

All investments, debt or equity-alike, have one thing in common. We look at the cash flow streams and price it properly against the risk, which could be reflected by the interest rate demanded upon such risk.

In banking industries, they earn the premium, or interest spreads. How large of the markups reflects the riskiness of the projects. Given the cheap credits they are provided nowadays, they would certainly have to look around for good investment opportunity. Green energy could be one of them.

As I point out, the whole green energy industry is still highly dependent on government policies. That was one of the issues addressed in these reports as well.  Citigroup, as ranked top in these "Green" banks take an advantage of American wind turbine subsidy deals. It is a good stable income, as for the subsidy would pay back part of the project anyhow. Such situation also happened on South African's Standard Bank, which took advantage of the solar park project backed by government.

For how long these project would be sustainable would be the question next for answer?

Debt-financing has another crucial characteristics. It has higher seniority than equity, and in the covenant there would usually be some strict criterion for firms to follow. Such restrictions would make firms more careful about their expansion and selection of investment plans. It might bring health risk-monitor mechanism into the industry.

2.) Economic of scale: how big of the future growth perspectives?

In some other news reports, we could see solar and wind turbine now works as a small scale, home-based substitutions of regular energy. Given the funding difficulty, some big projects such as Desertec would need to wait more years to see the effects to kick in.

The recent bust reminds me up the dot-com bubble. The whole internet industry sucked in a huge amount of resources into the infrastructure. After its bust, these infrastructures were cheaply available for various applications. Such scenarios fostered a good environment for internet-based services to grow, though it took decade to materialize the impact.

Will we see similar situation in green energy? As now the cost to build up an solar park would not be that huge, and the bust of the whole industry helped us to kick out the inefficient market players, we could foresee a robust growth, both in shares of total energy supply and in projected future cash flows.

So, will now be a good chance to put money into green energy? I would say, if you don't need the cash for the next 3 years, it is good to start searching for the companies with technology niche. However, be aware, DO NOT choose anything that dependent on government subsidies. Government subsidies could only make bunts, for the ball to be in play,make the runner to the second base at best, but not going to bring anyone back to the home plate. (Well, if the runner is on 3rd base that is another story, but not in green energy case :P)