The Low Interest Rates Attracting Companies
With the increase in consumption of conventional energy sources, the demand for non-depleting or green energy sources is increasing day in and day out. The US utility companies are now borrowing big, because of the low interest rates. The investors are also keen to buy utility bonds because the bonds have higher demand and they offer safe and strong returns. The lower interest rates are not only supporting the current investors but also encouraging the newer ones. So the bond cash -a record $90 billion in 2019 -is resulting in utility companies making more green energy investments.
Moreover, the companies are investing much more in the wind and solar energy because it is comparatively cheaper and available in a fair amount. “Financing costs are lower than we ever thought they would be and low interest rate environment helps the deployment of renewables.” Morgan Stanley Analyst Stephen Byrd said in an interview.
The Different Bonds
Started by the European Development Bank in 2007, green bonds have increased globally at 60% annually since then. These bonds are a way for issuers to raise money specifically for environment friendly projects such as renewable energy or clean transport. The energy foundation EF reported that the electric energy could raise between $250 to $500 billion with green bonds. This assessment came from the report made by Boston University’s Institute for Sustainable Energy.
A Utility bond is a type of financial guarantee ensuring a person or an organization will pay for the utilities on time. Utility bonds have an average yield of around 3 %. The yield now is around 1.93%. Utilities are good investments because they’re recession proof, they’re easy to understand, and cash flows regularly. The utility companies are thus investing in wind and solar energy and also modernizing their grids with cash from the bonds.