Unravelling 7 Important Eco Finance Terminologies
Eco finance and especially energy eco finance has become a very innovative sector in the finance sector due to the equally innovative green or eco products that have been brought to the market over the last few years. This means that different mechanisms to fund these new technologies have come up to supplement the already existing funding options.
In the midst of all these financial instruments that have cropped up, a lot of financial jargon and terminologies related to this sector have emerged, especially with regards to renewable energy and energy efficiency. Below are some of the more important terms, concepts, definitions and terminologies used in the eco finance sector:
A green bank is a publicly owned or semi publicly owned financial institution whose main role is to attract private funds towards eco projects using its publicly received funds. Green banks hire professionals with lots of experience from the public sector and the private sector.
The green bank is given a mandate and capability to activate and mobilize the private sector to design eco-energy financing solutions. It is able to do this by;
Creating financial instruments that can be used to finance eco/green energy
Offering guarantees and financial backing and
Helping to get rid of market barriers or hindrances and inefficiencies
This is a debt security through which the issuer agrees to owe the holder of the debt a certain amount of money, on a specific date as determined by the terms of the bond. Bonds are highly liquid and they are usually offered by large institutions with a strong financial background.
A green bond is a bond that is issued to borrow money from private and public sectors in order to pay for a green, climate or environmental project.
OBF or On-Bill Finance
This is a financing instrument offered by utility companies to extend a loan to their customers with little or no interest in order to pay for improvements on energy efficiency.
OBR or On-Bill Repayment
This is another creative financial instrument that allows utility company customers to access loans or financing from private financing institutions and repay the loans through the utility companies. This gives the private lending institution a guarantee that the
customer will pay the loan by handing over the collection of payments to the utility company.
PTC or Renewable Electricity Production Tax Credit
This is a tax credit that incentivizes the production of green or renewable energy in a market that is mostly fossil fuel dominant. It involves getting a tax break for every kilo watt hour of energy produced that is eco-friendly, renewable and green.
A solar lease is an arrangement whereby a business or individual agrees to lease solar panels for their use, from a third party, for an extended period of time, often a decade or two. This allows the receiver of the solar lease take advantage of tax credits or tax breaks.
ITC or Solar Investment Tax Credit
This is a tax credit (usually 30%) issued to anyone who installs solar systems in their commercial or residential properties.