Responding to climate risk means a change not only for the real economy, but also for widely perceived finance, exposing them both to risks and opportunities. New approach to financing power companies requires a long-term analysis of investments with an environmental impact, and compliance with all criteria of climate-neutral developments. It demands a fundamentally new approach to funding, and expertise going beyond current planning practice, because having the ability to adapt to the challenges of green transition demands investments and capital. A broad variety of green finance products and services has already been developed, which can be divided into investment, banking and insurance products, which can be used by power companies. The important issue here is meeting the conditions set by climate-neutrality targets – this means mostly the execution of initiatives and projects connected with sustainable development, carbon-free products and climate-neutral policies. The new approach to financing power companies, set by financial markets, focuses mostly on green sustainable investments, green technologies and carbon-free operations. It requires the creation of funding solutions for necessary investments in a green portfolio, modernization of power grids, digitalization of operations, and development of smart customer technologies. The necessity to adapt to new market situations requires also the consideration of entering into partnerships with investors (joint ventures, partnerships, green bonds) that can support the development of a new model of investment implementation. Such cooperation networks can be created also with industrial customers (e.g. on site solutions) and suppliers of heat-pumps, photovoltaics, as well as municipalities. Industrial customers can be part of contracts hedging the market risk of RES investments by using Power Purchase Agreements (PPAs). EU funds are available dedicated to the support of green transition, which can be used to develop a green portfolio of production assets, and products supporting sustainable development. Capital can be raised from divestments of unprofitable assets (fossil-based mainly) as well.A sustainable financial system designed this way creates and values financial assets, it enables transactions conducted in a way that builds genuine prosperity, in order to meet the long-term needs that favour sustainable development. Promoting the financing of green transition on a large and economically viable scale, should guarantee that green investments are prioritised over investments that promote non-sustainable growth patterns. For that reason, green finance encourages a long-term analysis of investments with an environmental impact, and includes the assessment of all criteria of sustainable development such as a broad variety of products and financial services that can be divided into investment, banking and insurance products. Hence, green finance includes all the financial instruments that are used for the execution of initiatives and projects connected with sustainable development – all economic products and policies within the framework of green transition. Green finance ensures funding for all sectors and asset classes, which take into account environmental, social and investment decision-making criteria, considering their climate risk, that are executed to promote sustainable development. For instance, banks see climate risk as a factor impacting new loans – they may adjust granting loans, taking into account the environmental impact of the project in their risk assessments and cost of capital. It is essential to establish the criteria for defining assets as “ecological”, or classifying financing as “green” or “sustainable”, since an increasing number of financial institutions strive to support initiatives that are completely free of fossil fuels. Such a set of minimum standards for green finance is essential to ensure the transparency of capital flow towards green and sustainable investments, as well as for the analysis of the ever-changing financial market and climate risk[1]. Climate-friendly investments are prioritized over unsuitable capital spending. Power companies must begin to operate in the green financial markets, in order to raise capital for necessary investments, adjusting their operational activities to green transition worldwide. Green finance promotes long-term investments supporting climate protection targets and responding to climate risk.
[1] An example of such a solution could be the EU taxonomy for sustainable solutions proposal published by the European Commission in November 2020, which sets out conditions that an economic activity has to meet in order to qualify as environmentally sustainable, to make it easier for investors to assess their investment as regards their impact on the climate.
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