Renewable energy financing needs a boost in Asia-Pacific

The development of sustainable energy is stalling because of Basel constraints and long-term financing of energy projects needs solid governmental backing to secure funding

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Nadi, Fiji - Despite the governmental drive from nations in the Asia-Pacific to switch to renewable energy sources, projects in the region still experience funding shortfalls from banks. Financial institutions remain overstretched when the issue of financing renewable projects is up for consideration.

These insights were gleaned from a panel session held at the Asian Development Bank’s (ADB) annual meeting, this year held in Fiji, which highlighted a pressing need for alternative sources of financing for renewable energy projects.

“Because of the long-term nature of these projects, one of the constraints is getting financing on a long-term basis committed. The international commercial banks are constrained due to Basel III and IV making the economics of long-term financing less attractive to these banks,” explains Michael Barrow, director general, private sector operations department at the ADB.

Aside from banking constraints, the panel highlighted how challenging it was for banks to stomach the financing risk of these long-term projects that rely so heavily on governmental support.

“The problem is getting a commitment from a government or government agency over the long term. If a government has no track record or history of entering into these types of long-term contracts, then there is a hesitation among private investors and bankers to believe in the project without a solid commitment from the government,” shares Barrow.

“The key is to have long-term financing to support these projects. That then gets the price of power down and the project becomes more competitive,” he adds.

Thai company B. Grimm Power Public Company Limited relies on governmental backing for its own project financing situation, securing government mandates to add a level of comfort to their financiers.

“Our government has committed to buy energy from us for around 25-30 years, which makes us quite comfortable. We refinance by issuing bonds to free up the cash flow from the reserve to support us. We even have a commitment in Vietnam, where we have a 25-year contract with an entity there,” says Preeyanart Soontornwata, president of B. Grimm Power Public Company Limited.

However, many other companies are not as fortunate. As an alternative, some power producers have opted to tap the bond markets for financing, with some relying on sustainability-focused investors to allocate capital to their green projects. In 2017 for instance Tadau Energy issued a 250 million Malaysian ringgit (US$60.3 million) green sukuk (Islamic bond) representing the first time a large scale solar power plant tapped the capital markets in Malaysia.

Green-orientated fixed-income instruments have grown in popularity as a key financing method, helping to develop a couple of solar power farms in Malaysia that international commercial banks were previously unable to instigate. Even B. Grimm Power Public Company Limited has gone down the green bond route, only last year issuing bonds via ADB and allocating substantial capital towards the Thai company’s fixed-income offering.

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Date

7 May 2019

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