Why raising funds for green projects is tough

Clean energy projects are becoming more mainstream yet finding investors to fund them remains difficult

CLEAN energy projects are becoming more mainstream yet finding investors to fund them remains difficult due to ”misperceptions” that they are more expensive to fund than regular projects. In many cases, green projects aren’t necessarily renewable energy projects such as wind and solar, but are energy solutions that reduce carbon emissions by allowing a more efficient use of power.  

“These are considered green projects as well since they are designed, for instance, to reduce the amount of carbon emission,” says Winston Chow, China country representative of Global Green Growth Institute. “But there is a misperception about how much their implementation cost.”

In Asia, the smaller countries with smaller population such as those in Southeast Asia and Mongolia, face challenges in scaling up their renewable energy projects to attract green financing since their grid system does not have the capability to integrate such renewable projects. And relative to renewable energy, the project promoters are also facing an issue relating to land availability.

“To address this challenge, one of the things that we are looking at is to apply smart solutions, artificial intelligence solutions and data management in the sense that we can bundle a bunch of distributed energy projects into larger and relatively efficient financing package that could draw funding from larger financial institutions,” says Chow.

Chow notes that in China, the government has a lot of leeway when it comes to establishing large interconnected grid system that allows for long-distance power transmission. And that in a sense gives a lot more potential to the deployment of renewable energy projects. “You can deploy solar or wind energy in the far reaches of China where there are greater resources and then move them to sectors in the high demand regions,” he says.

Another issue that has to be addressed, according to Chow, is how to attract Chinese investments into small scale green projects. “In China, attracting financing for energy-efficient projects is not difficult because these are large-scale projects,” he notes. “But in Thailand, for instance, the things that we are working there right now are really small operations. We are looking more at SMEs, and with SMEs the problem is scale with the financing requirement amounting to US$30 million at most.”

This is really one of the key issues that should be addressed because there are plenty of capital in China that wants to get out, but just can’t find the projects to deploy them, adds Chow. And within the developing world, it is because of the size of the projects. “This is also one of the major challenges confronting the real global transition into green financing – how to match these two scales together,” he says.

 

Date

7 May 2018

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