Renewable power financing: success stories from 2020

Despite the obvious appeal of renewable power, a key obstacle to its widespread adoption has been the high start-up costs of building new power hardware. Renewables First, a renewables consultancy, estimates that when constructing a new wind farm, for instance, the cost of simply building the turbines accounts for 69% of the total expenses, and with just a 3.5MW facility costing upwards of $4m, securing stable funding for such projects has been a critical challenge.

This has been exacerbated further by the fact that national governments are often among the key backers of such projects, but their own policies are flexible, and prone to sudden changes as global geopolitical events unfold. The Covid-19 pandemic, for instance, has caused many governments to adopt cautious approaches to the construction of elaborate new power facilities.

The International Energy Agency reports that Portugal alone has delayed auctions of 700MW worth of solar photovoltaic power, with renewable programmes sidelined as the government looks to deal with more immediate economic and social issues.

However, 2020 has been an encouraging year on the whole for renewable financing, with powerful, international bodies especially deploying ambitious financing schemes, many of which are beginning to bear fruit, aiding the development of new renewable power projects across the world.

The EU’s European Green Deal is already one of the most ambitious renewable projects in the world, with all member states agreeing to lofty targets of carbon neutrality by 2050. The bloc is on target to achieve a number of more short-term climate goals, such as a plan to cut total greenhouse gas emissions by 20% by the end of this year and ensure one-fifth of all energy consumption comes from renewable sources. Its latest policy, the so-called “Green New Deal”, aims to build on this success.

Announced in September 2020, the scheme will aim to encourage investment in renewable power across the sector, by enabling countries to invest in clean power projects elsewhere in the EU and have this production count towards their own domestic clean energy targets.

In practice, this enables countries with less access to the natural resources required for large-scale renewable power generation, such as landlocked states that cannot realistically invest in wave power for instance, to support schemes across the continent and be rewarded for their investments.

This scheme also introduces a new funding stream for those eager to invest in renewable power projects in general, but without access to any particular facilities. Member states can pay voluntary financial contributions towards the scheme, which will be used to subsidise the cost of new clean power projects in other member states if and when new projects are unveiled and in need of funding.

This aims to create a central fund for new renewable power projects, the presence of which could help such schemes overcome early obstacles to their development, such as uncertainty as to the origin of their financial backing.

While the EU wants to boost confidence, investors in the US seem to require less convincing. A report published in July 2020 by the American Council on Renewable Energy (ACORE) found that private sector investment in renewables grew by 21% between 2018 and 2019 and, while lower than the target figure of 28%, it shows investors remain confident in the long-term financial viability of renewable power.

The ACORE report surveyed a number of private sector investors and found that 77% of investors were confident in the future of renewable power, while more than half of all investors planned to increase their investments in renewable power by more than 10%. This is in stark contrast to the 11% of investors who planned to cut renewable investments by more than 10%.

A key part of this confidence stems from the development of corporate offtake agreements, introducing a third party to buy some of the power produced and, critically, share some of the risk inherent in new renewable power projects. This emphasis on shared risk and shared reward has helped engender confidence in the financial potential of renewables and has developed healthy and sustainable avenues of financing required to ensure the sector’s stability amid broader challenges, such as the Covid-19 pandemic.

The EU’s newfound interest in cross-border investment extends beyond the boundaries of the bloc, with its Latin America Investment Facility (LAIF) subsidising the cost of many new renewable power projects in Central and South America. While the project began in 2010, and has since funded 46 projects at a cost of $474.6m, the scheme has expanded into new countries in recent years.

The LAIF, for instance, has invested $24m into what it calls the “Geothermal Development Facility for Latin America”, a financing scheme that aims to create a fixed monetary fund to support exploration work in the region and specialised financing windows to enable private backers to support particular geothermal projects.

This project emphasises financial stability and international cooperation, mirroring the structure of the Green New Deal in Europe and aiming to ensure economic confidence in and societal support for ambitious new clean energy plans.

On a more specific level, the fund will contribute $13m towards Bolivia’s Oruro solar facility, around one-eighth of the total costs, to deliver the country’s first large-scale solar power plant. The project will have a capacity of 50MW and generate 100 GWh of electricity a year, and reduce 50,000 tonnes of CO₂ equivalent from the country’s atmosphere by reducing its reliance on fossil fuel as a source of power.

Beyond the US and Europe, other parts of the world are increasingly committed to renewable power projects. Malaysia, for instance, has implemented a number of policies to encourage renewable investment, to address a power generation mix that heavily relies on fossil fuels. In 2019, oil was responsible for 28,977 kilotons of oil equivalent (ktoe) while natural gas produced 38,784 ktoe, compared to just 49 ktoe for wind and solar combined.

The latest project is the Green Technology Financing Scheme (GTFS), the second generation of a loan project intended to raise funds for new renewable projects in the country. With $480,000m on offer to companies, up from $360,000m offered in the first generation of the scheme, the GTFS also features a promise from the national government to cover 60% of “green components” needed to begin production, a move which could help make such projects yet more financially enticing to potential investors.

The GTFS has already backed a vast number of projects, with the deadline for applications set at the end of 2020. Funded projects include a 50MW solar photovoltaic plant, operated by the TNB Engineering Corporation, and Konpro’s 1.8MW waste heat recovery project, schemes that will improve both the raw renewable power generation of the country and its energy efficiency across the power sector.

First launched in September 2019, the International Renewable Energy Agency’s (IRENA) Climate Investment Platform is an attempt to make funding renewable power projects in the developing world easier and more effective. The programme has funded projects in a number of countries, and across a range of scales, from the electrification of 36 villages in Senegal to the distribution of 20,000 solar-powered irrigation kits in Benin, as it has made an immediate impact on underfunded renewable projects around the world.

Yet the scheme stops short of committing capital to these new projects, instead focusing on matters such as establishing legal and regulatory frameworks and assistance with risk mitigation measures. This approach means that IRENA is more involved in the creation of a long-term and self-sufficient renewables financing environment, rather than simply funding one-off projects, and helps to overcome a key limitation present in many of these global projects.

Whether reliant on government policies or international bodies, many of these projects, particularly in the developing world, are heavily reliant on continued financial support from wealthier and more powerful actors, running the risk that these investments may not necessarily translate into long-term gains for the country where the new power facilities are being built.

IRENA’s work attempts to address that concerning power dynamic and the body is eager to highlight its success in logistical assistance. The group has worked with renewable power start-ups on more than 180 financing applications, and helped negotiate more than 50 active pledges of support from would-be financiers, working towards a future where developing countries are both economically and politically self-sufficient with regards to renewable power.