How can small renewable energy producers help the Philippines meet its goal of 35% clean energy? | News | Eco-business
Industry experts discussed how local green energy projects can overcome barriers to accessing finance at an online roundtable on March 19 titled: The 35% RE Master Plan by 2030: Assessment of Funding Opportunities for RE ambition in the Philippines, organized by the sustainable finance platform Greening the Banks Initiative.
We dream of the day when banks will be open to 100% merchant projects.
Aboy Castro, Founder, Cleantech Global Renewables
“It is important that small renewable energy companies like ours receive funding. We’re closer to the ground, so we can start projects at a faster pace than large companies, ”said Aboy Castro, founder of independent power producer Cleantech Global Renewables.
“We also provide competition [to larger companies] which is very important because it provides options to consumers, thus reducing electricity costs for end users. “
Cleantech’s 22MW solar installation in San Ildefonso, Bulacan, has struggled to attract funding, according to Castro because it is considered a “merchant factory” – a project without a power supply agreement that allows the sale of electricity. electricity to the local distribution utility. Typically, banks require agreements with direct buyers called “buyers” as collateral. that the electricity produced would be purchased.
Instead, the five-year-old company sells electricity directly through the wholesale electricity spot market, the country’s electricity trading floor, where the allocation of power generation depends on the electricity company that makes the lowest bid.
“[A project with no power supply agreement] is exactly a project that local lenders don’t want to fund because they believe there is a risk of market volatility, ”Castro told the panel.
“There are banks that only accept projects with an electricity supply agreement, but some banks are open to financing projects with an uncontracted party as long as the cash flow is predictable. We dream of the day when banks will be open to 100% merchant projects. “
If there are no principals at all, we can still finance the project but it must have a regular cash flow… There will be a lot of discussions but we are open to finding the right financing structure for each project.
Michael Zapata, Investment Banking Team Leader, United Coconut Planters Bank
A clean energy auction hosted by the Department of Energy’s National Renewable Energy Board (NREB) in June is expected to meet banks’ strict requirements for contractual arrangements.
The green energy auction program is a competitive process for the supply of renewable energy for an initial capacity of 2 GW.
“At the auction, we plan to form a group of banks that can easily fund projects that will be awarded under the program,” said Monalisa Dimalanta, chair of the board that is developing the policy framework to help the country to achieve the objectives set under the program. the Renewable Energy Law 2008.
“By the sheer volume of individual projects, smaller ones might be left behind by larger scale projects, but if we bring all of these capabilities together, we can have a centralized supply for green energy projects.”
Michael Zapata, team leader of the investment banking division of the United Coconut Planters Bank (UCPB), told the panel that financial institutions would be open to the program offered by NREB if only to give more money. access to financing for small developers.
Lenders are very interested in financing small independent renewable energy projects, but there is no single basis for loan approval, according to Zapata.
“Different buyers have different credits. If there are no buyers at all, we can still finance the project but it must have regular cash flow. Otherwise, the project sponsor must be creditworthy enough that we can simply lend directly to the sponsor. There will be a lot of discussion, but we are open to finding the right funding structure for each project, ”said Zapata.
Access financing as a small business
To complete the financing of its solar installation, Cleantech used a type of guarantee called hybrid insurance that covered its entire loan.
Castro said this was arranged by their project’s European financier because the lender already had a long-standing business relationship with the insurer.
The company had to pay a premium for it, but with a higher interest rate than it would get from a bank. But Castro noted that because the project is not stuck by the slow lending process with local banks, their transaction results in fewer lost opportunities.
“The lender was very comfortable with this type of insurance because they have done it before. There was this system in place which made it very easy for us to process this loan, ”said Castro, who is also CTO at Cleantech.
Castro said his company is also working with a multilateral lender to help it issue its first green bond that will raise funds for planned solar and wind projects.
Cleantech also uses a credit envelope which allows it to use the lender’s credit rating instead of its own when seeking loan approval.
UCPB’s Zapata agreed that hybrid insurance and credit envelopes are creative ways for small businesses to secure their own funding, but said the government could follow the creation by Argentina of a national trust for renewable energy projects if it really wanted to boost the green energy mix.
In the early 2000s, Argentina’s goal was to generate 20% renewable energy by building 10,000 MW by 2025, with the supplier being the country’s national utility company.
FODER, a national trust for renewable energy projects, was created by the Argentine government to provide loans and interest subsidies to independent power producers.
“It would be advantageous to have a FODER model in the Philippines so that all suppliers are the most solvent. We don’t have it yet but if there was it would certainly help fund these small projects, ”he said.