Banks lending more to renewable energy projects

Philippine banks have become increasingly supportive of renewable energy (R.E.) financing, taking their cue from investors who funnel more funds into more sustainable power generation projects, energy and financial experts said at the Nordic Business Council Philippines forum.

Tor Stokke, country director of SN Power Philippines, said local banks had started developing more awareness on R.E. “The R.E. market is more competitive. Local banks are more willing to finance projects and are very liquid,” Stokke said.

BDO Unibank, for one, has an exposure of about P33 billion to R.E. projects.

Senior executive vice president Walter Wassmer said BDO Unibank had decided that it needed to educate its officials on lending opportunities presented by the emergence of R.E. and climate change. The bank partnered with the International Finance Corp. for advisory services while BDO provides funding to clients.

“We follow the cue from the developers,” Wassmer said. “Right now a great portion of the investments are still in coal fired power plants. We would have to look into the issues through eyes of the developers and the sponsors of the project.”

The bank, Wassmer said, offers R.E. developers short-, medium-, and long-term funding for project finance, refinancing and working capital, as well as energy efficiency projects. Projects are judged on viability, he said, whether it was by showing profitability via energy sport market trading or being eligible for guaranteed output payment rates under the Feed-in-Tariff (FIT) incentives scheme.

The typical menu for borrowers offers them an option for bilateral or syndicated financing, with a term of 10 to 12 years, in US dollars or pesos, with a grace period of three years or shorter.

However, R.E. developers must address issues such as limited equity, limited knowledge or track record of project sponsors, credible local partners, incomplete legal and regulatory approvals, sustainability of resource and the emergence of new technology.

Solar Philippines Power Project Holdings Inc. (Solar PH) CEO Leandro Leviste said some R.E. technologies such as solar power had developed enough new technology and demand to become cheaper than coal power.

At present, big scale solar farms can compete with coal power if distribution utilities conduct competitive bidding for their power supply, Leviste said. Leviste also said that the profitability of coal projects has started to wane while R.E. is on the rise, and in that situation it would make more business sense for funding institutions to support R.E. rather than coal.

Company COO and EVP for business development Knud Hedeager said FIT might seem like an added burden to power consumers at first look but actually the program had enabled R.E. projects to ease out the more expensive diesel power producers, which has resulted in an overall decrease in spot market prices.

The next key challenge for developers after financing is finding new locations close to the grid or how to help speed up the laying of support infrastructure such as transmission links, which is the purview of transmission system operator National Grid Corp. of the Philippines.

Recently, Secretary Emmanuel de Guzman of the Climate Change Commission (CCC) urged financial institutions to help the government promote the shift to clean energy by doing away with financing coal energy projects.