Bankable Renewable Energy project: Is the chance slim? or does it create opportunities?

The hype of Renewable Energy (RE) projects is always tremendous. In November 2010, when I attended the Singapore International Energy Week, the dissemination of hybrid wind-hydro power plant was noticed at the plenary session. Following this, a smart grid discourse encouraging a connection of RE power plant to the grid with the most effective and efficient way in conjunction with the electricity grid supply and demand management was warmly received, as such it is the time for RE, reigning over the dominance of conventional energy sources. No surprise, the next parallel sessions were heavily filled with renewable energy, or something in and between, discussions. Some of them even projected the route to renewable energy success stories that will be soon told by several Asian countries.

In reality, only few countries are able to capitalize this overvalued proposition. Most of them are advanced countries with either barely endowed or scarily threatened fossil fuel energy supplies. Such unfortunate condition had made these countries strengthened their RE policies, capitalized their existing technologies for RE developments and disclosed opportunities for financial institutions to engage in RE funding. As a result, not only these countries increase their energy mix share, but they also manage to market their R&D RE capacities outside. German, Denmark and Spain serve the examples.

But with respect to the other less advance hemisphere, the adoption of RE is in average a cry. Only a few countries manage to claim the success stories of RE developments. Some of the issues on the impediments of RE developments are outlined in the followings.

Small Power Purchase Agreement and Small Power Purchase Tariff

First of all, the need to have Small Power Purchase Agreement (SPPA) and Small Power Purchase Tariff (SPPT) must be followed with a consistent implementation supervised by an independent, yet has some authority, regulatory body. Strong SPPA and SPPT clauses and terms which give room for small IPPs to expand will create attractiveness for investors and project developers to explore RE opportunities in the country. In this context, it is the government task, through a regulatory body to ensure the same level of playing between electricity providers and buyers.

Take for an example the Energy Service Delivery (ESD) in Sri Lanka. Even with the SPPA and SPPT in hand, the implementation of the ESD was initially mediocre. The electricity of the country was served by the monopolistic state electric utility company. There was no regulatory body to supervise regulations related to tariff purchasing between electricity providers and buyers. Consequently, different perceptions on tariff computation methodologies as well as data input lost transparency occurred at a price which disadvantaged small IPPs. Only after the proposal to mediate the conflict through a neutral third party, did the problem resolve (Nagendran, 2001).


Financial Institution Equipped with RE Knowledge

It would be impossible to develop RE projects with liquid cash in hand. Project developers and owners try to lure investors to back up with financial support through loans. At the same time, investors need to understand the risk of the project in order to make a decision on projects to be invested in.

In the case of ESD, prior to the ESD programme one of the development banks participating in the ESD had previously provided equity and financing loan for a mini hydro project. The experience of the bank was shared to the others syndication, making it easier to disseminate information on the risk and return of RE investments. The communication on such financial issues was conducted among bankers, making it easier to comprehend RE issues rather than if these were disseminated by e.g. project developers.