- a-...ı - flnındal structurlng Owııoı,.,./ı,ponsorı Corp«ıte/proj.et Equity Rnıncıtd lo■nı Menanlnt flnınu ---- f ...... M<fll- -· - hıllılk ,,___,. lıı,,,...M == ....,..ı -.,kyMltlt ıw... ....... T:.~ ı, ..... MII ı..v-..-. .. . . . . Figure ı. The on-grıd finance continuum. Rlılt mınıgamant lnıurınct Eıc;po,t trtdlt. othtr riık mınagemınt """'"-· ... _.... ... ,ıtııoıı .... . . . . . . . . . . . b ...... eıdı!MI ltı,ı,ııı--JnWdtelll .., __ _ ı,, __ ,._ Pvlıilc/,....l'lt....,_ ıfllıı,ııe.ııeı,riıu.....ı -·~., ..... ~ Source: Mobilising Finance for Renewable Energies, www.renewables2004.de Whatever the core drivers are- environment, poverty alleviation , megacity infrastructure requirements, energy security, rising natural gas prices- the fundamentals of the market are starting to change. However, while there is interest emerging from financiers and investors tor renewable and 'new' energy Technologies in OECD markets, caution is stili the watchword. According to Virginia Sonntag O'Brien, an author of the financing paper tor Bonn and organizer of the financiers' forum held alongside the main event, the mainstream financial community stili lacks the knowledge and information necessary to assess the risks and opportunities associated with putting Money into these Technologies. 'Until private capital is mobilized to any significant extent,' she says, 'the public sector must come in and hedge or share some of the risk.' FINANCING CHALLENGE$ in a preparatory paper1 tor Bonn, Sonntag O'Brien and coauthor Eric Usher, a finance expert with UNEP, highlight the inherent challenges of financing in this area: * barriers and disincentives within derequlated markets * conventional calculation of risk and return not resolving in favour of these energy Technologies tor the most part * key gaps in what is called the 'financing continuum'- the supply chain of finance needed to gel from projeci development to commercial reality. This complex mix of factors applies differently in OECD or developing country marktes, on-or off-grid, and is dependent on the technology, of course, but there are many similarities. The rise of electricity sector deregulation and 'competitive' market structures have been a mixed blessing tor the renewable energy (RE) and DE markets2. While new sources of capital can enter the market, and, theoretically, overall energy efficiency should be improved, renewables and other forms of local generation have been expected to compete when basic cost "Kojenerasyon: Yüksek Velim, Temiz Çevre, Enerjide Yeniden Yapılanma" MAKALE / ARTICLE structures are different from conventional centralized power options, and a series of additional benefits are discounted, not making them a commercially attractive option. lndeed, consultations with financiers leading to a 'finance sector' statement3 feeding into the Bonn policy process emphasized the critical importance of the strength and stability of government policy frameworks at this stage of market development. it investor confidence is to increase, and the bankability of projects be improved, then policies must be 'loud, long and legal'. 'Loud' meaning that the incentives are sufficiently strong to make a difference to business plans; 'long' meaning of a sufficient timeframe to be relevant to Projeci lifetimes; and 'legal' meaning legally binding- whether targets or mechanisms. Tom Lord, Managing Partner of the Distributed Energy Financial Group4, a specialized financial services firm in the US, and a very experienced energy market player himself, makes the very basic point: policies must affect cash flow it businesses are expected to respond. lf a policy is based upon 'aims', then the government is, in effect, asking investors to speculate about political delivery, and that speculation, in finance terms, will bring expected venture capital level returns, making these technologies even less attractive. This leads on to the risk- return factor. it almost goes without saying, but financiers-banks or other investors- want to be sure that it they lend or invest they are going to get their Money back with the premium they require. This is part of the equation that defines the 'bankability' of projects. So whatever the energy technology, returns must be commercially attractive and risks should be clearly understood and minimized through risk management tools, such as insurance5. RISKS AND RETURNS Jonathan Johns of Ernst and Young presented the company's latest annual 'country attractiveness index' tor equity investors at the recent Wall Street conference. in- country risks include: * electricity market regulatory risk * planning and grid connection * access to finance (including the local market) * existing infrastructure * planning and grid connection * perceived risk associated with the technology and the creditworthiness of the off-taker. Key factors seen on the 'returns' side are: * projeci size * market growth potential * the tax climate * resource quality. From the banking side these factors are reinforced by Nick Gardiner, who leads a team of six at Fortis Bank, in London. At present they, like many investors, are mainly interested in wind in European markets, but looking tor opportunities in other areas such as landfill gas and biomass. ENERJi & KOJENEAASYON DÜNYASI I 65
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