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Unlocking project finance

The UK and European renewable energy sector is currently undergoing a radical transformation, spearheaded by the increasing demand for a secure source of clean, home grown energy. Driven by strong government incentives and advancements in technology, the sector has matured over recent years and the barriers to entry for new investors are receding.

In particular, the wind sub-sector has been responsible for the biggest shift in attitudes and the greatest attraction of proactive investment, having demonstrated its simplicity and proven renewable energy technology. These are key factors necessary to unlock project finance and support of the banks. However, the sector has not escaped the lack of confidence that has dogged the global financial markets, which has stifled funding and development.

There have been numerous policies implemented by governments across Europe aimed at reversing this trend. In the UK, Ofgem recently highlighted the need for an estimated £200bn of investment in cleantech and renewables over the next 10 years. Renewable Obligation Certificates (ROCs) have been introduced, which provide large utility companies with a quota for sourcing their power from renewables.

To address the dilemma of a funding shortfall at the small-scale research and development end of the scale, Feed in Tariffs (FITs) have been introduced to support small energy projects, such as solar PV. Although a step in the right direction, FITs are structured and priced in such way that they may fall short of encouraging a large acceleration of new projects.

Another problem experienced by the market is the severe lack of available debt for firms to develop and fund projects. Even the utilities sector, which is a key source of investment for the wind turbine industry, has suffered as a result. The issue is further compounded by the need for utilities firms to support wind energy projects with base-line renewable energy sources, such as biomass and EfW projects to ensure a balanced grid supply. However, these technologies can be costly and present greater risk and uncertainty.

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