MIDEAST: Clean Energy Faces Tough Financial Climate

• by Cam McGrath (cairo)
• Thursday, January 28, 2010
• Inter Press Service

The global financial crisis has made debt finance less accessible, and forced energy developers to pay more costs upfront or seek alternative funding sources. Financiers say syndicated loans, once a major source of clean energy finance, have been largely abandoned by banks attempting to wipe off bad debts and concentrate on low-risk projects.

'The banking sector in general will take several years to recover and rebuild the regulatory capital that it's lost over the past several years combined with higher regulatory capital requirements expected in the near future,' says John Dunlop, who heads the London Energy Project Finance desk at HSH Nordbank, a leading financer of renewable energy projects. 'The effect will be to reduce the overall amount of debt finance coming from banks and going to all sectors, including renewables.'

Some analysts, however, point out that concerns over climate change and declining fossil fuel reserves have resulted in government stimulus packages that could help project developers overcome the short-term financing drought.

'There are certainly concerns about the economy, but I think that renewable energies are going to be a priority because they represent the future,' says Helene Pelosse, director-general of the International Renewable Energy Agency (IRENA). 'Countries have to make choices and, since energy resources are limited, then this is the first field where they should invest.'

Industrial nations meeting in Copenhagen last month offered 30 billion dollars over the next three years to assist developing countries in establishing and implementing procedures to reduce their emissions and mitigate the impact of climate change. They also pledged to mobilise international support to raise 100 billion dollars annually, starting in 2020.

Yet critics have charged that the Copenhagen Accord conspicuously failed to establish the source and mechanisms of this funding - an oversight that could ultimately derail efforts to mobilise financial resources.

'Many who were not enthusiastic about the outcome of the conference have considered the talk about funding just a transient one,' Rashid Ahmed bin Fahad, the United Arab Emirates minister for environment and water, said during the World Future Energy Summit in Abu Dhabi last week. 'The Accord did not clarify the sources of such funding, how the money is to be distributed and the systems by which these funds operate.'

Kilian Baelz, acting director of the Regional Centre for Renewable Energy and Energy Efficiency (RCREEE), a Cairo-based energy policy think tank, says clean technology is 'still high on the agenda' of many Middle East nations, though not all have the same political will or financial means.

Oil-rich United Arab Emirates has shown no sign of abandoning its clean energy ambitions, which include the 22 billion dollar carbon-neutral Masdar City project. Other members of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar and Saudi Arabia) appear to be proceeding with caution.

'The small Gulf states have taken a more conservative approach towards lending to renewable energy projects,' says Baelz. 'They have seen that their wealth is not guaranteed and that they are vulnerable to developments in the international market.'

Poorer Arab states such as Syria, Jordan and Egypt have less capital, but Baelz does not foresee any significant scaling back of current projects.

'Most of the projects in the pipeline right now are either financed from public budgets or donor funded,' he says. 'In addition, many renewable energy projects are comparatively small, that is they are below the 100-200 million euro threshold that has been the lending limit for many banks.'

According to Dunlop, the de-leveraging of the banking sector has put priority on consolidation and quality lending. Small-scale project developers and independent power purchasers (IPPs) will still need to field clean deals if they hope to obtain financing.

'Renewable energy project sponsors should recognise that banks have been and will continue to be more selective than they were pre-Lehman Brothers collapse and that they should strive to make their projects 'top tier' so that they can compete against other projects looking for finance,' he says.

IRENA's Pelosse says it is hard to calculate what effect tighter lending restrictions have had on renewable energy project proposals, but Middle East projects already under way are generally proceeding as planned.

'Some deadlines have been pushed back, but as far as I'm aware there have been no cancellations,' she says.

© Inter Press Service (2010) — All Rights ReservedOriginal source: Inter Press Service

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