New RE players may face loan challenges, but not impossible

Aiming for a green energy future is one thing, but financing these projects is another. Three top banks explained to stakeholders the possible challenges new developers may face when it comes to financing their renewable energy (RE) projects.

In a panel discussion during the Solar & Storage Live Philippines, Land Bank of the Philippines (LandBank), Bank of the Philippine Islands (BPI), and Banco De Oro Unibank, Inc. (BDO) welcome borrowers to finance renewable energy (RE) investments which would not only abate climate change risks but also temper bill shocks of consumers.

While there are necessary requirements to be met before getting green light from these banks, new developers with little to no track record in RE developments may face challenges.

However, this does not mean they will not get a chance to have their projects funded.

BDO, BPI, and LandBank remind the new players that lenders will need to look into the developer’s capacity to execute projects, the background of the borrower, and the economics of the plan.

But what makes a green energy project fundable? For Landbank, the lender believes that the green project must warrant profitability. Landbank Program Assistant Narciso Roy Reyes stated, “as long as the project is profitable, regardless of the PSA (power supply agreement) green energy auction, or the Wholesale Electricity Spot Market [WESM], there’s no problem.”

“As long as the requirements are met and the policies are at par with the government requirements, they have no problems financing [with us],” he added.

The BPI also acknowledges the incentives of the GEAP (Green Energy Auction Program) for RE investments, which is strongly underpinned by a 20-year PSA.

“We think there’s a pretty good promise with regards to the bankability of projects. We like that [GEAP] has market-based pricing and bidding, the outcome has a 20-year PSA,” BPI Senior Vice President Marie Antoinette Cortez said.

“From a lender’s perspective, we have comfort and we’re thankful we have this incentive in place,” she noted.

The private bank likewise emphasized reliance on government policies and regulations that would ensure the sanctity of project contracts, while the viability of future RE developments would allow them to support the investments further.

“From an economic standpoint, anything that’s market-driven gives comfort to the banks. And of course, the offtake, the 20-year PSA, the predictability of cashflows– that gives us comfort as well,” Cortez underlined.

Meanwhile, BDO Senior Vice President Joseph Lledo explained that they look out for risk management in clean energy projects.

“The key is predictability and robustness of the cash flow for this particular project. Admittedly, I think moving from feed-in tariff [FIT] to GEAP, there’s a nuance increase in risk. Because there are some fluctuations… but it beholds lenders to understand the framework of GEAP,” he said.

Before shifting to GEAP, FIT charges as prescribed on per kilowatt-hour basis had initially supported RE developments – and the tariffs then were perceived to be highly viable on revenue stream expectations that will enable project-sponsors to honor obligation with lenders. The FIT incentive cut-off, primarily for wind and solar projects, ended in 2016.

On the other, GEAP has a 20-year power supply provision but some investors are concerned with the cost recovery due to the lower rates.

However aside from observing project risks, Lledo shared that the upside to GEAP’s risk is the lowered rates for consumers, which could lessen the blow of bill shocks.

“I think [the GEAP incentive] is good for the consumer at the end of the day because it makes a more competitive market,” he said.