By MYRNA M. VELASCO

The Department of Energy (DOE) has engaged the help of the Bangko Sentral ng Pilipinas (BSP) so they can guide banks and other financing entities on how to navigate the intricate web of capital formation that shall underpin the massive-scale pipeline of renewable energy (RE) projects in the country.

According to Energy Undersecretary Rowena Cristina L. Guevara, the BSP will convene this August the banks and international lenders as well as the RE project-developers so they can discuss financing challenges on RE developments.

“What they (RE developers) have is the service contract. The service contract can actually be the collateral. However, you still have to teach the banks how to fund renewables,” the energy official sounded off.

Taking cue from that hurdle, she noted that the BSP had agreed on the initiative to help banks immerse themselves into the intricacies of RE project financing – not just on the assessment of unique variability of certain technologies, such as solar and wind, but also the regulatory risks as well as concerns on technology obsolescence.

“We don’t want the opportunity to be wasted - because RE is a very big industry, and we don’t want our banks to be left out when it comes to investing,” Guevara stressed.

There are also various lending portfolios currently being dangled to RE developers, such as green bonds, energy transition mechanism (ETM) funding and even trading of carbon credits, but many banks and even RE developers are still not comfortable with these new mode of financing mechanisms.

At this point, most banks would still take comfort on long-term offtake deals – and this is addressed primarily by the 20-year power supply agreements (PSAs) extended to RE projects that have been winning in the DOE-administered green energy auction (GEA) program.

Nevertheless, it was emphasized that unlocking capital flow from the traditional project financing models may not be as effective anymore when it comes to RE projects because the technologies in the sector typically have distinctive features that must be factored in when it comes to the assessment of investment risks.

For solar and wind, in particular, banks will have to cautiously monitor downtrend in technology costs as well as innovations; sunlight and wind availability in the chosen sites of the project sponsors, risk mitigation on land use for solar; then possible dislocation of indigenous peoples for onshore wind ventures as well as biodiversity impact for offshore wind installations; and the integration of energy storage solutions in the facilities.

For energy storage, in particular, that will be an added factor to be assessed by lenders and project developers in the next round of RE auction – and that is primarily targeted for solar, based on the pronouncements of the energy officials.

In the case of geothermal, there are concerns on rising investments for exploration and drilling as well as the sustainability of geothermal steam production at reservoirs; while for hydro, there are also issues of water resources management to be weighed in the overall process of investment risk evaluation.

On biomass developments, the major predicaments of project developers delve with feedstock sustainability, technological advancements in waste conversion processes; as well as supply chain and logistics hurdles.