Wednesday, March 23, 2011

Renewable Energy project financing

Renewable energy projects seeking to be licensed in South Africa under allocations granted in terms of IRP1 will need to raise estimated capital of between R20 and R30 billion over the next two years. Only a proportion of this capital is likely to be provided as equity by sponsors. The bulk will have to be raised via project finance, using the anticipated cash flows generated by each project to fund the borrowings required. Consequently different approaches to project financing will be needed.

Many funders will be the usual commercial banks who have traditionally done business in Europe, the US and latterly, the Asia-Pacific countries. However, financial institutions other than commercial banks are increasingly entering this field, bringing a different and effective focus to the challenge of raising the large amounts of capital required.

Whilst commercial banks can be expected to continue focusing on maximising returns to shareholders and minimising the attendant risks, developmental institutions and multilaterals have at their core a desire to foster something more than profit – socioeconomic development – and it seems they are making their presence felt when it comes to renewable energy projects.

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