‘Local banks can finance renewable energy’
Local banks, with matching funds from development finance institutions (DFIs), can support Ghana to develop its huge potential in renewable energy, a renewable energy finance expert from the Frankfurt School of Finance, Ms Silvia Kreibiehl, has said.
Ms Kreibiehl said although financing energy was capital intensive and required long tenor financial arrangements; there was still space for local banks in Ghana to finance such projects.
She said this in an interview with the GRAPHIC BUSINESS in Accra during a two-day workshop for bankers and equity finance companies on Financing Renewable Energy Projects – From Net-Metering to Utility Scale.
The banks, she said, could start off by providing about a third of the capital structure of renewable energy (RE) projects with about three to seven-year tenor financing, with more patient lenders such as DFIs financing the second, while equity holders take up the rest.
“The bottom line is, there is a role for the banking sector, and the question is whether the DFIs will give that role to commercial lenders,” she said.
The seminar was organised by the Delegation of German Industry and Commerce (AHK) in Ghana and sponsored by the German technical cooperation (giz) to help Ghana and three other African countries with technical advice to strengthen their renewable energy generation sub-sector.
Investments
Ghana wants to increase its energy generation from renewables by 10 per cent in 2020. This will translate into about 500 megawatts of power from RE. While doing this will be cheaper in the long run, it has an added advantage of preserving the environment and checking climate change.
The Ministry of Energy and Petroleum expects that total investments in energy to grow to between US$4.3 billion and US$5.4 billion for the period 2006 to 2020, with investment in the electricity subsector taking over 70 per cent of the total.
A megawatt of power from renewables can cost anything between US$2 million and US$3 million, depending on the technology.
Ghana’s policy space for RE is underpinned by the Renewable Energy Act (Act 832), which mandates the Energy Commission to register all renewable energy service providers operating in Ghana.
The renewable energy for electricity is expected to come mainly from solar, small and medium sized hydro plants, wind, biomass and municipal solid waste.
On the global front, new investments in various RE projects increased in total from US$40 billion in 2004 to US$279 billion in 2011. The investments settled for US$250 billion in 2012 and US$214 billion last year.
Although the investments have been growing over the previous year’s figures, the new investments started reducing over the previous, with negative variances of negative two per cent since 2009 with the highest of negative 14 per cent last year.
However, those in developed economies far outweighed those in the developing world. For instance, the US$40 billion new investments in 2004 was made up of US$32 billion in the developed world and US$8 billion in the developing world.
In the same vein, the US$279 billion new investments in 2011 comprised US$187 billion in developed economies and US$92 billion in developing economies.
Appetite in Ghana
The course facilitator, which is the Head of the Frankfurt School and United Nations Centre working to drive finance into climate change and sustainable energy, was encouraged that the country had enthusiastic bankers who were curious to learn about the emerging area.
“Compared to other countries, I was surprised that there is extremely strong interest from bankers in Ghana. There is, however, a little gap in experience because not many deals have been done in this area,” she said but paid glowing tribute to the general banking expertise: “there are very good bankers in Ghana.”
Although Ms Kreibiehl does not expect closures in RE refinancing in about six months, she was optimistic that it was an area that would be of interest to banks, especially if they closely considered RE financing proposals they were used to rejecting.
“In the past, I’ve seen many bankers reject proposals. But I hope this course will help them to rethink their positions and rather assist the project sponsors to develop business plans further. They can do any type of transaction from net-metering to utility stage renewable energy solutions,” she said.
There was a cross-section of about 25 bankers drawn from the credit, risk and energy desks of the banking sector. Though majority of them had little experience in financing RE transactions, they were mostly eager to do it.
Those who spoke to the GRAPHIC BUSINESS said the seminar was instructive and that the area was not too different from financing but needed to be studied and risks properly identified and deals carefully structured.
Graphic Business