Scaling Up Financing to Expand the Renewables Portfolio

Background

Meeting the challenge of ramping up RE deployment quickly enough to be on track to reduce emissions requires high rates of deployment right across the technology portfolio. The deployment of some renewable energy technologies has been growing strongly - particularly on-shore wind and PV. The deployment of the some other technologies – notably offshore wind, CSP, bioenergy, and geothermal - needs to be accelerated in order to meet long-term climate change goals.

Finding financing solutions for the required broad portfolio of technologies is one of the major challenges in meeting these goals. Some of these technologies carry higher real or perceived risks, which tend to raise the costs of and decrease the availability of finance.

The Workshop

This was the background for a workshop, organised in Paris on April 9 2013 by the IEA’s Renewable Working Party and with the active participation of members of its Renewable Industry Advisory Board. An invited audience of 140 senior decision makers from the key players worldwide – governments, project developers and investors across a range of asset classes - met to discuss and review the challenges and to identify financing solutions.

The Agenda for the workshop (see below) included an overview session with presentations by Fatih Birol, Chief Economist at the IEA, Claude Turmes, Vice President Green Group, EU Parliament, and Michael Liebreich CEO of Bloomberg New Energy Finance. This was followed by sessions devoted to offshore wind and concentrating solar power, hydro and advanced biofuels, and a final discussion session. (Key Presentations below.)

Some Conclusions

Some of the key conclusions reached during the discussions at the workshop are summarised below:

• The increased use of gas, including properly managed shale gas, has important benefits in reducing CO₂ emissions, when used to replace coal for power generation. However, such reductions will not be sufficient to attain emission levels consistent with a temperature increase of less than 2^oC.  Renewables, along with improved energy efficiency, are an essential ingredient in any low carbon energy mix.
• To get investment at favourable rates, risks must be minimised and shared. For even the least deployed technologies, technology risk is no longer seen as the main barrier to investment. Policy uncertainty is perceived by developers and investors as the main risk that they are unable to manage.  This is why long term predictable policies are absolutely critical. Retroactive measures must be avoided by all means as they undermine investment confidence in all technologies (not just renewables).
• The best developed renewables technologies are increasingly cost competitive. Commercial activity is growing in markets where there is an increasing need for energy, the resource is good, and predictable long-term policies are in place. Where these conditions are met the business case is strong and there are many circumstances in which renewables can be competitive. Some global players now make most of their investments in such unsubsidised markets.
• The competitiveness of renewables depends on the market design within which they operate. In markets which are based on short term marginal pricing the remuneration flow is uncertain. Such markets do not provide a secure investment climate for capital intensive technologies like renewables. By introducing risks, they put up prices and increasing the need for financial support, even where technologies are able to provide energy at a competitive rate, as estimated by levelised cost of energy (LCOE) calculations. Market redesign based on competition over long term contracts (as being developed in Brazil and some other Latin American countries for example) is one way to ensure sustained investment in capital intensive low-carbon technologies.
• Financial support for renewables is still required to assist deployment of technologies still at an early stage in the experience curve, to introduce mature technologies into new markets and to compensate for market design failures. This support would be avoidable or much less costly if a level playing field was created by removing fossil fuels subsidies and including external costs properly in accounting systems.
• Lowering the weighted average cost of capital can now have a significant impact on the price of renewables. This is why good financial engineering including the involvement of development banks and green funds is critical, in particular for technologies at the earlier stages of deployment.

Agenda

Opening Session and Keynote Addresses

Welcome and Introduction
Hans Jørgen Koch, Chair REWP

World Energy Outlook: Challenges & Opportunities for Renewables
Fatih Birol - IEA

Renewables - The Policy Challenges
Claude Turmes - EU Parliament

Financing Renewables
Michael Liebreich - BNEF

Renewables Portfolios and Risk Profiles
Paolo Frankl - IEA

Discussion Panel 1: Offshore Wind and CSP
Moderator: Michael Liebreich - BNEF

Effective Green Financing: What have we learned so far?
Keynote speech: Barbara Buchner - CPI Europe

Panel:
- Mirko Sedlacek, KfW IPEX-Bank
- Torben Möger Pedersen, Pension Danmark
- Obaid Amrane, MASEN
- Carmen Becceril Martinez, Acciona Energiá
- Michael Geyer, Abengoa Solar
- Andy Kinsella, Mainstream Renewable Power
- Nikolaus Benz, Schott Solar
- Henrik Gulbaek Welch, Vestas

Discussion Panel 2: Hydro
Moderator: Marcel Alers, UNDP

Financing Hydropower and Geothermal
Keynote speech: Cédric Philibert, IEA

Panel:
- Maria Helena de Oliveira, BNDES (BNDES and Renewables)
- Kuniharu Takemata, J-Power (Hydro and geothermal development in Japan)
- Jean-Charles Galland, EDF

Discussion Panel 3: Advanced Biofuels
Moderator: Adam Brown, IEA

Advanced Biofuels: from technological to political barriers
‌Keynote speech: Peder Holk Nielsen, Novozymes

Panel:
- Michelle Marrone, Beta Renewables
- Birger Kerckow, IEA Bioenergy Implementing Agreement
- Steve Lindenberg, US DoE

Discussion Panel 4: Conclusions and Consequences for Policy Makers
Moderator: Simon Upton - OECD

Panel:
- Francesco Starace, Enel Green Power
- Albert de Melo, CEPEL
- Martin Schöpe, BMU
- José R. Abós, Standard & Poor's
- Kirsty Hamilton, Low Carbon Finance Group
- Gus Schellekens, PWC