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Clean energy financing – getting the size right

After three days of clean energy exhibitions, interviews, seminars and panel discussions, one thing is abundantly clear: one size does not fit all when it comes to clean energy solutions. The same is true for renewable energy projects in need of financing.

Today’s Clean Energy Expo Asia plenary on financing trends for clean energy projects brought the point home as investment experts showed that it’s all about matching the right projects to the right investors. Investors look for projects that meet their specific needs, and it’s in the project developer’s best interest to know what those needs are.

Mumtaz Khan, who manages a private equity Asian clean energy fund at Maybank MEACP, invests in renewable power generation projects that sell electricity into regional or national grids throughout Southeast Asia, as well as India and China. His fund, which has an overall investment goal of US$500 million, targets investors such as Asian Development Bank and Islamic financial institutions.

Although power plants tend to operate on large scales, Mr Khan is interested in the opportunities available for creative small to medium size companies (SMEs). He argues that new financing models within the clean energy sector offer great opportunities, especially for entrepreneurial SMEs that want to attract attention.

One opportunity for these companies to do business is a financing model that clusters projects together to create a bigger package that is more attractive to investors.

When you get to smaller projects such as biomass or hydro, explained Mr Khan, you have to use an aggregation strategy. His company does this by either combining different types of renewable energy projects within one country, or joining renewable energy of a single type from several different countries.

For example, he might look for a company that can do hydropower projects in Vietnam, the Philippines and Indonesia. Maybank MEACP can help that company combine the projects into a single enterprise - backed by strong power purchase agreements - which could then list as a company in Singapore at a size that investors want.

Mr Khan’s company seeks to do business with entrepreneurs that recognise the clean energy sector for its inherent strengths.  He believes the sector will develop a new generation of leaders, and he is actively searching for them.

For Jerome Ortiz, a project finance expert at Standard Chartered bank, small projects are not practical from a business perspective because, below the US$25 million range, it gets tricky to justify transaction costs.

A few years ago, he did not see many larger projects in the renewables sector. Wind power projects consisted of just a few turbines that companies installed to get tax incentives. Now, however, experienced companies in India and China are installing significant wind capacity on a scale that is viable for investors.

In contrast, Peter Storey, who is a coordinator for a United Nations-backed public private partnership called the Climate Technology Initiative Private Financing Advisory Network (PFAN), specifically seeks out small projects.

PFAN was created in 2006 to help fund clean energy projects that have insufficient funding.  To date, it has supported 143 projects, 40 per cent of which are in Asia, and raised about US$379million. For every US$1 of donor or government funding that goes into projects, PFAN raises US$100 of private investment. Mr Storey says the leverage here is significant and a good use of donor funding as a way of catalysing the market.

At US$1-50 million, the projects that PFAN chooses are considered small investments to energy sector financiers. At this size, developers have often used up their resources and need a bit of help to get reach their financial goal. PFAN fills the gap.

PFAN also dedicated 10 to 15 per cent of its resources to micro-loans of less than US$1 million, but the number is limited because of the costs of administering the projects.

Mr Storey believes that PFAN is still only scratching the surface, despite the programme’s success.  In his words: “We’ve got a lot of uncertainty in the investment market, but at the same time, there’s a lot of money looking for new homes. I think we are on the cusp… of making clean energy the next big thing.”

If that’s the next big thing, it should suit all renewable energy fans.’s coverage of Clean Energy Expo Asia 2011, part of Singapore International Energy Week 2011, is brought to you by Schneider Electric.

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