Renewable energy sources when adopted can help mitigate climate change. It also develops resilience towards volatile prices while reduce energy costs considerably. This is especially during this time when fossil fuel costs have spiralled triggered due to Ukraine-Russia war. Importing countries that are poor in energy sources like South Africa are to look for greener, alternative sources.
Boosting renewable energy
Scientific and economic organizations for decades have been urging global leaders to develop proper policies to combat climate change by boosting renewable energy. Renewable power projects when undertaken large scale can help reduce carbon emissions. It also offers governments, investors and end-consumers with demonstrable economic benefits. What is desired is Renewable Energy Project Funding!
Obstacles faced
One major obstacle faced when trying to mass adopt modern, renewable energy microgrids and technologies is disconnect between modelling such systems and real world financing. Large microgrid projects are generally publicly funded or any major organization’s R&D budget. Such groups fund the project by themselves. It involves huge upfront cost that is otherwise necessary to acquire essential microgrid technologies as well as distribution equipment.
Clean energy
The fact is that the benefits derived from clean energy technology are quite clear. However, a design methodology will be desired to penetrate mass market. The methodology adopted should consider the effect which funding mechanisms are likely to have upon the final design. Also, the design is to be optimized around such terms. Taking help of the Project Finance Advisory will be useful.
Common funding approaches
There have been identified four common funding approaches that may apply effortlessly to all the end users. It includes PPA (Power Purchase Agreements), private debt/equity, project revenue sharing and performance based contracts. Leaving private debt/equity type, the other three are stated to be business models. In such types, project tends to pay itself off as energy is generated during the project’s lifetime.
Financier
What the above models require is a project financier who will fund them by seeking private debt or directly through balance sheet. However, certain factors tend to limit institutional investors’ willingness to enter this market. The reason is there are several things unknown surrounding operation of numerous assets, outdated modelling practices concerning financial methodology, standardization lacking around microgrids, and having a tough time to quantify microgrids’ intrinsic benefits.
Developing strong framework
Hence, to counter the above issues, researchers are trying to come up with a well-structured framework. The objective is to instil confidence and trust among investors, integrate financial assessments, standardize design process as well as fund directly mechanisms within the optimization. It is referred to as ‘bankability’, defined as commercial, financial viability. Better financial returns are what make it seem attractive.
Other aspects to consider
Moreover, a bankable project displays the ability in addressing certain commercial risks that otherwise threatens such returns. The project according to investors needs to be better understand, follow the best practices and deliver dependable returns.
