Renewable and Sustainable Energy Reviews 90 (2018) 937–944

Contents lists available at ScienceDirect

Renewable and Sustainable Energy Reviews

journal homepage: www.elsevier.com/locate/rser

Financing for renewable energy projects: A decision guide by developmental T

stages with case studies
⁎
Patrick T.I. Lam , Angel O.K. Law
Dept of Building & Real Estate, The Hong Kong Polytechnic University, Hong Kong

A R T I C LE I N FO A B S T R A C T

Keywords: In terms of development cycle, renewable energy (RE) projects entail funding supports from the technological
Renewable projects innovation stage onwards. Due to uncertainties in resource availability and technical risk, only a limited variety
Financing sources of funding sources are available for startups. As the RE development project passes through this early stage into
Developmental stages technical maturity, more funding sources may be attracted to bring it to commercial fruition. When the tech-
Stakeholders
nology is eventually deployable to mass applications, even more funding venues exist, sometimes enabling exit
Case studies
of the original innovators via transfer of ownership, or fostering asset growth with investor participation in built
facilities. Due to the environmental benefits to be harvested, governments have a pivotal role to play in relation
to funding, either directly or indirectly at all stages.
This research is aimed at identifying the developmental stages of RE projects and studying the inter-re-
lationships with stakeholders, under the influence of technology push and market pull. Discussions are focused
on different types of RE projects and modes of financing, culminating in a diagrammatic model depicting the
various decision factors to assist funding-raising activities at different RE developmental stages. Illustrations are
provided through a series of carefully selected case studies in western countries. This is followed by a discussion
on RE development financing in the Asian context, with conclusions drawn in the light of recent emergence of
new business models and a smart era. Decision makers in RE projects may regard this article as a guide for their
fund raising activities.

1. Introduction including the state-of-art practices. The appropriateness of each type of

Renewable energy (RE) projects may involve a variety of technol-
ogies at different stages of technical maturity, ranging from innovative
technologies at trial phase to proven know-how deployed at the op-
erational and commercial phases. Funding of such projects entails the
use of different types of financial instruments. In many occasions,
various government policies are being used to support the commer-
cialization of new startup technologies and to enhance the competi-
tiveness of renewable energy in the market in order to reduce the tra-
ditional reliance on fossil fuel-based energy production.
When making decisions on the funding approach for RE projects at
different developmental stages, the interactions of project developers
with other stakeholders, including the government, should be con-
sidered. Whilst well established RE developers may be experienced with
the financial market from which they tap on funding resources reg-
ularly, startups are usually inventors who lack financial backgrounds.
They may benefit from the findings of this research in their attempt to
unravel their developmental path amidst a myriad of financing means,
funding means vis-à-vis the nature and stages of RE projects is de-
monstrated through eight operational case studies conducted from a
comprehensive desk-top search from literature in the recent 5 years. A
diagrammatic model is drawn up to summarize the issues and their
inter-relationship for decision making. Developers of RE projects
(especially startups undertaking new ventures in the emerging market
in Asia) may refer to it as a roadmap for raising funds at different
stages. Hence, this research is aimed at identifying suitable financing
modes for RE projects at different developmental stages from the per-
spective of RE developers, with the specific objective of providing
guidance on funding decisions.
2. Literature review
The financing structures for renewable energy projects depend on
natural resources availability, technical maturity (hence the stage of
development), and financial viability of renewable energy technologies,
as well as support via government policies and the regulatory

⁎
Corresponding author.
E-mail address: bsplam@polyu.edu.hk (P.T.I. Lam).

https://doi.org/10.1016/j.rser.2018.03.083
Received 30 April 2017; Received in revised form 24 March 2018; Accepted 26 March 2018
1364-0321/ © 2018 Elsevier Ltd. All rights reserved.
P.T.I. Lam, A.O.K. Law
environment. For example, pre-investment financing is necessary for
hydro-electric project development due to land resumption and their
impacts on downstream communities [1], hence necessitating reset-
tlement of residents by the project promoters. Biomass projects are
more dependent on carbon financing to cover their cost since the en-
during availability of adequate and affordable resources is a key risk
[1]. Solar projects require large amounts of investment subsidies to
cover up-front payments and entail the provision of tax incentives, but
they are less reliant on debt [2]. Wind farm projects are mainly fi-
nanced through debt due to lower debt service costs compared with
equity dividend payouts [3]. This broad distinction into debt, equity
and policy instruments is further expounded as follows:-
2.1. Types and sources of finance for renewable energy projects
Generally speaking, three types of finance can be used for RE pro-
jects: debt, equity. as well as grants and subsidies. Debt may be raised in
the form of loans from banks, or by issuing bonds through the capital
market. Being a commonly adopted financing source for up-front and
on-going project costs, much depends on relative costs and tenures [4].
Concessional finance is a low-cost debt at below-market interest rates
with long repayment periods raised directly through sovereign banks or
indirectly through subsidies afforded to commercial banks [2,4]. Loan
guarantees and credit guarantees are often used in RE projects as credit
enhancement measures provided by government agencies or develop-
ment finance institutions (DFIs) [4]. DFIs underwrite loans and provide
liquidity facilities at concessional rates [4]. The provision of credit lines
extended through commercial financing institutions (CFIs) to RE pro-
jects allows blending of commercial and concessionary loans to reduce
overall costs [1]. Bond finance for RE projects can be a cheaper means
than commercial loans, and affords a recycling opportunity to limited
amounts of construction capital through refinancing initial project ex-
penditures [4]. For example, the Japan Bank for International Co-
operation (JBIC) provided loan guarantees for four renewable energy
projects in Asia and South America to local development banks [4,5].
Project bonds are used to fund undertakings, with the debt commitment
being paid back from the cash flow generated by the projects [6]. Green
bonds are issued by governments, banks, multilateral development
agencies (MDAs), corporations and project companies to raise fund for
an asset contributing to a low carbon and climate resilient (LCR)
economy [6]. For example, Climate Awareness Bonds are issued by the
European Investment Bank (EIB) for lending to renewables and energy
efficiency projects in the European Union [7]. Asset-backed securities
are bonds which are backed by the cash flows generated from operating
RE projects, and are generally used for refinancing purpose [1]. As in
January of 2018, the total estimated issue volume of climate-aligned (or
“green”) bonds has reached US$895 billion (increased by US$201 bil-
lion from last year), and room for a much larger market is predicted
[28]. The insurance sector is less likely to issue policies to clients or
assets not meeting the resilience standards against climate change and
green bonds are perceived as investment conducive to meeting this
changed requirement. Previously, the green label was said to mislead
investors in that transparency was inadequate to monitor the use of
bond proceeds, but with increasing standardization and certifications of
“green” use due to emerging market regulatory forces, the concern of
investors against “green-washing” is diminishing [29].
Equity is a fund raised from shareholders in different domains, in-
cluding venture capital, private equity funds, and public share capital
markets. Different types of equity investors will be engaged depending
on the stage of technology development, rates of return, and the degree
of associated risk [8]. Venture capital investors provide early stage
capital, and take significant risk but expect higher returns [9]. Private
equity investors concentrate in later stages and more mature tech-
nology or projects, with the intention to find an “exit” for their in-
vestment and reap their returns within a 3–5-year period [8].
Grants and subsidies are typically provided by governments and
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Renewable and Sustainable Energy Reviews 90 (2018) 937–944
public agencies to projects that are commercially marginal [2]. Capital
grants generally represent an effort of local authorities to reduce the
ultimate financial cost of RE technology projects to increase their
competitiveness [1].
In general, larger RE projects need to have access to long-term
funding acquired on a project finance basis, while smaller RE projects
typically rely on corporate finance [1]. Project financing is focused on a
special-purpose vehicle company, which raises loan capital, the re-
payment of which relies on project cash flows with limited recourse to
assets of the parent company [10]. Large amounts of debt can be ob-
tained to pursue RE projects with negligible impact on the balance sheet
or creditworthiness of the company [11]. In the case of corporate fi-
nance, the lenders’ decisions are based on the overall creditworthiness
and risk profile of the borrowers. Corporate loan is used to achieve
quicker financing execution and lower costs of legal and arrangement
fees for small RE projects [10]. Large corporations such as utilities and
multinational companies operating in the RE market can use their ac-
cess to cheap capital for raising funds [2]. They can expand their bal-
ance sheets to fund the long-term development of RE technologies by
issuing new bonds and equity. Since the later part of this decade, the
major consumers of electricity amidst the advent of social media, such
as Google and Facebook, have been purchasing RE for their data centers
under long-term agreements at fixed prices, which removed the volume
and price risks from equity and loan financings, leaving only the in-
herent instability risk of RE for consideration. This risk is being miti-
gated by technological advances in energy storage (such as batteries),
which have seen cost reductions and storage capacities. The Interna-
tional Renewable Energy Agency predicts that energy storage cost will
reduce by 48–64 per cent between 2016 and 2030, and storage volume
will grow from approximately 4.67 TWh to around 7 TWh from 2017 to
2030, representing an increase of around 50% from 2017 [30].
3. The technical maturity and developmental stages of renewable
energy technologies
The costs of RE technologies depend on the maturity of technology,
economies of scale of the systems, and natural resource availability
[12]. For example, geothermal and wind projects are well-developed on
an industrial scale compared to solar thermal and photovoltaic tech-
nologies [4]. The photovoltaic systems are highly tied to the position of
the sun, whereas solar thermal systems can generate electricity after
getting dark. However, the cost of solar thermal plants is higher due to
complexity of the systems. The installation and maintenance of offshore
wind turbines incur much higher cost than that of onshore wind sys-
tems because of the marine installation conditions and transportation.
The cost of biomass plants heavily depends on the installation types and
biomass feedstocks, such as organic wastes from agriculture, house-
holds or industry. Pre-investment financing is necessary for hydro-
electric project development due to the impacts on land use and re-
settlement of downstream communities [1].
There are three main stages for energy-related technological in-
novation in a market economy [13]: (1) New technology R&D and
demonstration, which involve basic research, technology-specific re-
search, development and demonstration; (2) Marketization, which in-
volves demonstration of technology to a potential market; (3) Market
penetration, which involves market accumulation and product diffu-
sion. Each stage embraces technology improvement and cost reduction,
and is driven by two main forces: Technology-push and Market-pull
[13]. “Technology-push” elements dominate early stage R&D, whilst
“market-pull” becomes increasingly important in the subsequent stages
of innovative technology development. Private investment in RE tech-
nologies is scarce in the early stages and increases when the technology
is closer to market [14]. The “technology-push” situation is primarily
manifested in the development of low green-house gas (GHG) tech-
nologies, usually through public funds and R&D programs, instead of
through regulatory constraints on emissions. On the other hand,
P.T.I. Lam, A.O.K. Law
“market-pull” primarily comes from the business sector and is exerted
through economic incentives [13]. Profit-seeking businesses invest in
innovative technologies in order to reduce costs, and give priority to the
adoption of GHG emission regulatory measures. Various government
policy instruments have been initiated to create incentives for invest-
ment in RE projects, such as feed-in tariffs, renewable obligation, re-
newable portfolio standard, and mandated market share [10]. Indeed,
feed-in tariffs are drivers for RE technology investment in the later stage
of market diffusion [14].
Various financing means can be used at different stages of RE
technology projects [15]. At the start-up stage, technology research is
most likely financed by the government or public funds. The cost of
early entry to a market is higher due to the use of new and unproven
technologies which are not yet produced at scale [9]. A relatively small
initial tranche of funding is necessary for feasibility and commercial
studies at project conception, and grants are often coupled with tech-
nical assistance to maximize the benefits of early-stage investment [4].
Governments can enhance the commercialization of RE projects by
offering low-interest loans or loan guarantees [2]. International public
funds also provide subsidies to support entry projects through grants or
development loans [16]. Technological development is often financed
by early-stage venture capital investors and private equity firms. The
venture capital investors are the first active movers in promoting new
technologies since they tolerate higher risks with higher expected re-
turns [17]. Once the innovative technology successfully passes through
the early development stages, smaller project developers will sell the
majority of their shares in the project to private entities in the form of
shareholder equity [10]. When the new technologies become suc-
cessful, the owners should be able to attract different financial sources
at lower cost since their success stories become widespread in the fi-
nancing community [17]. Bank lenders are often hesitant to extend
large amounts of loans to new technologies unless they have passed
both the technological and commercialization phases and they require
contractual commitments of the stakeholders [14,18]. Once market
accumulation and diffusion take place, the capital need arises for set-
ting up manufacturing and sales facilities, and these are funded mostly
by corporate and project finance [2]. Manufacturing and commercia-
lization of the technology can also be financed by public floatation of
stocks [2]. Refinancing early stage borrowings and transfer of owner-
ship occur at the last stage of the “investment continuum” [2]. Most
project bonds are used in the post-completion stage of projects to re-
finance assets, allow recycling of capital for new projects [6].
When RE facilities are built and put into operation, a smart means
for financing further growth of RE portfolios is made possible by a
parent company setting up a subsidiary called “YieldCo”, which invites
equity investments in return for long-term dividends to the investors. A
YieldCo basically bypasses regulatory constraints on utility companies
in raising new funds. This approach works best when taxation benefits
(corporate tax offsetting investment gains) are passed on to the share-
holders, such that returns are treated as repayment of the paid up share
values, rather than gains on investment. Growth takes place due to the
expiry of initial contract period of the revenue-earning RE asset, calling
for new generation assets to feed the pipeline of stable cash flows. In
Canada and the US, a boom of “YieldCos” occurred in 2013–2015, but
soon the bubble burst when one of the major players bankrupted in
April 2016. Insurance companies and pension funds stepped in to take
up the revenue streams of wind and solar farms by buying the RE assets.
As in early 2018, there are signs that YieldCo deals have started to
revive, as infrastructure funds acquired some YieldCos [31].
With the advent and proliferation of the internet and related social
media, crowdfunding has become an emerging and strong funding
source for RE developments across the world, and more recently in
Asia, where environmental consciousness is increasing, with several
cases being reported [27]. The rapid development of Blockchain tech-
nology has created the opportunity for peer-to-peer trading of RE on a
distributed basis amongst individual adopters rather than on a utility
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Renewable and Sustainable Energy Reviews 90 (2018) 937–944
scale, without the need for an agent. This possibility points towards the
disaggregation of financing for the smaller capacity RE plants [32].
4. Policy and program interventions
Due to higher cost of installation and production, RE is generally
only attractive in a market driven by policy support [8]. With the
economies of scale and existing market structures of conventional en-
ergy well established, RE is often only marginally competitive. Fur-
thermore, financial institutions have less familiarity with the RE in-
dustry and thus seek to reduce financial risks by investing in close-to-
market technologies [19]. Hence, government plays a key role and a
suitable level of involvement varies greatly amongst different sectors
[13]. On one hand, governments may fund basic and applied tech-
nology research and development (R & D), as well as some proof-of
concept activities for demonstration. On the other hand, governments
may enact legislations which indirectly increase the market value of
carbon mitigation technologies, such as through cap-and-trade ar-
rangements or carbon taxes. Different forms of fiscal support mechan-
isms or subsidies focusing on increasing returns from investment in RE
projects emerge to make them more commercially attractive. Examples
include feed-in tariffs, renewable obligation on suppliers, Renewable
Portfolio Standards, tradable renewable energy certificates, and tax-
based incentives [8]. Public policies have a significant influence on the
development of new technologies in the RE sector [20]. Quantum-based
policies, such as renewable energy mandates, favor development of
wind energy while direct investment incentives, such as feed-in-tariffs,
are effective in supporting innovations in solar technologies [21]. The
interdependence between public intervention and private finance can
also influence the cost of financing RE technology [14]. For example, a
strong environmental policy encouraging the deployment of wind
technology can indirectly reduce the financial risk associated with wind
technology, thus increasing the availability of lower-cost debt for well-
proven wind technologies.
Fig. 1 summarizes the various issues discussed so far, including the
inter-relationships between stakeholders, their actions (government,
business and financing community apart from the project developers),
the stages of development, and the associated types of funding suitable
for each stage, in the form of a diagrammatic model. The relevance of
Technology Push and Market Pull is also highlighted at the appropriate
stage. Decision makers can make use of the diagram in their funding
plan for RE projects.
5. Case studies
To reinforce the foregoing discussion on suitable RE financing vis-à-
vis project development stages, the case study method is adapted from
[19]. This method aids in illustrating and classifying issues related to
the central theme of RE financing, based on happenings in the real
world, and cases are selected based on the following criteria:-
(a) Technology coverage
The cases cover a range of renewable technologies (land-based
concentrated solar power and off-shore wind), including an emer-
ging renewable market (solar photovoltaic), and a relatively mature
renewable technology (on-shore wind).
(b) Diversity of funding types and regulatory policies
The cases cover a wide range of financing sources and types, also
illustrating various program interventions by governments
(c) Stage of completion
The selected projects have had their financial closes and are either
in construction or in operation, indicating the appropriateness of
their financing strategies
Although the selected cases mostly relate to plants using wind and
solar resources, they represent the diversity of financings pertaining to
P.T.I. Lam, A.O.K. Law
Fig. 1. Diagrammatic model of the interrelationships between Stakeholders, RE project developmental stages and financial tools.
different stages of RE development. For another type of RE resource,
namely biomass, it gives more certainty than wind and solar energy in
terms of availability and hence poses less risk to investors and lenders.
Yet, the particular concern of funders is on the continuity of feedstock
supplies. They usually require multiple and preferably vertically in-
tegrated biofuel supply sources to be secured by contracts, or at least
letters of intent, to ensure production. Environmental permit is another
possible barrier to biomass plants producing heat and electricity. Other
than these, the financing modes are broadly similar to wind and solar
energy, which are depicted in the following cases.
5.1. Ouarzazate I Concentrated Solar Power Project in Morocco (C1)
The Ouarzazate I Concentrated Solar Power (CSP) plant is Phase 1 of
a 500 MW CSP installation in Morocco, which is expected to become the
world's largest solar plant by 2020. The CSP project is financed by the
Government of Morocco, International Finance Institutions (IFIs), and a
consortium of private developers. The Government of Morocco offers a
substantial subsidy in the form of a Power Purchase Agreements (PPAs)
with a premium over grid price, spanning the expected 25-year oper-
ating life of the project. With PPAs, the private equity developers only
take on construction and operation risks, while the government bears
revenue risk. In addition, IFIs provide concessional loans and grants to
support construction costs and they also guarantee the government's
PPA subsidy.
CSP technology is an expensive technology at the early development
stage and is still at the commercial-demonstration stage. The case of
Ouarzazate CSP project shows that significant government subsidy and
up-front international concessional finance are required for the CSP
technology development in order to succeed in attracting sufficient
private financing in its startup phases and enable commercially un-
proven technologies to enter a competitive RE market.
5.2. Webberville photovoltaic power project in the United States (C2)
The 30-Megawatt Webberville photovoltaic power (PV) project in
Texas was the largest public solar facility in the United States in 2011.
The Webberville project was originally owned by a global RE company
(SunEdison), which developed and financed the solar project. Under a
25-year Power Purchase Agreement (PPA) with the publicly-owned
Austin Energy utility, the project was constructed by Renewable Energy
Systems Americas (RES Americas), which provided operations and
maintenance (O&M) services for the first 5 years. After RES Americas’
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Renewable and Sustainable Energy Reviews 90 (2018) 937–944
five-year O&M commitment, SunEdison took over the O&M obligations
for the 30-MW PV plant for 20 years. The plant was built at a cost of US
$250 million and is expected to produce over 1.4 billion kWh of elec-
tricity over 25 years. Through a 25-year PPA, the Austin Energy utility
has made a commitment to purchase the electricity generated by the
plant at a fixed rate over the project period. In 2012, the Webberville
solar project was purchased by a private owner and operator of PV
projects in the US (Longsol Holdings), and a US life insurer (MetLife).
The case of Webberville project demonstrates a project financing
deal via equity by institutional investors in photovoltaic power project.
The 25-year solar power purchase agreement provides a stable and
unambiguous long-term investment plan for investors. The commitment
to take up the generated power for 25 years also reduces the risks as-
sociated with the higher-cost of RE so that institutional investors can
have a predictable cash flow and receive a long-term fixed income.
5.3. Walney Offshore Windfarms in the United Kingdom (C3)
The Walney Offshore Windfarms project was a 367.2 MW offshore
wind park in the United Kingdom and cost US$2.1 billion. It was the
world's largest offshore wind park when it was commissioned in 2012.
The project was developed by DONG energy in 2007. However, the
developer was faced with serious financing challenges due to the large
scale of the Walney project and offshore location. Under the UK gov-
ernment's green tradable certificate systems, the project was rewarded
Renewable Obligation Certificates (ROCs) which generated a stable
cash income stream for over a 20-year horizon. In 2010, by signing
various agreements (such as construction management, operations and
maintenance, and power purchase agreements), the project attracted
investment by a consortium of Dutch pension fund service provider
PGGM and Ampere Equity Fund, together taking on a 24.8% stake. The
developer DONG Energy owned 50.1% of the project while 25.1% was
owned by Scottish Southern Energy (SSE), an electricity production and
supply company. In 2012, PGGM and Ampere Equity closed the re-
financing of the purchase of their 24.8% ownership in the Walney
project. A syndicate of four commercial banks, including Lloyds Banks,
the Royal Bank of Scotland Plc, Siemens Bank GmbH, and UK Green
Investment Bank, provided a loan facility totaling US$362 million.
Offshore windfarms are relatively new use of wind technology and
they are expensive investments compared with onshore wind. The case
of Walney project shows that the government's policy support and the
provision of incentives along with project financing can attract in-
stitutional investors to undertake long-term investment in offshore
P.T.I. Lam, A.O.K. Law
windfarms. More specifically, the provision of green tradable certifi-
cates allowed the project developer to create sufficient revenue streams
which attracted institutional investors on board as minority share-
holders.
5.4. Jädraås Onshore Windfarm in Sweden (C4)
The Jädraås Onshore Windfarm had equity contributions from de-
velopers, and debt from pension funds and commercial banks. The
203 MW project has 66 Danish-manufactured wind turbines, costing
approximately €360 million. The Jädraås project was constructed on
time and on budget in a period of less than 18 months and was the
largest Nordics onshore wind project at its commissioning in 2013. It
was co-sponsored by Sweden's largest windfarm developer (Arise
Windpower AB) and a UK private equity investor (Platina Partners
LLP), which provided a total equity of €120 million. Debt financing
amounting to €240 million was half provided by two Scandinavian
commercial banks (DNB ASA and SEB AB), with another half from
Danish pension fund PensionDanmark, whose stake was guaranteed by
the Danish government-backed export credit agency EKF. In addition,
the project benefited from the Swedish 15-year renewable electricity
certificate scheme, with rate-payers providing the financial incentives.
The case of Jädraås demonstrates a combination of state-backed
policies and institutional investors providing a large volume of funding
for a large-scale onshore windfarm project. The Danish Government
backed export loan guarantee and secured long-term loans from in-
stitutional investors. The Swedish renewable policy provides a long-
term income stream to ensure commercial viability. Furthermore, re-
gional expertise and effective management of existing relationships
amongst project participants offer sufficient risk coverage that ad-
dresses investors’ concerns.
5.5. Ivanpah solar thermal power plants in the United States (C5)
The Ivanpah project comprised of 3 separate solar thermal power
towers with a gross capacity of 392 MW. It is currently the largest solar
thermal electricity generating facility in the world. The project cost US
$2.2 billion and is sited on US federal lands in California. The Ivanpah
Solar Complex received a US$1.6 billion loan guarantee from the US
Department of Energy to support loans secured from the Federal
Financing Bank. On the other hand, the project sponsor (BrightSource)
raised private equity financing for the project, including a power gen-
erator company (NRG Energy) contributing US$300 million, and a US
$168 million tax-motivated investment from Google. The developer
maintained an equity share of the project (US$130 million) and pro-
vided technological support. Electricity from Ivanpah power plants is
sold through 3 long-term and fixed price PPAs with Pacific Gas and
Electric (PG&E) and Southern California Edison (SCE), each of 20 or 25-
year duration.
The case of Ivanpah demonstrates that the provision of a loan
guarantee shares the risk of project failure with the government while
the low-cost public debt enables good equity returns. The alignment of
risk and return can catalyze renewable scale-up by attracting equity
investors to the project, especially investment from relatively new in-
vestors (Google in this case). The significant and stable revenues af-
forded by revenue support policy, PPAs, also attracted equity partici-
pation by institutional investors.
5.6. Montalto di Castro solar photovoltaic power plant in Italy (C6)
The Montalto di Castro project in Italy consists of two photovoltaic
power plants with a capacity of approximately 51 MW. The project
sponsor (Andromeda Fainance Srl) raised €195.2 million project loans
for construction works from two international banks, BNP Paribas and
Société Générale, on a fixed rate basis with a tenor of 18 years. The
project loans were securitized and issued as two tranches of solar bonds
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Renewable and Sustainable Energy Reviews 90 (2018) 937–944
to fund the solar plant. In addition, under the Italian regulatory fra-
mework to promote RE production, the project company received fixed
feed-in tariffs (FITs) for the electricity generated by the plant and sold it
on the wholesale market at prevailing market prices.
The Montalto di Castro solar photovoltaic plant is the first secur-
itized solar power project whereby a Special Purpose Vehicle (SPV)
purchased 2 secured term loans extended to a borrower, with the SPV in
turn being granted security over its project assets [22]. The case of
Montalto di Castro project again demonstrates that government support
allowing feed-in tariffs can increase liquidity in the secondary market
for RE securitization bonds, and provide a stable cash-flow stream for a
project.
5.7. Anholt Offshore Windfarm in Denmark (C7)
The Danish Anholt Offshore Windfarm with an installed capacity of
400 MW is the third largest offshore windfarm in the world. The farm
consists of 111 wind turbines and cost an estimated US$1.65 billion.
The project was conceived in 2008, as part of the Energy Policy
Agreement of the Danish government. In 2010, the developer (DONG
Energy) was awarded the license for construction and operation of the
offshore windfarm. The developer was granted a €240 million loan by
Nordic Investment Bank. In 2011, a consortium consisting of two
Danish pension funds (Pension Danmark and Pensionskassernes
Administration, PKA) purchased half of the Anholt windfarm stake for
US$1.14 billion, payable in four installments between 2011 and 2013.
DONG Energy has signed a 15-year contract with two institutional in-
vestors on operation and planned maintenance of the farm. The entire
windfarm was commissioned in 2013. During operation, DONG Energy
receives a feed-in tariff of 17US¢/kWh for about 13 years of production.
The Danish Anholt Offshore Windfarm is the first large offshore
windfarm to attract pre-completion commitment for equity financing
from institutional investors [19]. The case of Anholt project shows how
a substantial amount of capital from institutional investors was ob-
tained. Firstly, the cost and completion risks for Anholt project were
borne by the developer, who assumed these risks through performance
guarantees. The feed-in tariff of Anholt project also eliminates revenue
risks posed by market variability and offers a long-term large-enough
premium for the institutional investors to meet their return targets.
Both income certainty and insulation arrangements to protect investors
from cost and completion risks are important to attract capital from
institutional investors.
5.8. Breeze two onshore windfarms in Germany and France (C8)
The project sponsor was a private investment management firm
(Christofferson, Robb & Company, CRC) which used securitization of
loans to windfarms as a financing strategy. In 2005, the company
bought its first onshore windfarm in Germany. Initially, the construc-
tion of the windfarms in Germany and France was financed using equity
contributed by CRC and short-term bank loans. As in spring 2006, CRC's
Energy Fund acquired 29 windfarms in Germany and France with a
total capacity of 430 MW. CRC then sold the portfolio of 29-windfarms
project to a Special-Purpose Vehicle (SPV) company called CRC Breeze
Finance, which issued €470 million of asset-backed securities in se-
curitization on a whole-business basis. The bond comprised three
tranches: the A and B tranches, packaged as structured eurobonds
called “Breeze Two”, were placed in the capital market; and the C
tranche was a private placement of €120 million. The sale of electricity
earned interest and principal payments for Breeze Two. Maturity for the
20-year senior bonds would be in 2026 while the 10-year subordinate
bonds matured in 2016. In November 2006, the Breeze farms together
with some other wind assets were sold to International Power, formerly
British utility National Power, for an enterprise value of €576 million.
The case of CRC Breeze Two Bonds shows the approach of using
private capital market financing for onshore windfarms. Trade
P.T.I. Lam, A.O.K. Law
Table 1
A summary of the cases and their financing tools.
Case study
Source of Finance & Policy mechanism C1 C2 C3 C4 C5 C6
Government-funded / subsidy *
Venture capital funds * phenomenal growth in RE utilization, notably in floating solar farms
Low-interest loan * *
Loan guarantees * *
Private equity * * * *
Loan from commercial banks/financial * *
institutions
Green Bonds * *
Feed-in tariff * *
Tradable renewable energy certificates * *
Renewable Energy Standards (e.g. PPAs) * * *
receivables transactions were structured by the project company within
a wider security package to raise debt. The proceeds were used to re-
finance existing windfarms and fund further additions to the portfolio
of windfarms. Transparent, objective and high quality information
being provided to investors and credit agencies is a key indicator of the
performance of what would otherwise be regarded as an illiquid in-
vestment. In addition, standardization of contractual documents and
project evaluation procedures are necessary for securitization deals to
lessen the due diligence requirements of institutional investors.
Table 1 summarizes the types of funding and policy mechanisms as
adopted in the 8 cases depicted above. It can be seen that private equity
has become a frequent source of finance being sought for RE projects, as
the projects approach maturity in terms of technology development.
Debt financing is key to projects which have reached a stage of stability
and mass utilization.
6. Discussion: implications for financing renewable energy
projects in Asia
The discussion hitherto has been focused on RE project develop-
ments in western countries which had pioneered in the use of wind and
solar power with well-established financial markets. Since RE devel-
opment is now emerging in Asia with a good prospect, the need for
financing is mounting fast although there is still a disparity in the
progress of capital and loan market development in many Asian
economies. As yet, there are various investment instruments for fi-
nancing renewable energy in Asia, and by and large the principles de-
picted in this research also apply. The use of loans and guarantees from
multilateral agencies such as the Asian Development Bank has been
instrumental in many aspects of infrastructural construction but more
diversified funding sources are gradually available. For example, in
China, the main sources of financing RE projects are enterprise in-
vestment capital, bank loans and central government investment sub-
sidies [23]. Equity financing and bond issues have become popular fi-
nancing channels for RE project developers [24]. However, there is an
observation that there has been an over-reliance on short-term debt,
posing a major risk for sustainable economic development, hence ne-
cessitating a rebalance with longer term loans [24]. State-owned banks
such as the China Development Bank have issued billions of yuan loan
to China's renewable energy sector, but monetary policy has been in-
clined towards limiting the growth of commercial loans, thus restricting
the growth of clean energy capacity [23]. On the other hand, the Chi-
nese government has been using feed-in-tariffs as an important policy
incentive for promoting the spread of distributed PV installations (such
as on rooftops), with versatile business models such as equipment
leasing and performance guarantees coupled with the use of Energy
Performance Contracting [25,26]. In India, the government has given
some policy incentives to RE projects, which encouraged loans to be
made by both public and private sector banks for RE projects in the
Renewable and Sustainable Energy Reviews 90 (2018) 937–944
country. Similarly, the policy incentives in Thailand have also attracted
bank credit and other means of financing to wind, solar, and hydro-
electric projects of all scales. To-date, Thailand is the leading nation
using RE in Southeast Asia, since it accounts for 62 per cent of the
C7 C8 installed solar capacity in the region. Its target of using RE has been
raised from 33 to 40 per cent in 2017 [33]. Vietnam is also experiencing
due to its abundance of water bodies. Whilst there are plenty of in-
vestment opportunities spurred by strong economic growth forecast,
* * Southeast Asian projects in particular need a boost in bankability due to
* *
the sovereign risks perceived by the financing community [34]. The
credit enhancement measures (e.g., guarantee structure) and the con-
ditions under which they are executed, as depicted in the mentioned
European cases, can throw some light to decision makers in Asia when
they engage in fund-raising activities. Alongside the use of public
funding, the RE market in Asia will flourish with a maturing policy
framework, which can model upon the cases (e.g., initial support
through feed-in-tariff and tax incentives) with suitable adjustments to
suit local circumstances. Unlike Europe where investment products are
met with deep markets, Asia (with few exceptions such as Japan, Sin-
gapore and Hong Kong) has yet to build up similar financial infra-
structure as fixed income instrument markets to utilize green bonds and
securitization for sizeable RE developments. In the case of fund-raising
for the distributed type of RE projects (e.g., roof-top solar panels and
small wind turbines), which is usually of a smaller quantum, the ap-
proaches used in western economies may serve as good examples.
7. Conclusions
This research is aimed at identifying suitable financing modes for RE
projects at different developmental stages from the perspective of RE
developers, with the specific objective of providing guidance on
funding decisions of nascent entrepreneurs venturing into the RE
market. This has been achieved with the development of an integrated
diagrammatic model as shown in Fig. 1, with proven applications il-
lustrated through a series of 8 case studies focused on wind and solar
projects due to their predominance in market shares amongst all RE
types.
Foregoing discussion has demonstrated that the financing structures
for RE projects depend on natural resources availability, technical
maturity, and financial viability of RE technologies, as well as support
via government policies and the regulatory environment. For in-
novative new RE technology, startups have to rely on their own capital,
government support in the form of seed funds, grants, or private
funding sources such as angel and venture capital. Nowadays, crowd-
funding may be a possibility to fund startup technology if the RE is
appealing to a certain segment of the society. As the technology ma-
tures, private equity may be available with some loss of ownership by
the innovators. Banking sources may also be sought for loans, but
guarantees are usually needed. With commercialization of RE tech-
nology and growth of company assets, corporate loans, bond issuances,
Initial Public Offering, or even securitization may be possible, usually
with a higher cost of capital in the long term.
Currently, for RE to be deployed on a large and affordable scale,
some sorts of government intervention or policy supports are usually
required, often in the form of subsidies, differential feed-in tariffs
(compared with conventional power tariffs), or regulatory arrange-
ments (such as carbon trading or climate mitigation obligations).
However, as the price of RE installations level off due to economies of
scale or other market factors (such as an over-capacity situation of RE
manufacturers in China), grid parity is not an impossible mission to
achieve. This can be hastened with the emergence of new business
models and the wide spread use of smart grids and smart meters, en-
hancing energy efficiency and making available increased choices of
competitive power sources to consumers. The energy market in
Southeast Asia is developing fast (growth by 60 per cent in the last 15
942
P.T.I. Lam, A.O.K. Law
years) with a substantial funding demand and yet only 40 per cent of
the RE projects are bankable [35]. Hence, useful lessons may be drawn
from the western case studies depicted here for alternative financing.
As funding decisions are critical for the success of RE development,
especially for innovative technologies at the early developmental stage,
this research should have given decision makers an informed approach
for matching their funding needs with available sources in a typical RE
project life cycle.
Acknowledgement
The work described in this paper was fully supported by a grant
from the Central Research Grant of the Hong Kong Polytechnic
University (Project no. G-YN89).
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