CMCC & ETC Low-Carbon Finance Webinar

27 Nov 2018

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  1. Introduction
  2. Characteristics and underlying drivers of non-recourse project funding of REs, applied to a dataset of German RE projects
  3. Evolution of cost of capital for project-financed RE
  4. State investment bank (SIBs) policies
  5. Multilateral Development Banks policies in RE investment
  6. Conclusions

Introduction

Low-carbon finance webinar from @CmccClimate with @BjarneSteffen and Tobias S Schmidt from @ETH_EPG started. Some take-aways: https://t.co/NbI0dsTk4z

Relevance to look at finance conditions for renewables = specific feature of high capital intensity compared to non-renewables https://t.co/rAKoWgap3o

In this regard, work has been done on 4 topics: analysis of corporate vs. non-recourse project finance, evolution of cost of capital for project-financed RE, state investment bank (SIBs) policies for investment and multilateral bank (MDBs) investment policies. https://t.co/Ec8KeSqnyO

Characteristics and underlying drivers of non-recourse project funding of REs, applied to a dataset of German RE projects

1st paper [https://t.co/rskQFJ5GYx] focuses on characteristics and underlying drivers of non-recourse project funding of REs, applied to a dataset of German RE projects https://t.co/7gdzHLJrjZ

General conclusion: high share of project finance for RE projects in Germany. Main reason: small balance sheets of relatively new players, not big enough to receive corporate finance. https://t.co/qjSHD9RN2M

Evolution of cost of capital for project-financed RE

Further analysis of drivers broken down in 4 steps: [1] mapping of project finance data, [2] investor interviews, [3] regression analysis of experience curves and [4] split-up of LCOE into technology efficiency cost effects. https://t.co/7AANiPjVWt

[1] Historic development of cost of capital: large decrease during the last 18 years, both for solar PV and onshore wind https://t.co/lN94kaSe7W

[2] Different drivers responsible for cost changes: overall economy, renewable energy sector and RE finance industry https://t.co/KuLznk7jSp

[3] Estimation of effects of experience and general interest rate effects. https://t.co/8gaTX2hffA

and [4] identification of cost of capital dynamics on the levelised cost of energy (LCOE): main decrease (60 %) in capital expenditure, 40 % due to financing cond. For financing decrease: Solar PV = decrease mainly due to lower capital expenditure <-> Wind = experience effect https://t.co/gFt0kYfEsE

State investment bank (SIBs) policies

3rd paper on state investment bank (SIBs) policies [https://t.co/8A5qMRuF1v]. Main conclusion: found to crowd-in private finance, leverage for RE development. Case study comparison of 3 state investment banks [DE, UK, AU] https://t.co/3u3k85I073

Method: 56 semi-structured interviews with investors and developers in SIBs. Conclusion: SIBs have much more roles than only capital provision, for example: de-risking/guarantees, educational role [importance of internal technical expertise!], signalling role & first/early mover. https://t.co/6dKYQBLvJo

Multilateral Development Banks policies in RE investment

4th paper: Multilateral Development Banks policies in RE investment [https://t.co/9bPxiuSwo7] -> power generation of developing countries crucial for #climatechange. Q: MDBs take the role of SIBs in dev. countries? M: analysis of 857 projects (2005-15) + 12 MDB expert interviews https://t.co/jVAnO78kGH

First conclusion: changes in new RE investment, technology-specific differences https://t.co/NlMORPPy7M

Different RE investment policies between multilateral development banks: -> “On top” of fossil [@EBRD, @EIB, @the_IDB, @IFC] -> Fossil substituion with RE [@AfDB_Group, @WorldBank] -> Hydro substituion with RE [@ADB_HQ, @AgendaCAF] -> Mainly growth in fossil fuels [@isdb_group] https://t.co/ra0n2ApNsV

Other conclusion: stark difference between public branches [lending to governments] and private [lending to industry] in MDBs -> much higher share for fossil in public branches of multilateral development banks + differences between MDBs. https://t.co/MDcC5WlDVL

Conclusions

Webinar conclusions: -> Renewables rely heavily on project finance, so banks are important factor and cost of capital (interest payments + dividents) is important factor -> Reductions of cost of capital = driver for lower LCOE: financing exp. and gen. interest rate level effect. https://t.co/Mpbt7KTbq6

[…] cont. conclusions: -> Public banks can be a powerful policy instrument to enhance financing conditions and lower the cost of capital for new technologies (!) -> [for modellers] More need for technology- and time-specific cost of capital analysis, no more uniform discount..

Note: thread summarized at: https://t.co/0HMIrcVMjm

Update from #COP24 on @WorldBank_IEG : https://t.co/f7bLxeTjet