Financing in the form of official development assistance (ODA) and those backed by government guarantees will likely prevail as the “initial model” in lending to renewable energy projects.

“Renewable energy projects are financed mainly via official development assistance or those with many years of track record,” noted First Metro Investment Corporation (FMIC) president Francisco Sebastian, citing the experience of other countries.

In fact, the ODA arrangement for RE financing is also being pushed by multilateral lenders, chiefly the Asian Development Bank (ADB) which earlier announced that a substantial pie of its $1.0-billion energy credit portfolio can be earmarked for RE ventures.

Sebastian further acknowledged that there is still “hesitance to underwrite RE projects on stand-alone non-recourse basis”, hence, risk-reducing factors must be sorted out in the policy domain. These could come in the form of initial public sector sponsorship, ODA-type of financing or those with government guarantees. Subsidies are also seen shoring up the financeability of projects.

As far as some emerging RE technologies are concerned, he emphasized that “an incubation period” is warranted to establish track record.

The acid test relating to RE project financing, the bank executive said could spin around difficulties “to determine the performance, delivery and asset quality risks.” Due diligence processes are also specified to be “expensive and cumbersome.”

Generally, he noted that lenders are asked to rely heavily on technical studies. Nevertheless, he opined that evaluation of technology risks typically “push the risk modeling and risk assessment techniques to the limit.”

Sebastian added that whether it be on RE or fossil fuel-based power facilities, Philippine banks are able to finance projects “as long as risk factors are addressed.” He stressed that the challenge for market players then would be to “get project developers, sponsors, funders and government to work together to channel the excess liquidity into productive use.”