Renewable Energy Asset Management
Developing renewable energy projects is by no means easy, or cheap—there’s a lot of work that goes into research, land leases and more before any turbine or solar panel even sees the light of day (pun intended). It takes years to approve and build projects, let alone see a return on investment, and financing needs to be steady the whole time.
The good news is that every day, the sun will come up, wind will blow, and our world will need to buy energy—an impressively reliable supply and demand for any investment. So while the barrier to entry might be relatively high, steady returns can make renewable energy projects a lucrative business for developers and investors alike. Though I really hope that anyone reading this isn’t surprised to learn that…
And yet for many reasons, in this relatively reliable—and lately, mature—market, many people forget the basics. Projects fall through, financial resources are wasted and developers scramble to keep operations afloat. As we know very well, simple tasks like having contracts, approvals and leases organized or creating accurate reports about the health of a project or pipeline, can trip up teams that aren’t equipped for sustainable project growth, keeping them from proving ROI or getting financing in the first place. Banks and investors rely on documents, numbers and track records to make their decisions. So, we set out to answer a billion-dollar question—what are investors in the renewable energy market looking for?
We spoke to Maham Iftikhar Warraich, investment professional at a development finance institution, about her perspective.
What do you consider a bankable renewable energy project?
For me, as an investment professional, the key thing is that the project should have adequate and predictable cash flows. You need to be comfortable that the project’s cash flows are going to cover the debts. [For projects at ground 0,] the question is, how is it being developed? For example, if it’s a solar IPP, does it have the right offtake agreements, the right tariffs, the right contractors constructing the project, the right sponsors who would make sure the project gets developed well?
What does a good renewables project proposal look like to you?
The developer should have some experience and a track record of doing similar projects. If they haven’t developed similar projects, then they need to demonstrate why they will be able to implement this particular project. The partners—especially the EPC contractor—also need to be experienced, with a good track record and good financial health.
The developer also needs to be in good financial health, or at least have proof that they’ll be able to put in the required equity into the project. The EPC contract needs to be well structured and the EPC also needs to be bankable. The developer needs, in essence, to make sure that the risk is appropriately transferred to the right party.
If this project has other agreements with the government, offtake agreements, they will also need to be bankable and well structured—the EPC contracts, the offtake agreements, everything needs to be back to back in a neat bundle. And then obviously the tariffs, cost of debt and cost of equity need to make sense with respect to the financial model.
What would you look for in financing a renewables project that’s close to or already operational?
We just need to make sure that there’s a role for us and this project won’t go anywhere without us. Maybe then [we would come in], but otherwise, why should we [invest] at that point?
Given that you have so much experience in the Middle East, can you explain what’s different about financing or investing in a market like Egypt or Pakistan, compared to western markets?
The main difference is risk—construction risk and risk related to the government, because these are emerging markets. In western countries, if the government says they’ll do something, they will probably do it and they’ll do it soon. [In other markets] there’s general risk, political risk, security risk. There’s also probably more liquidity in western markets. But [in these emerging markets] the returns are also high—the equity returns are higher.
The line that stood out to me the most from our conversion with Maham was about the specific considerations investors have around renewable energy projects—“does it have the right offtake agreements, the right tariffs, the right contractors constructing the project, the right sponsors who would make sure the project gets developed well?”
Clearly, there are so many moving parts to getting investors and financiers on your side. Managing your information on Excel or making one person responsible for tracking your documents is self-sabotage…because software for renewable energy exists. It’s designed for exactly the tasks you need to manage. It’s meant to provide organization, centralization and asset intelligence—you just have to sign up.