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Bridging the funding gap

March 13th, 2014 | 2:16 pm

Reading the press you might be led to believe that funding a renewable energy project is now easy with a queue of financiers waiting to snap up your project. Renewable energy investment is increasingly becoming main stream. However, delving into the detail behind the news stories and press releases the picture isn’t always as golden.

For projects which are operational and large scale we would agree that project developers have strong opportunities for financing. However, for projects which are not yet operational or viewed as small scale, obtaining finance from a mainstream funder can be difficult.

We regularly talk to project developers who have great projects, technically strong, consented and ready to build but arranging finance is delaying the whole project. There are often two key issues which make raising finance difficult:

Firstly deal size. Small to medium scale projects i.e. those less than 5MW or £5m cost, are too small for many investors to consider. If, an offer can be achieved the costs of arranging the finance quickly makes the finance expensive as you are paying for the same level of due diligence as a larger project.

Secondly risk appetite. Whilst renewable energy is becoming an increasingly understood area it is still viewed as a high risk investment for many. Technology track records from Europe are often viewed sceptically and the issue of feedstocks for AD or biomass adds further risk factors.

One option is to develop a portfolio of projects, to bring the deal size up to volume whilst spreading the risk and financing costs across a number of projects. However this places an even greater amount of risk and financial burden on the developer and may leave projects on hold until critical mass is achieved.

Development finance will always be the hardest to secure and the highest cost, but quite rightly so. With planning becoming an unpredictable process, grid costs varying greatly and technical viability taking time to fully de-risk, financial backers at this stage need a high return to combat any losses from projects failing during development.

However once a project has been consented, secured a grid connection, tied up any feedstock issues, secured the land and a technology supplier lined up, the project has been derisked and should be an attractive prospect. Yet increasingly we still see investors unprepared to take the construction risk on individual small projects.

At CO2Sense we know all about this gap in the market as its where we work, regularly investing to help developers obtain consent, reach financial close and build projects out. Whilst the difficulty in accessing funding for some projects is frustrating, we believe it offers an opportunity to those who understand the market and are prepared to take a risk. We’ve recently refocused our investment offer to address this funding gap, from longer term construction finance towards development and bridging loans for projects less then 5MW in capacity. We do look to achieve a return which reflects the risk we are taking. However the difference CO2Sense offers in comparison with other investors is our not for profit status, which requires us to recycle profits back in to what we do, helping more projects. We also offer flexibility in our funding packages and have in–house expertise to provide further support.

For example we recently financed a hydro scheme in North Wales which used our investment to support the construction costs. After 3 months operation the developers were able to refinance the project, offering CO2Sense an exit. Find out more on this project here.

If you are developing a renewable energy project and indentify with these issues, please contact us for an informal chat. Jemma.benson@co2sense.co.uk or 0113 247 3846.

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