CONTEXT

In mature renewable energy markets like Germany or the US, it is common to finance an energy project based off of solely the cashflows or electricity savings, with the bank having recourse only to the energy system itself. Meanwhile, such non-recourse debt financing is not taking place on Barbados. In order for project finance to take place the bank needs to be able to utilise the asset in the case of default.

As a result, banks will most likely make the loan as an on-balance sheet corporate loan, in which case collateral is naturally required. This is despite the fact that unlike many typical corporate loans, energy systems generate consistent cashflows/savings from the first day of installation. Perceived risk on the performance of the system, and thus the ability of the business to repay the loan, may also increase the collateral requirements beyond a typical corporate loan.

PROJECT

The objective of the work was to build a USD 5 million pipeline of bankable green infrastructure projects, including renewable energy and energy efficiency, facilitating dialogue and raising awareness among banks of the importance in financing these types of projects.

OUTCOME

To build the pipeline, BASE took a multi-pronged approach. As new players in the market, we had to build credibility and trust with project proponents. This was important because Barbados is a relatively small country, with most business owners and decision-makers knowing each other in a close-knit circle, and there has been a negative perception of government guarantee schemes in the past that we discovered. The final pipeline totalised USD 6 million.

BASE also developed material to explain potential benefits to the project owners (i.e. clients of the banks). There also seems to be some confusion as to what a loan guarantee is, as the project owners are not the direct recipient of the guarantee. This information was geared to the target market of project owners or green energy contractors. The information consisted of a high-level overview of the guarantee, the types of green projects we were looking to evaluate, and what we would offer.