Financing for Renewable and Efficient Energy Sources and the Risks
The CARICOM Development Fund (CDF) and the Development Finance Corporation (DFC) have partnered to create greater access to funding for investments in renewable and efficient energy sources for Small and Medium Enterprises (SMEs). The program is targeting business owners in the tourism industry, the agricultural sector, manufacturing and housing. Though business owners in these fields may be aware of the long terms benefits of switching to renewable and efficient energy sources, these projects often require a great deal of capital. Financial institutions also do not readily provide financing for these types of projects. CDF and the DFC are working to change that. News Five’s Paul Lopez reports.
Paul Lopez, Reporting
It is no secret that countries across the world have been fast-tracking their efforts to decrease their carbon footprints by turning to more renewable energy sources. Belize is no exception. But, financing renewable energy projects for SME’s can come at a great risk to financial institutions, if the projects proposed are of poor quality and lacks viability. As a result, CDF has established the Credit Risk Abatement Facility.
Rodinald A. Soomer
Rodinald A. Soomer, Chief Executive Officer, CDF
“What the facility does is that it takes on risks at different levels in different stages in the development of the projects. So, it is not just risk of lending to these SMEs. Generally SMEs are felt to be high risk prospects for the banking sector. But it is also the idiosyncratic risks, the peculiar risks associated with the different projects. So we deal with each of the projects on a case to case basis and because we are dealing with what is considered relatively new or unfamiliar technologies to SMEs there is a lot of technology related risks, a lot of risks of making poor decisions with respect to the type of technology, the scale of technology, the time of implementation, the types of measures you need to put in place to ensure that you have sustainable cash flow to pay your loan.”
To address the reluctance by financial institutions to provide the necessary funds to see these projects completed, the Credit Risk Abatement Facility will also cover the majority share of the financial risks associated with lending for these types of projects through guarantees
Rodinald A. Soomer
“What was preventing the banks from providing more financing was that the SMEs could not meet the collaterals requirements. So, we are developing a suite of products on the credit risk element of it. The first product we are offering is a credit risk guarantee, which could cover up to eight percent of the cost of the loan. That is what really entices many of the banks that we have boarded onto the facility to become a part of it. And because we are ensuring that the projects that get to the bank are quality projects we don’t expect the guarantees to be called upon, but in the event they are called we are called we are putting systems in place for rapid response.”
The Development Finance Corporation is the first and only financial institution in Belize that CDAF has on boarded thus far. The threshold ranges from twenty-five thousand to seven hundred and fifty thousand U.S dollars.
Henry Anderson
Henry Anderson, Chief Executive Officer, DFC
“What the CRAF is doing is creating the financial inclusion by providing a partial guarantee. Now I must say this is not something that if you choose not to pay then they will pay. No, it is not that simple. We have to do everything under the law to collect and after we demonstrate that we have done everything under the law to collect then they may pay up to eighty percent of what is collected. So, it is proper financial due diligence and following through. The DFC can’t just give out loans because we can get eighty percent back, it is not that. But this is a powerful thing because it allows Belizean business to do, besides the climate benefits of it, reducing footprints and everything else, it is good for business. It reduces your operating cost and makes you more competitive.”
Essentially, studies show that switching to renewable and efficient energy sources reduces operational costs and allows businesses to become more competitive. An opportunity also exists for these decentralized energy systems to sell excess energy generated to the national grid. The regulatory policies to do this are not quite is place as yet, but the Public Utilities Commission says they are coming.
Ambrose Tillett
Ambrose Tillett, Director of Research and Development, PUC
“The recognition is ok; you now have what you call bi-directional flow of power. Not only do we have these big power plants putting energy on top of the flow, but we can also have at the costumer side, where costumers are able to produce energy locally and where they have excess resources, that energy can then come back to be used to supply other customers that need. We are in the last phase of that legislation where the final draft is getting ready for publication this month where we are going to make it easier, expedite the authorization for small people up to a megawatt to get authorization, to undertake these operations to produce electricity and if excess to sell it to the grid.”
Reporting for News Five, I am Paul Lopez.
