OPIC’s focus on renewable resources supports projects in wind, solar, geothermal, hydropower, biomass and other sustainable sources of energy, which will reduce carbon emissions, improve access to electricity and support economic growth. In recent years, the share of OPIC’s portfolio devoted to renewable resources has grown dramatically. In 2009, OPIC’s finance and insurance commitments in renewables totaled $131 million. That number reached $1.089 billion in 2011. Spearheading OPIC’s work in the sector is Lynn Tabernacki, Managing Director of Renewable and Clean Energy Programs. Coming off of a very busy month, she was able to spend some time answering questions about the sector and where she sees opportunity for growth in the near future.
OPIC just closed its fiscal year and is sharing some impressive numbers around its work in the renewable energy sector in emerging markets. What trends contributed to this growth?
OPIC’s growth derives from the positive actions of governments worldwide to introduce renewable energy to their energy mix. There are a number of countries that implemented new renewable energy programs in the last year and, as a result, our pipeline of deals in those countries has grown. Also, U.S. investors, with a greater risk appetite, recognize that higher returns are available in emerging markets. Unfortunately, access to capital from the private sector has contracted quite a bit in the last year. Lending to all but the largest and strongest projects in these countries has been scarce. Therefore, multilateral/bilateral financing has become critical for providing the necessary tenor and terms to ensure long term project viability. OPIC has shown its capability to support both large and small transactions, which has resulted in greater interest from investors.
You spoke on a panel at the Caribbean Renewable Energy Forum (CREF) in Puerto Rico on October 16. What do you see coming out of this event and do you see strong potential for the renewable energy sector in the region?
I was very impressed with the collaborative approach at CREF. There were many island government representatives, developers, financiers and advisors seeking solutions to well-known issues. One panel discussion relating to the introduction of energy efficiency in the hotel industry resulted in the formation of a steering committee to continue work on the issue. The efforts at CREF were very solutions-oriented.
The Caribbean markets offer great opportunity, both in renewable energy and energy efficiency. Many islands have abundant natural resources in different forms (solar, wind, biomass, WTE) that can be used to meet energy demand without harmful effects on the islands’ natural beauty. Given the high cost of diesel, which is the primary source of energy for most islands, governments will favor the lower cost producers and those that provide the islands with greater energy independence.
Many emerging countries have severe shortages of conventional energy. Is it realistic to attempt to introduce renewable sources of power to these markets when their construction might be costly and difficult?
Introducing any new power generation can be costly or difficult. Developers in general always have to consider timelines, environmental impacts and mitigants, transmission lines and interconnection, as well as energy inputs or resources. While geothermal and hydro (except mini-hydro) can require longer periods for construction, other renewable energy projects, such as solar, wind or biomass, don’t take nearly as long to install as traditional plants. In most cases, renewable energy-based plants can be cash flowing much sooner; and of course, have very low operating costs by comparison once commissioning is achieved.
In many cases, renewable energy projects are scalable. Governments can plan for a variety of projects of varying capacities to be located close to the sources of demand. This also allows developers of various means and capabilities to participate in the industry growth. Deal sizes range extensively in order to attract a wide range of investors. We are supporting small micro-grid projects as well as very large utility scale transactions.
Are there any particular projects that stand out as examples of how OPIC’s support had a positive impact?
All of the projects we do are interesting and meaningful in some way. Not only do we consider the commercial viability and the strength of the contractual arrangements, but we also take into account the social, developmental and environmental impacts of every transaction. I am personally motivated by projects that provide first-time power to populations not connected to the grid. These deals must get done; electricity is a driver—really a requirement—for growth in any society. We are seeing more of these types of transactions as entrepreneurs, private equity funds and governments have been able to implement distributed generation or rural electrification projects on a profitable basis. On the other side of the equation, OPIC has committed to a fair number of utility scale projects that have a powerful effect on reducing environmental impacts, while at the same time providing needed electricity.