Financing firms uncertain over funding offshore wind

Capital providers have expressed uncertainty about financing offshore wind projects, leading them to rely on experts and foreign banks for guidance on lending in this sector.

In the recently concluded Power Trends 2024, BDO Capital & Investment Corporation President Eduardo V. Francisco said that when the governor of the central bank recently lowered the reserve requirement ratio for universal and commercial banks by 250 basis points, it freed up an additional Php 400 billion for the financial system to utilize.

“But in general, we’re flexible. Banks want to lend. There’s funding. Will the cost slow down? Yes. Because if the government rates go down by 150 basis points or 1.5% by next year, all else equals, even your borrowing rate should go down to 1.5,” said Francisco

“However, we don’t see enough front. They’re not bankable,” he added. 

The president of BDO Capital emphasized that proper structuring of project financing is crucial, especially for those who have chosen fixed-rate options, as it may impact their ability to manage VAT and potentially restrict their refinancing options.

Francisco explained that the bank’s previous strategy involved providing project financing only after it became operational, which included penalty-free refinancing options. This enables firms to reduce waivers and recapture lower fees while also securing equity.

This method acknowledges the risks associated with operational projects. Nevertheless, the critical consideration is whether the projects are viable for financing in the first place.

Francisco also noted another obstacle: most recent projects are centered on solar and wind energy without incorporating battery energy storage systems (BESS). 

He emphasized that the lack of BESS in projects creates issues, as establishing only peaking plants will result in grid instability; the current infrastructure cannot manage the volatility, and there is insufficient baseload energy available.

He pointed out that while some firms possess the necessary capital, they struggle to secure loans because there aren’t enough incentives or safeguards in place.

“We want finance, we want to just generate a use of depositors’ money for good projects to help build energy security,” said Francisco.