Construction of new RES facilities has become a priority for global economies. Implementing new, capital-intensive investments requires the involvement of banks. Patrycja Bednarek of DNB Bank talks about the process from the perspective of the financing institution.
Structured finance manager at DNB Bank Polska SA
Now Environment (TŚ): The energy transition requires capital to finance new investments. What is DNB’s experience in financing green investments?
Patrycja Bednarek (PB): After all, financing is crucial, especially as these are highly capital-intensive investments. In our experience, it is worth emphasizing that green asset financing is high on DNB Bank’s agenda and has been around for years. In Poland, we have been financing renewable energy since 2011, ie we have participated in the financing of projects that are still covered by the green certificate system. After the collapse of this system, we were one of the first banks to reopen to finance green investments under the current (auction) support system. Because we are a small team in Poland, we mainly finance projects with a capacity of 50 MW or more. Using the experience of our group, the Norwegian DNB, we finance a broad catalog of leading renewable energy technologies: onshore wind, solar / photovoltaic (mainly in Chile, the United States, Australia and Poland), hydroelectric power (in Scandinavia and South America) and offshore wind energy, for example off the coast of Great Britain, and soon in Poland. We also financed the first energy storage projects in the United States.
In Poland, we are currently mainly focusing on onshore wind energy, large-scale photovoltaics and, in the short term, also on financing wind in the Baltic Sea. Offshore, I think, will be a major challenge for the entire financial market. We feel well prepared because we draw on the experience of the DNB Group(1)which has already funded such projects. We are currently focusing on financing auction projects or projects that have won other long-term energy sales contracts (PPA or cPPA).
TŚ: Is market turbulence (pandemic, war in Ukraine, inflation, etc.) affecting your willingness to invest in green investments?
OJ: The macroeconomic situation is indeed difficult, but when we developed green energy in Poland and in the world, there was never a moment that was free of challenges. The biggest headache for investors and bankers today is high interest rates. The cost of capital is increasing, but the capital for financing green investments is always available at banks and should not be missing. Inflation is a profession in its own right. Today it has become much more difficult to estimate the investment costs of an energy project.
When analyzing the investment budgets presented to us by investors who want to finance projects with bank debt, we have in mind that these budgets must contain the necessary inventories (unforeseen circumstances), ie safety buffers in the event of an increase in costs.
The challenges in the construction phase of large energy projects are also not new, although they have really grown in recent years. With the pandemic will come future challenges in the supply chain such as container availability, rising costs and lack of manpower. The armed conflict in Ukraine has made these issues even more challenging today, so investors and banks alike need to take this into account. The norm is that, before we decide to participate in the project, we commission the preparation of a number of reports by diligencethat diagnose potential risks and show ways to manage them.
TŚ: Despite the accumulation of these negative conditions, are investors still interested in obtaining bank financing?
OJ: The interest is very high and we should not be surprised if we take into account that the production of green electricity has become a greater priority than ever before. There are considerations in the areas of the environment, sustainability, price and energy independence. Green energy is not called Freedom Energy for nothing. To be able to make the investments needed to achieve the energy targets, the share of debt is necessary, so we expect that the interest in financing renewable energy will only increase.
TŚ: You mentioned environmental issues. Do you notice that ESG has become an important factor for investors?
PB: In our experience, certainly yes. As DNB Bank, we are a member of the Equator Principles Association, which in practice means that we always require investors whose projects we finance to comply with Equator’s requirements. The Equator Principles are a set of rules and principles that determine whether a project has been developed in a socially and environmentally sustainable manner. I must admit that investors’ level of knowledge about ESG varies, which is why there are also projects that do not meet the above criteria. criteria, making it necessary for investors to take additional actions. I believe that cooperation with DNB in this area has the value that we as a Bank help investors to choose a certain behavioral path in order to effectively comply with ESG rules. We have recently seen significant progress in this regard. The investors we work with do not question the ESG requirement, on the contrary, they are well prepared for the whole process. For our part, we are fully ready to support investors at every stage.
The article was written in collaboration with DNB Bank.
1 / DNB Bank is part of the largest Norwegian financial group with offices throughout Scandinavia and major financial centers in the world. DNB is a leading player in infrastructure projects, including in the renewable energy sector. In 2021, DNB has allocated more than 21 billion euros to finance sustainable development activities, an increase of 126% compared to the previous year.
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