The exponential growth of renewables is marking a turning point in the sector’s history, but policy factors are preventing its efficient financing, according to speakers at the US Exim annual conference in Washington.

Forming over half of the new energy capacity added in the world in the past three years, renewables have reached critical mass, managing to lower costs through technological innovation to compete against other types of energy.

Skip York, vice-president of integrated energy at Wood Mackenzie, referred to solar as “a disruptive technology”. “In California, it’s becoming so competitive and on such scale that it’s disrupting the way energy is priced on the hottest days of the year,” he said.

Paddy Padmanathan, president and CEO of energy giant ACWA Power, also believes renewables are at a turning point. He referred to a 200MW photovoltaic plant to be built in the UAE, which will be funded without any subsidies and benefit from a 25-year power purchase agreement with the Dubai Electricity and Water Authority (DEWA). Electricity generated from the plant has been priced at a record-low 5.84 cents/kWh.

Renewable energy costs are coming down. Paddy Padmanathan, ACWA Power

“In January we submitted a very aggressive tariff for photovoltaic power plant, without any subsidies, on a 25-year concession. Renewable energy costs are coming down, panels are getting more efficient, plus the project is in Dubai so it’s got excellent solar resource, a good supply chain and good credit standing, which allowed us to put together a very attractive tariff.

“We are investing in these very large capital-intensive assets, putting our own equity capital in, borrowing large sums of debt, and collecting it back over 20 to 25 years as we sell megawatts, so the tariff that we contract on day one needs to remain relevant for those 25 years,” he said.
However, panellists stressed the need for uniform policies around renewable energy financing, with Jim Rogers, retired chairman of the board at Duke Energy, naming government policies as “the top impediment” for the sector.

100% of debt in the South African market has been provided by South African banks so far, because of currency risk. Michael Eckhart, Citi

Another factor that could prevent the large-scale financing of renewables projects is currency risk, according to Michael Eckhart, managing director, global head of environmental finance at Citi. He believes the success of the sector in each country is not only linked to government policies, but also correlated with the health of its local banking industry.

“Foreign exchange is the elephant in the room. 100% of debt in the South African market has been provided by South African banks so far, because of that currency risk. The existence of a significant local banking presence and capital markets explain the success of the renewable sector in those markets,” he said.

Finally, US exporters of renewable equipment expressed concern over competition from China. Matt Card, vice-president, global sales and marketing, at solar manufacturer Suniva, said: “US manufacturers have been under extreme attack from China. It’s not going to be a level playing field – you have to realise that as a US manufacturer. In a geographic market segment that appears to be wanting to drive costs to zero, we know it’s unhealthy and can’t be honest: you can’t make money and quality is bad. I would love to see a more balanced environment.”