Energy Financing: How renewables are attracting FDI

The Caribbean’s dependence on fossil fuels may be bad news for the environment but it’s good news for energy investors as the region explores the lucrative possibilities of renewable energies. Solar, geothermal, even tidal and wind power – the Caribbean is uniquely suited to many forms of renewable energy generation, thanks to its advantageous climate and geography, so it’s no surprise that investors in this field are turning their attention to the islands.

Enabling FDI

While almost all Caribbean nations are onboard with moving towards a green future, they cannot do it alone. Overstretched resources, limited public budgets, inadequate infrastructure and a lack of technical capacity have all hampered progress in the sector. While the more developed world races ahead with its renewable capability, the Caribbean is being left behind. As energy prices soar and environmental concerns mount, the region is running out of choices and green energies are the only sustainable solution.

Enter foreign investors. Armed with the financing, technical know-how and experience, energy investors can be a boon for islands struggling to meet their green energy goals. 

One of the foremost investors in this space is MPC Capital, an international asset and investment manager with a global portfolio. Through its wholly-owned investment vehicle MPC Renewable Energies, MPC Capital has been making inroads into the region’s renewables with projects in Jamaica, Trinidad and Tobago and, most recently, Barbados. 

MPC Renewable Energies’ Managing Director Martin Vogt says the Caribbean renewables market is often a hard sell for investors reluctant to dive into such a new, and limited, space. “If you are a foreign investor, you are looking for markets that offer size and volume. Given the size of the islands you will never be able to build a couple of 100MW solar farms. That restricts the international investor community.”

Another challenge, according to Vogt, is the lack of an enabling framework. Caribbean nations have been relying on outdated infrastructure and monopolised ownership of national power grids. This, combined with limited public budgets, has had a chilling effect on the sector for some time.

“You have very tight government budgets so there is very little room to manoeuvre,” says Vogt. “If the public sector cannot work together with the private sector due to restrictions then that is another burden. It is only very recently that the governments are putting the right regulatory frameworks in place to enable the private sector to invest in the clean energy space.”

Vogt, who has been working in renewables for over a decade, says the Dominican Republic is the most forward-thinking island in terms of its approach to green energy investment and ease of doing business. He also credits Jamaica for its progress in this area, saying:”Jamaica has not liberalised the energy sector but the government is consistently putting new opportunities to the private sector to do energy efficient projects or power generation projects. Jamaica and the Dominican Republic are the most enabling markets.”

Another forward-thinker is Barbados, which MPC Renewable Energies has been eyeing for some time. The group hopes to begin construction of a 5MWp solar PV development in Barbados next year, and Vogt says the timing aligned thanks to Prime Minister Mia Mottley’s progressive policies. “We had been looking at Barbados. They addressed some major issues and are now creating momentum in the energy sector so we felt that now would be a good moment to look for the right partners and the right projects. This is the baseline you need – a government that puts the right framework in place so investors like us are sure there is a long-term view on renewable energies. We need that long-term commitment.”

Barbados aims to be 100 per cent reliant on renewable energy by 2030 and MPC Renewable Energies will help the country achieve this ambitious target by investing between US$75 million and US$100 million in wind and solar PV projects over the next few years.

Investors in renewable energy markets are in it for the long haul. Capital intensive and revenue-driven, these projects need a substantial investment upfront and Vogt says it can take a decade before the returns are seen. “Renewable energy is very long-term. Typically the first 10 years is payback period then you enjoy a return on your investment.” According to Vogt, investors in MPC Renewable Energies projects can expect “attractive, risk-adjusted” returns. 

Competitive markets

The Caribbean’s year-round sun doesn’t just attract millions of tourists, it’s also a big lure for renewable investors. Solar is currently the biggest market in the region’s renewable sector and, as the technology develops, operations are becoming more cost-effective and productive.

MPC Renewable Energies focuses exclusively on solar and wind power projects. Vogt says the former has seen increasing competition and believes that, within ten years, Caribbean islands will be mostly run on this power source. “Solar to energy is extremely cost competitive. The issue the technology has is the limited amount of hours in the day and the need for storage. You cannot run an entire island on solar power, but that will likely change in the next decade as storage becomes cheaper. It is becoming more cost-effective.”

In August, St Kitts and Nevis announced plans to create the Caribbean’s largest solar facility, capable of meeting 25-30 per cent of the country’s energy needs. The 35.6 MW solar energy plant and 44.2 MWh battery storage facility will be built in Basseterre and developers say it will pay for itself over a 20-year period through savings created by the switch from the current diesel-generated system.

The project is a partnership between the state-owned St Kitts Electric Company (SKELEC) and Swiss energy storage company Leclanché, which has established a Special Purpose Vehicle with local partner Solrid to fund, own and operate the facility. But it’s not just solar that shows promise. Geothermal energy, particularly in the Eastern Caribbean, is also coming across the radar of energy investors.

Nevis is moving ahead with plans for a 10MW geothermal power plant following the recent news that it has selected a drilling contractor for the facility. Nevis Renewable Energy International will work with Schlumberger Integrated Drilling Services on the design, installation and testing of wells for the project which is a collaboration between US firm Thermal Energy Partners and Nevis Island Administration. This is welcome news for Nevis as the project stalled late last year due to a lack of funding. The government sought US$50 million-US$60 million to revive its geothermal plans and carry the project into its second phase. Thermal Energy Partners joined the project shortly afterwards to help push it towards the finish line.

Fuel of the future

“It is an extremely dynamic sector. These are exciting times,” says Vogt who believes that advances in technology will transform Caribbean energy over the next two decades. He also thinks, however, that a big barrier to growth is a lack of information on the ground and says: “People have not necessarily made the connection between climate change and renewable energies being part of the solution. 

“A lot of people haven’t understood the full potential of renewables yet, which has an impact on the level of support renewable energy is receiving. There has to be a public information campaign. This will make it easier for the private sector to deploy the technology in local communities.”

Prepared or not, change is coming as the Caribbean moves to wean itself off fossil fuels. “In 20 to 30 years, the Caribbean will be entirely operated on renewables,” says Vogt. “The price is declining, the technology is improving and costs are falling. Oil and gas are the fuel of the last century. The third industrial revolution will be fuelled by renewable energy.

“There is still a long way to go [but] we are very optimistic. We see a lot of potential. We just need to make use of it and get it unlocked. “The governments and policymakers have a huge agenda ahead of them and can only achieve their goals in partnership with the private sector.”