Banks still cool on green energy financing — ADB

MANILA, Philippines — The reluctance of most banks to fund green energy projects is a “major barrier” to the expansion of the alternative power source in the region, the Asian Development Bank Institute (ADBI) said.

In a working paper titled “Financial Barriers to Development of Renewable and Green Energy Projects in Asia,” ADBI said despite increasing awareness in the region about the unsustainability of fossil energy-dominated energy mixes, most countries are still hindered by financial reasons from pursuing a green energy mix.

With the underdevelopment of Asia’s financial market as seen in the absence of venture capital and limited government-provided funds, funding the capital-intensive green energy projects has become difficult, said the think tank of the multilateral development bank.

“The main culprit is Asia’s bank-dominated financial system with its underdeveloped capital market, which leaves Asian banks as the major source of funding for green renewable energy projects. Reluctance to finance these projects, because they are seen as very risky with a low rate of return, has been the major barrier to the expansion of green renewable energy in Asia.”

“Addressing the financing challenge is both possible and necessary to remove the barrier to green energy expansion in Asia,” said ADBI.

ADBI said this difficulty has been discouraging developers from undertaking such projects.

“Needless to say, many Asian countries are mindful of this unsustainable reality and are taking impressive measures to expand their green energy sectors significantly although they are still far from drastically decreasing the share of fossil energy from their energy mixes,” it said.

It also noted that some of the larger economies in the regions like China and India are now making an effort to improve their energy mix to include more renewable sources of power.

ADBI recognizes, however, that bank loans are more suitable for financing short to medium-term projects because the resources come from deposits.

“Hence if banks allocate their resources to long-term infrastructural projects (bridges, highways, ports, airports, etc.) and mega energy projects (such as large hydropower projects) there would be a maturity mismatch,” said the think tank.

ADBI thus deems it necessary to lessen financial barriers to the development of green renewable energy.

It urges the use of various non-bank financial solutions and tools such as green bonds, green credit rating and community-based financing.

Governments across Asia can also encourage the domestic production of low-cost technologies suited to the specific needs of their citizens. These can include small hydro generators and vertical wind turbines.

“Depending on their countries’ specifics, including industrial and technological development, the interested Asian governments could focus on certain green energy projects whose respective technologies are locally available or could be developed locally,” said ADBI.

ADBI cited small and medium-sized wind turbines with vertical blades, which can operate with much weaker wind speed than the large, expensive horizontal turbines.

Other examples include small hydro generators (run-off hydro generators), which do not require diverting rivers with its certain negative environmental consequences and phenomenal cost.

Likewise, solar water boilers for household, commercial, and industrial use that do not require the sophisticated technology of converting sunbeams into electricity as is done in solar panels and concentrated solar facilities, and thus could easily be built in many Asian countries.

These boilers are seen to reduce the demand for energy in liquid, gaseous, and electric forms for boiling water, which is in large demand in all the Asian countries.