Global fiscal crisis stunts growth of green companies

Funding for renewable energy companies has dried up after the global financial crisis.

ABU DHABI // Financiers sounded a cautionary note on the last day of the World Future Energy Summit, warning that large-scale bank loans crucial to the growth of the clean energy industry dried up last year and are unlikely to become widely available again anytime soon. As a result, the circle of successful developers of wind and solar projects has shrunk as companies are asked to pay for more of the project up-front or find new funding sources.

In the years before the financial crisis, the industry became increasingly reliant on syndicated loans, in which one bank raises a large pool of funds from a number of other banks and lends it to the developer of a large wind or solar project. But that lending model was mostly abandoned during the economic downturn, and with large banks concentrating on wiping off unrelated bad debts from the foreseeable future, they are unlikely to have much free cash for clean energy projects perceived to be at all risky, said John Dunlop, the head of energy project finance at HSH Nordbank, a major financer of clean energy projects.

Now, only the largest renewable energy firms and utilities are able to secure debt financing, he said, while many have shown a willingness to pay for projects from their savings. "We believe renewables will continue to grow because the big industrials are beginning to dedicate more of their budgets to it," he said. Revenues from the European carbon market, on which companies can sell the carbon emissions reductions achieved from renewable energy projects, had proved to be too inadequate and uncertain to lend against, he said.

"I think the world is wasting its time with carbon credits," he said. "The regulatory backdrop to carbon credits is too susceptible to [political] lobbying." Uncertainty about the future of government subsidies for renewable energy made it even more difficult for banks to issue long-term loans, said Siobhan Smythe, the subsector head of renewable energy at HSBC. After last month's inconclusive climate change talks in Copenhagen, bankers were faced with a new wave of doubt.

"Copenhagen was a disaster for the market in terms of the short-term uncertainty," she said. "The renewables sector - it's very much a sentiment-driven business." @Email:[e-mail]