The Renewable Energy Industry in CARIFORUM Countries

COUNTRY INDICATOR ANALYSIS

Financial Institutions Research completed by the Taskforce, IDB and others, all suggest that the private sector can play a critical role in providing the required capital investment if a favourable environment is created by governments. Such an investment environment needs to be stable, clear, competitive, and fair, with full considerations of the local context and other social and environmental interests. Consequently, several institutions like 5Cs, GCF, EU, IDB and others are actively engaging the private sector in order to gain their support in the transformation efforts. Notwithstanding their ongoing efforts, several risks still exist and they consider these financial sectors to be underdeveloped.

a)

c)

Equity financing is also unusual for the local markets. Equity requirements are high; on average 40% according to the IDB report which also sights the absence of policies that establish debt financing as notable. Local banks and credit unions indicated their lack of interest in equity investment. While the EU has not discarded the possibility, they do not currently offer this facility. Risk assessment is also a concern since some local financial products still do not correctly assess and address inherent risk, leading to prohibitive interest rates. This is however changing with the ongoing education of the sector. More education is however needed in all territories based on the ratings in table 4.1 which show scores from 3.19 to 4.62, where 1 is the best score and 5 is the worst. It is hoped that the engagement of the local financial institutions will help to accelerate the necessary transformation in this critical sector. For those territories whose strategy is hinged on the participation of its citizenry, governments must encourage active financial institutions to support their efforts to mobilize multilateral and international funding. Once the challenges above are addressed and efforts to educate that sector are implemented it has the potential to complete the funding mobilization effort since commercial banks are reported to have the financial resources to put forward.

International investment is difficult to secure according to the IDB study in 2014. Political and regulatory risks are still major factor preventing the mobilization of the capital required. Market risks are heightened due to the lack of economies of scale, limited experience with renewables, and the macroeconomic circumstances of Caribbean nations, among other factors. These include relatively low international credit ratings, high vulnerability to disasters and the impacts of climate change at various levels in the economy. Local financing is also considered inadequate for some markets. There is a general lack of RE financial products in the form of special credit lines or grants. RE projects usually have a payback period exceeding seven years while debt financing is often not available for periods above that. Before 2014, only 53% of the financial institutions in the Caribbean and Latin American region offered some products for financing renewable energy. However, as indicated previously, a few development banks (Jamaica, Saint Lucia, Grenada, Belize) have provided support with adequate products, while most territories still do not have this facility. In Jamaica, the capacity and willingness of commercial banks to engage in renewable energy lending has increased significantly in recent years along with the other non bank financial institutions in Barbados. This financing is aimed at small andmedium scale investments.

d)

b)

The Renewable Energy Industry in CARIFORUM Countries

173