Infrastructure Asia, the Energy Market Authority of Singapore, and the World Bank Group co-organised the Workshop on Optimising Investment Frameworks on 28 May 2019. The workshop was a key activity under the Capacity Building Roadmap on Energy Investments and Financing for ASEAN, which was an ASEAN initiative to enhance the expertise of policymakers in the development of enabling regulatory environments and optimisation of investments for energy projects.
During the workshop, Seth Tan, Executive Director of Infrastructure Asia, moderated a panel discussion on key policy considerations for bankable energy projects. The panel comprised industry leaders from Aon, Allen & Gledhill (Myanmar), DBS, KPMG, and Sunseap Group.
The panel highlighted the importance of international financing in meeting ASEAN’s energy targets and renewable energy goals. To attract international financing, energy projects need to be made bankable. Key elements of bankable energy projects include good risk allocation in project documents (e.g. power purchase agreements), conducive financial arrangements, favourable operation environment and the availability of legal recourse.
The panel commented that the power purchase agreements for renewable energy in ASEAN tended to be less bankable than the agreements for carbon-based power. A key consideration was revenue certainty from renewable energy tariffs. Commonly accepted tariff structures include a base availability payment or a minimum offtake guarantee in addition to the output payment. Mr Seth Tan highlighted that there were good references by the World Bank Group and Global Infrastructure Hub which could be used as guides regarding contract provisions and risk allocation in project documents such as power purchase agreements.
In terms of financial arrangements, the panel highlighted that government guarantees would often lead to more competitive financing. However, the panel observed a trend in governments refraining from providing guarantees, which increased the role of private institutions in covering risks. Through case studies, the panel shared examples of using insurance or guarantees from export credit agencies or sponsors. Regarding insurance, the panel highlighted that it may be more price competitive for developers, governments or financial institutes to purchase insurances, such as for terrorism risk, to cover risks across multiple projects rather than individually.
The above points and others, including favourable operation environment, availability of legal recourse, and a case study on green financing, are captured in the attached slides.
The panel concluded that governments can promote certainty in projects by implementing conducive policies with the key elements of bankable energy projects in consideration. This would reduce the cost to investors in managing the various risks and obtaining financing, which could result in more tenable electricity prices.
The key points of the panel discussion are in the attached slides: