March 14, 2024

Challenging economic winds

We present an equation: the vast landscape that characterises the market for renewable energy projects in Spain multiplied by energy price fluctuations. This result is multiplied by the geo-economic context we have experienced in recent years. We know that the result must be a positive figure if we want companies investing in renewable energy to continue betting on this type of clean and sustainable energy. However, the reality is that juggling is increasingly required to ensure the successful financing of projects.

From the vortex of the energy industry, I venture to analyze how current economic conditions are shaping the landscape and posing significant challenges, where project viability is not guaranteed given current energy prices. Their decline, coupled with the unprecedented rise in interest rates, is taking its toll. Although contracts have historically been a cornerstone of financial structuring, their ability to provide comprehensive coverage in an ever-changing scenario is being challenged. Revenue streams have shifted and industry financiers are having to reinvent themselves to find alternatives.

At this moment, the globalisation of project finance is emerging as a trend that is not going unnoticed. For the financier, a complete portfolio is much more interesting than a single project, as it offers a timeline with different phases and different risk models, where diversification is the key to working together. Always taking into account the regulatory risks of each country, its tax rates, prices, the signing of long-term guaranteed contracts, the environmental, social and governance specificities of each project, etc.

But not only has the landscape changed, the traditional financing players are also changing, and there is a broader spectrum to turn to, from insurers to boutique financial institutions, traditional banks, private equity and other investment funds. Because yes, it is a good time to invest in renewables – investing in profitable and clean projects always is – and there is still interest in the market.

But of course it could be more interesting if all parties were moving in the same direction. Clear and concise regulation would avoid bureaucratic hurdles, and fiscal incentives and stable energy prices would encourage the market. In Spain, we have full confidence in the electricity reform, which, combined with our abundant sunshine, always makes our country very attractive for these projects, but we want the same for the rest of Europe and the world.

In a world of strong economic winds, his perspective is not only a call to action, but also a reminder of the need to evolve the way we finance and manage tomorrow’s energy. For our wellbeing and that of the planet.

María Puente, Financial Director of BNZ

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