Financing

The high up-front capital investment constitute one of the barriers to a rapid STE deployment.

The costs of electricity generated in solar-thermal power plants are currently slightly higher than the ones of conventional fossil fuel technologies; however, costs are expected to come down due to large scale deployment and technology improvements. In general, the costs of solar-thermal power plants can be divided into up-front capital investment costs (CAPEX) and operation and maintenance (O&M) costs.

Since the deployment of solar thermal power plants is still less than that of other technologies, private banks see higher risks in STE projects so that  project financing has proven to be an obstacle for STE project developers in the recent past. Project developers continue to have difficulties obtaining bank debt to fund their projects, due to the lack of long-term data on STE deployment, and the irrational perception of STE as a risky and immature technology.

As mentioned in the previous section, there is a rapid increase of support mechanisms globally. Among all these support policies, public finance schemes, such as feed-in tariffs, have been the dominant trend for project financing across the world. According to the Climate Policy Initiative, more than 98% of all the solar-thermal power plants were supported by all forms of public finance in the last few years around the world, including feed-in tariffs or premiums in Spain, subsidized power purchase agreements (PPAs) in India, Morocco and South Africa, or grants, tax credits and public guarantees and low-cost loans in the U.S.  These support policies were addressed to fill the gap between costs and market revenues (also called viability gap or gap between STE and other electricity generation costs), in order to scale up deployment of STE and drive down its costs.

However, things have been changing following the retroactive legal and regulatory measures made in Spain since 2012 – abolishing the feed-in tariffs/premiums which previously drove the deployment of the STE technology. The result was also a substantial reduction of revenues for existing plants. These changes have deeply damaged investor confidence.

In recent years, there is a rapid growth of support mechanisms globally and a strong commitment to support STE deployment. Among all deployment policies, feed-in tariffs (FiTs) have been the dominant regulatory instrument around the world. Feed-in tariffs are often funded through fixed payment or premium payment on the electricity tariffs or funded through alternative mechanisms entirely, such as tax revenues.

Long-term and stable feed-in tariffs have proven as the most efficient instrument for sustainable renewable market penetration. In the last couple of years, between 2007 and 2012, support schemes in Spain demonstrated that the right level of tariff increased the market for STE exponentially. Similar tariffs and support policies brought significant progress to STE deployment in Europe and helped STE become competitive with conventional energy generation.

However, from 2012 on, dramatic development occurred when sudden change of regulatory and legal framework in Spain took place, which put the further development of renewable energy technologies, including STE, on hold in Europe. The experience of Spain demonstrates how retrospective regulatory changes resulted in extremely detrimental market impacts and legal cases, and eventually severely damaging all green investors’ confidence. Therefore, the investor protection appears to be a major issue for improving the deployment conditions for STE in Europe to date.

Such support policies can help promote STE deployment in Europe with a domestic market volume in order to achieve a number of benefits, including: improving technology cost-competitiveness; creating jobs; promoting a sustainable level of domestic electricity production; increasing the RES share in the energy mix; maintaining Europe’s global leadership for STE industry; and moving towards a more sustainable, secure energy system in Europe. A domestic European market of at least 250 MW per year to bring innovative projects to the commercial level and in the next five to ten years is suggested. Such a “home market” implies that it is vital to be supported with long-term financing and other incentives at EU and national level.

As of 2015, there are only a few FiTs for supporting STE deployment in the world, current amounts are shown below:

Table: Current status of feed-in tariff legislation worldwide

Special financial vehicle and loan guarantees

Although feed-in tariffs are the main driver of the deployment, support should also come from a well-coordinated combination of sources: renewable energy support, strategic energy security investments, cohesion funds, as well as resources for development and cooperation, in order to have a comprehensive support mechanism. According to the Climate Policy Initiatives , if international financial institutions (IFIs) and committed national governments joined force to largely deploy STE, it could lead to significant cost reduction on the electricity production and make STE competitive in countries like Morocco and South Africa, providing increased energy security and affordable power to drive their local economies and positioning them as market leaders in a promising technology. IFIs can improve the effectiveness of international financial support by adjusting loan requirements according to the technology maturity, harmonising loan and regulatory requirements for large STE projects and reducing foreign exchange hedging costs of IFI loans for developers.
Also, effective EU support for a program to build several hundred megawatts of STE in its Southern Neighbourhood would create green jobs locally, as well as in the EU itself. It would also be a significant and cost-efficient contribution to the global combat against climate change. To establish a stable STE market in MENA countries that also create jobs in Europe, EU development cooperation needs to be coordinated with industrial and climate policy.

According to the Climate Policy Initiatives, if international finance institutions (IFIs) and committed national governments joined force to largely deploy STE, it could lead to significant cost reduction on the electricity production and make STE competitive in countries like Morocco and South Africa, providing increased energy security and affordable power to drive their local economies and positioning them as market leaders in a promising technology.

As concluded by CPI, public financing from national governments has been the key driver for STE development in the last few years, In order to make national policies more effective in encouraging deployment of STE if they consider the following key successful factors:

• Provide sufficient financial support to drive deployment
• Ensure that support can be sustained over time to avoid boom and bust
• Design policy to ensure the cost of support falls to reflect decreasing technology costs over time

• Align public and private actors’ financial interests to reduce the perception of policy risk and the cost of renewable energy support

• Make reliable on-site solar irradiation data available
• Consider low-cost and/or long-term debt as one of the cheapest ways for national governments to support renewable energy deployment
• Move away from flat power tariffs to remunerate the flexible power supply provided by STE to more accurately reflect its benefit to the energy system
• Longer-term more private and local debt is needed to secure long-term financing and reduce currency risks

Support from IFIs is vital for the deployment of STE. The international public finance

Currently there are several financing instruments available for STE investments in Europe and around the world. These funding programmes are mostly set up by the European Commission and supported by the European Investment Bank.

European Structural and Investment Funds (ESIF)

The Structural Funds and the Cohesion Fund are financial tools set up to implement the regional policy of the European Union. They aim to reduce regional disparities in income, wealth and opportunities. The current Regional Policy framework is set for a period of seven years, from 2014 to 2020. The Structural Funds are made up of the European Regional Development Fund (ERDF) and the European Social Fund (ESF). Together with the Common Agricultural Policy (CAP), the Structural Funds and the Cohesion Fund make up the great bulk of EU funding, and the majority of total EU spending. The ERDF is the most likely to contribute to the development of the STE sector in Europe. It supports programmes addressing regional development, economic change, enhanced competitiveness and territorial co-operation throughout the EU. Funding priorities include modernising economic structures, creating sustainable jobs and economic growth, research and innovation, environmental protection and risk prevention. Investment in infrastructure also retains an important role, especially in the least-developed regions.

Horizon 2020 – The programme for Research

Horizon 2020 is the EU funding programme for research and innovation running from 2014 to 2020 with a €80 billion budget. The calls for proposals related to energy are gathered under the ‘Secure, clean and efficient Energy’ part of the programme, where a budget of €5 931 million has been allocated to non-nuclear energy research for the period 2014-2020. Out of this figure, more than €200 million is earmarked to support European Institute of Innovation and Technology (EIT) activities, subject to a mid-term review. The majority of the calls where STE companies can apply are gathered under the Low-Carbon-Energy (LCE) focus area. The topics covered aim to increase efficiency, reduce cost and improve dispatchability, and are in line with the R&D priorities identified by the sector through the implementation plan of the STE industrial Initiative of the SET-Plan. Public-private partnerships (PPP) with EU earmarked money could also be envisaged, involving a consequent number of private companies.

NER 300 (New Entrants’ Reserve)

“NER300” is a financing instrument managed jointly by the European Commission, European Investment Bank and Member States, so-called because Article 10(a) 8 of the revised Emissions Trading Directive 2009/29/EC contains the provision to set aside 300 million allowances (rights to emit one tonne of carbon dioxide) in the New Entrants’ Reserve of the European Emissions Trading Scheme for subsidising installations of innovative renewable energy technology and carbon capture and storage (CCS). NER 300 is one of the world’s largest funding programmes for innovative low-carbon energy demonstration projects. The programme is conceived as a catalyst for the demonstration of environmentally safe carbon capture and storage (CCS) and innovative renewable energy (RES) technologies on a commercial scale within the European Union. Today, 2 rounds of calls for tenders took place and innovative STE projects have been selected for funding in Italy, Spain, Cyprus and Greece. Unfortunately, a big delay in the development of the selected plants are observed due to the difficulties of national public funding authorities, who have to co-finance the project.

UROGIA 2020:

EUROGIA2020[1]’s goal is to support and promote international partnerships developing innovative projects in low-carbon energy technologies. It is a bottom-up, industry driven, market oriented programme which addresses all areas of the energy mix, from renewable energy to efficiency, and reduction of carbon footprint of fossil fuels. EUROGIA2020 is a cluster of the EUREKA network, a decentralized intergovernmental initiative started in 1985 to enhance European competitiveness by supporting businesses, research centres and universities that take part in trans-national projects. It addresses all innovative energy technologies that will reduce the carbon footprint of energy production and use and develop new technologies for energy such as solar, wind, biomass, geothermal, energy efficiency, etc.  The STE technology is also recognised as a sector eligible for funding. Project proposals can be submitted at any time during the year.

InnovFin: EU Finance for Innovators

Under Horizon 2020, the new EU research programme for 2014-20, the European Commission and the European Investment Bank Group (EIB and EIF) have launched a new generation of financial instruments and advisory services to help innovative firms access finance more easily. Over the next seven years (2014-2020), “InnovFin – EU Finance for Innovators” will offer a range of tailored financial products, about EUR 24bn, for research and innovation (R&I) by small, medium and large companies and the promoters of research infrastructures. InnovFin financial products are backed by funds set aside by the EU (under Horizon 2020) and by the EIB Group. As the EIB normally finances up to 50% of investment costs, InnovFin is expected to support EUR 48bn of final R&I investments.

“InnovFin – EU Finance for Innovators” builds on the success of the Risk-Sharing Finance Facility (2007 – 2013) developed under the seventh EU framework programme for research and technological development (FP7), which financed 114 R&I projects to the tune of EUR 11.3bn and in addition provided loan guarantees worth over EUR 1.4bn.

Clean Energy Finance Corporation (CEFC)

The Clean Energy finance Corporation (CEFC) is an Australian government-owned financial institution with the specific mandate to support and assist the promotion of investment in clean energy, energy efficiency and renewable energy. The CEFC was established as part of the package of measures introduced by the previous Australian government in relation to Australia’s carbon emissions reduction program, and received an allocation of funds raised from the operation (between 2011 and 2014) of the Australian carbon market system.

The current conservative government has proposed the abolition of the CEFC, however as at the time of writing has not succeeded in securing sufficient votes in Australia’s parliament to repeal the legislation under which the CEFC is established.

CEFC has a mandate to ensure it achieved financial returns on funds under its management at least equivalent to returns available on Australian government bonds.  CEFC operates much as a commercial bank, however with a high degree of specialisation and innovation in lending for renewable and clean energy and energy efficiency investments.  CEFC works closely with Australia’s finance sector to initiate syndication, to educate and to provide demonstration of finance innovation aimed at increasing the involvement of commercial finance institutions in Australia in renewable energy investment.