Global outlook for project finance and renewable energy
European financial markets are somewhat subdued because of concerns over economic weakness, and of course uncertainty around the UK’s exit from the EU. Despite this, infrastructure investment volumes remain high, with energy from waste (EFW) taking centre stage in the UK; Lostock and Rookery both reaching financial close in the last couple of months.
UK & Europe
Looking forward in the UK on renewable energy, round 3 auctions are just around the corner on 29th May with six gigawatts of allocation. Most bidders will allocate resources towards ensuring that their projects have a fighting chance to receive an allocation of the six GW that are up for grabs.
On the continent, greenfield activity has been quiet, but we have seen a flurry of refinancing of brownfield assets. With compressed yields in Europe, UK and European sponsors have started to look elsewhere across the globe. The Middle East, Taiwan and Australia in particular, offer exciting opportunities to sponsors that are looking to diversify portfolios and reshape investment strategies.
Throughout Sub Saharan Africa we are seeing increased deal flow with new mandates in Uganda and a potential road PPP deal in Kenya. South Africa is showing positive signs of recovery in the renewables sector, despite ongoing financial problems surrounding the state owned energy utility Eskom. South Africa’s Energy Minister, Geoff Radebe has engaged with the Independent Power Producers’ (IPP) office to investigate a resurrection of the scrapped expedited round of 1,800 MW. A resurrection would bring a number of new projects back to the market swiftly. Failing a revival, winning bidders may be offered preferential status in round 5.
On 8th May South Africa will hold national elections and the eagerly anticipated Integrated Resource Plan is likely to be published towards the end of the month, after a three-year delay. These two events and Eskom’s failing coal capacity are expected to drive activity in the second half of 2019.
Australia continues to be a growth geography for infrastructure clients. European renewables funds are showing an increased interest in the higher yields available in Australia. We expect the current momentum to continue over the coming years. This is supported by strong market appetite for new renewables projects in various states throughout the country. Australia’s federal election is coming up on 18th May and political factors may further boost the appetite for renewable energy projects. Should the Labour party secure a victory and deliver on its ambitious climate change plans, the renewables pipeline is likely to expand significantly.
On the subject of interest rates, the Reserve Bank of Australia held firm at 1.5% following its April meeting. However, the minutes flagged that if inflation did not increase and unemployment rose, a future cut may be on the horizon.
The overall growth in renewables projects continues with a particular focus on US and Taiwanese offshore wind markets. Both countries are aiming to become the next hub of offshore wind projects, following in the footsteps of the UK and North Sea pioneers.
For more information, please contact Rishin Patel, Head of Project Finance, at JCRA: Rishin.Patel@jcrauk.com.