Sunday, February 5, 2023

Coal projects increasingly more difficult to fund through debt

Coal projects have become increasingly more difficult to fund through debt as the global environment becomes more unfavourable where the wealthy economies set stringent rules to developing economies.

This was a highlight by Jonathan Berman who is Managing Director at Fieldstone Group in the capital Gaborone this past week. Berman was making a presentation at the just ended annual Botswana Resource Sector Conference held at the Gaborone International Conference Centre.

In his presentation, Berman indicated that the new Organisation for Economic Co-operation and Development rules restricts the Economic Commission for Africa-financial support available for the construction of new, large, coal-fired power plants utilizing inefficient, so-called “dirty” technology.

“Europe’s largest bank HSBC said, in April, it would mostly stop funding new coal power plants, becoming the latest in a long line of investors to shun the fossil fuel. However, some development funding institutions such as the Development Bank of Southern Africa’s (DBSA) and African Development Bank (AfDB) still willing to fund coal mining and new coal-fired power plants,” revealed Berman.

South African commercial banks, which have significant exposure to Botswana, are also still willing to fund coal projects.

Berman added that, “eventually commercial banks will head towards no coal ÔÇôa reality whether or not we like it.”

Asked further on this development by Sunday Standard on the sidelines, Berman said, the funding is not made difficult by the risks involved but by the wealthy economies that set the rules and dictating how developing economies should run. These rules he said, should not be stringent for developing countries as they affect the potential growth for development. He also accused the organisation for setting out those rules without any specific references of these economies. It also appears that, development banks have stopped to fund to coal fire projects, but atleast for existing projects, Berman indicated that there is still hope. The existing power plants will not go out quickly. Commercial banks have also become inconsistent because of the environmental push, hence he advised investors to exercise caution.

The Organisation for Economic Co-operation and Development (OECD; is an intergovernmental economic organisation with 37 member countries, founded in 1961 to stimulate economic progress and world trade. It is a forum of countries describing themselves as committed to democracy and the market economy, providing a platform to compare policy experiences, seeking answers to common problems, identify good practices and coordinate domestic and international policies of its members. Most OECD members are high-income economies with a very high Human Development Index (HDI) and are regarded as  developed countries. As of 2017, the OECD member states collectively comprised 62.2 percent of global nominal GDP and 42.8 percent of global GDP  at   purchasing power parity. Today, the 35 member countries span the globe, from North and South America to Europe and Asia-Pacific.

Meanwhile, there has also been a significant decrease in availability of equity finance, which according to Berman; large European utilities are no longer willing to get involved with greenfield coal power generation projects. Private equity funding has moved increasingly toward renewable power as the difficulty in funding coal increases and a few investors from China, Japan and South Korea remain.

In recent international reports, the two oldest coal-fired plants in the Netherlands must be closed by 2024 at the latest or switched to other fuels.  Berman said “Moves like those made by the Netherlands government to close its 5 remaining coal-fired power plants increase the risk for equity investors.”

Solar power prices have been dropping faster than experts expected.

According to industry experts, typical utility-scale photovoltaic systems were about 25 percent cheaper per megawatt last year than they were two years earlier.

2017 we saw new records set for the tariffs in renewable energy auctions around the world and lithium-ion pack prices fell by no less than 24 percent last year, observed Berman.


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