Governments need to offer longer-term visibility on renewables auctions — as well as longer-term contracts — to enable developers to reduce risks and therefore offer lower bids, according to the global head of investor/developer Green Investment Group (GIG).
Mark Dooley told WindTV at the WindEnergy Hamburg digital conference that project development is an inherently risky business as it involves upfront costs with no guarantee of any return on investment.
“A developer needs that forward visibility… and the role of governments here is to let us know what the programme is many years out into the future – one year out into the future is not enough, we need to see ideally a decade’s worth of investment programme. And that enables us to go and do that important facilitating work — and risky work — of developing, to enable projects to bid in.”
Dooley added that governments can also help reduce risks and costs by offering 20-year power contracts, rather than the 15 years offered by the likes of the UK for its offshore wind projects.
“Putting my financier hat on, this renewables market harnesses a really impressive, sophisticated, refined and very price-aggressive segment of the global capital markets,” he said. “And that’s because it’s treated as a sub-sector of infrastructure. And that’s an asset class that’s very good at delivering very large-scale funding at low returns — provided there is long-dated visibility on where income is coming from, where cashflow is going to come from.”
The longer the contract, the lower loan interest rates will be, he explained.
“So governments need to be delivering 15-20-year contracts and every incremental year we get there delivers back to the government, delivers back to the community, efficiencies in funding achieved through the cost of debt and the cost of equity that’s available.
“We notice when it’s a 20-year contract, rather than a 15-year contract – that enables us to deliver better pricing, so that’s really important.”
The third aspect of government tendering that would help reduce developers’ risks, he added, is to have strong pre-qualification processes to ensure that bidders can actually build projects at their promised costs, he added.
“We don’t want to find ourselves bidding against projects that may not be deliverable. That’s a very discouraging state of affairs and really undermines the effort and the quality of what comes out of a process… [if] that process has admitted bids from parties that maybe haven’t done the work or don’t have the depth of experience to actually deliver.”
GIG is a wholly owned subsidiary of Australian financial group Macquarie, having previously been the UK government-owned Green Investment Bank.