The Strategic Value of Energy

The onset of Covid-19 created several challenges for society. While the majority of businesses adapted by reducing costs and conserving cash, we noticed an increase in demand for strategic renewable energy assets within the Caribbean. In our view, this highlights the resilience of energy infrastructure to global crises as access to sustainable, clean, and efficient sources of energy are central to the success and recovery of our Islands.

Global initiatives to reduce emissions and promote energy independence are core drivers behind increased renewable energy deal flow in the Caribbean with the expectation of a steady growth pipeline of opportunities aimed at delivering more energy efficient infrastructure projects over the medium term.

Throughout 2020, several companies were involved in the development and acquisition of renewable energy assets across the region. These deals were highly competitive, with international Private Equity firms bidding to purchase strategic renewable assets within financially resilient host nations.

Renewable energy projects are typically structured as Project Finance deals, where by an existing organization creates a Special Purpose Vehicle (SPV) to raise capital for investing in or developing a renewable energy asset. These structures are efficient as it creates a legally independent company that isolates risk to a specific asset and facilitates access to Bank capital backed by the cashflows and assets of the newly formed company.

Utility providers play a central role in renewable energy development as these organizations are the main counterparty in Power Purchase Agreements (PPAs) which drive the return profile of a proposed project. Financial institutions typically focus on specific terms of each respective PPA and its underlying utility provider, to ensure robust credit fundamentals. Common due diligence considerations include the track record of all counterparties, assessing barriers to entry and competitiveness within the industry, understanding market feasibility, determining financial projections and debt service metrics, and conducting sensitivities and scenario analyses to assess the probability of default.

Common types of renewable developments include Solar Power Plants, Windfarms and associated Energy Storage facilities. The emergence of a renewable energy industry in the Caribbean drives substantial benefits to our territories via the creation a virtuous cycle of local content, which we term the “4E Principle” promoting Equity, Enterprise, Employment, and Expertise.

At Republic Bank, there is increasingly significant appetite for all aspects of renewable energy development financing. We stand ready to provide unwavering support to the strategic growth of this industry, across all territories, to actively contribute to the long-term prosperity of the Caribbean region and beyond.