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Debt funding, energy storage financing key to continued renewable growth

Financial institutions familiar to the renewable industry, including commercial and investment banks, sovereign wealth funds and pension funds, plan to be with the sector for years to come, as new technologies and new challenges emerge.

"There is a sense of urgency and excitement and certainly a good dose of fear," was how Ethan Zindler, head of Americas at BloombergNEF, summed up the Climate Week NYC environment during a Sept. 24 panel at the Center on Global Energy Policy at Columbia University's School of International and Public Affairs.

The panel discussion focused on how to raise the trillions necessary to fund the continued buildout of renewable capacity in the U.S. and globally.

"The trillions certainly will be available; I think the question is can we create the right environment for those trillions to find the kind of returns [they want]," said Sumant Sinha, chairman and managing director of India-based ReNew Power Ltd.

"We can raise trillions because we have raised trillions," Zindler said of the sector, noting that more gigawatts of renewables are coming online in the U.S. every year, even as annual figures relating to money deployed for renewables have stayed roughly the same.

The improvement of equipment used in wind facilities and the declining cost of solar have been major factors in the viability of renewables, said Zindler, adding, "Battery prices have similarly been coming down at a pretty decent clip."

ReNew Power, which has brought 5 GW of renewable generation online with another 3 GW under construction, has raised close to $6 billion over the past eight years, comprising $4 billion of debt and $1.5 billion of equity, according to Sinha. The equity investments in the company included commitments from the asset management arm of Goldman Sachs & Co. LLC, which was ReNew Power's first equity backer in September 2011.

The bulge bracket firm was later joined by Washington, D.C.-based Global Environment Fund (Unspecified Vehicle), the Abu Dhabi Investment Authority, Japan's JERA Co. Inc. and the Canadian Pension Plan Investment Board.

Despite a frequent focus on equity, bank debt and bond issuances will remain critical to financing renewables, said Sinha.

"There is also the debt side, and, in fact, debt is actually a much bigger component of the funding that is required because, obviously, most renewable energy projects are funded at three-to-one or two-to-one debt to equity," said Sinha.

"One of the big questions really is going to be, in the long run, who are going to be the people who own all these assets," said Sinha, adding that ownership was moving away from development platforms to institutional investors as the renewable sector matures.

Zindler agreed, noting that the venture capital and private equity firms that dominated ownership of assets in the past are giving way, at least in part, to established institutional investors.

Meanwhile, a new financing conversation is taking shape around battery storage technology as banks craft criteria for what could be groundbreaking deals.

"Who your battery provider is is a big deal and their track record is a big deal," noted Zindler, adding that safety of the technology will enter the equation for banks, as will other factors, including whether a project is contracted.

"It's something we're trying to be really forward thinking about," said Sarah Davidson, vice president for external affairs at NY Green Bank. "We've come up with some projections as to how to price this as we start to integrate storage into the renewables market here."