Sun, May 14, 2017 - Page 6 News List

Building ‘green’ finance expertise

By Wang Chia-wei 王嘉緯

The government’s Forward-looking Infrastructure Program has been the subject of much heated debate and its “green” energy components have been at the center of discussion.

Opponents of the proposals believe that too little has been allocated to “green” infrastructure, that the plan is not sufficiently forward-looking and that it falls short in several crucial aspects.

More than NT$24.3 billion (US$804.6 million) has been earmarked for the “green” infrastructure parts of the plan, relying on a further NT$1.43 trillion in private investment. Clearly, the government is hoping its initial investment will unleash something of a multiplier effect and encourage private investment into the renewable energy sector.

The fundamental orientation of the policy is quite solid, but it will stand or fall with its success in drawing market capital into the sector. Crucial to this is how “green” energy finance institutions and support facilities are devised.

With about NT$100 trillion in capital accessible in the form of banking assets, securities and insurance, there is no shortage of funds for the establishment of a “renewable” energy sector.

The problem is that there has been very little increase in domestic investment in “green” energy production over the past several years, mainly because the domestic financial sector is unfamiliar with the “green” energy industry and is unsure whether the business model will yield adequate returns on investment — whether it will be self-liquidating — making it difficult to assess risk, all of which has suppressed the willingness to invest, let alone to set up a market for “green” energy finance or to drive investment.

One example of this might be the proposals for offshore wind farms, regarded as the secret to kick-starting the domestic “green” energy sector.

Domestic banks assessing the installation and operational lifetime of offshore wind farms — which can be as long as 20 years — and the amount of financing required — as much as NT$15 billion — think the risk is considerable, such that there are still significant reservations about financing offshore wind farms.

Even though the Financial Supervisory Commission (FSC) flagged the financing of renewable energy sources as a major government policy to promote as early as last year, and said that it would proactively assist the “green” energy industry in obtaining finance and developing the required human expertise in “green” finance, “green” energy enterprises, financial markets and the government will still have to work in concert to completely remove all the obstacles to setting up a “green” energy sector.

For a start, “green” energy companies will have to provide sufficient financing of their own. Successful ventures overseas have seen companies putting up anywhere between 25 percent and 30 percent of the costs, seeking the rest from banks.

However, in Taiwan, many ventures remain underfunded, with insufficient self-financing.

Fortunately, several foreign investment groups have shown interest in the development of a “green” energy sector in Taiwan, especially offshore wind farms in the Taiwan Strait. If domestic and overseas investment can be brought together, it could make up for the shortfall in capital and make the sector a more palatable investment option for banking groups here.

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