Financiers shy away from funding solar systems
PLAYERS in the nation’s renewable energy sector say banks are still nervous about lending to entities wanting to instal solar systems to help reduce their electricity bills each month.
The issue came to light at the Jamaica Observer Business Forum held recently. The forum was held to look at the successes of the Strengthening Energy Sector Resilience in Jamaica (SESR-Jamaica) programme which lasted for three-and-a-half years which targeted commercial and industrial entities for reducing their power costs and green their operations.
However this comment from Mark Dennis, chair, Jamaica Energy Resilience Alliance (JERA) and senior energy advisor to SESR-Jamaica, said one of the things he has had to do in the programme is to dispel some of the myths banks have surrounding solar power systems for businesses.
“One of the biggest myths that we have encountered particularly in the financing sector is that the technology is not mature enough or that it fails too often and that has kinda fed into a lot of the apprehension that banks have [to lend for solar systems], so we thought it important to demonstrate in a definitive way that it works,” Dennis told the forum.
His point was supported by Jason Robinson, vice-president of Jamaica Renewable Energy Association (JREA) and CEO of Solar Buzz.
“What we have seen over the years is that there has always been a problem to get the financial institutions on board. They have always been a bit hesitant because what they are scared of is default rates, that’s the main thing.”
But Robinson said once installers of solar systems are installing systems that perform as promised, clients are not going to default on their loans.
“The key is to have these installers as members of Jamaica Renewable Energy Association to really get the confidence of the banks in there because the banks haven’t really put any cohesive energy lending policies in place,” he added.
Robinson said his experience is that there is only one person at each bank who interacts with Government agencies like the Development Bank of Jamaica (DBJ) about loans targeted to those wanting to instal solar systems, but when these people move on to other jobs, the knowledge goes with them.
“There is no focus, so like how the Government gives focus to the BPO sector and there is a cohesive push to get investments here, we haven’t gotten that from the Government for renewavle energy…especially distributed energy,” Robinson pointed out.
Lasco Manufacturing, which in April launched a 500megawatt solar photovoltaic plus (PV+) system at its White Marl, St Catherine, location, he said, was chosen to be part of the programme to demonstrate definitively that the technology works.Lasco had a 10KW solar hybrid system installed which also provides power to the adjacent Central Village multi-purpose centre.
But Dennis who has been having seminars with banks about solar power to encorage them to finance energy systems particularly for commercial and industrial entities said he detected that some of the misconceptions the banks have about the technology stems from them being poorly installed and stressed that that apprehension can be overcome by ensuring that those chosen to instal the systems are registered with the Jamaica Renewable Energy Alliance (JREA) which guarantees they are well-trained.
“They are getting a lot better now, but the feedback that we are getting is that some of them are still a little hesitant and that’s understandable, because how banks operate, they look at the risk, and for them, there has to be adequate collateral or security for them to lend. We have seen a trend over the last several years, with banks being a little more amenable to lending to the renewable energy industry,” Dennis added.
Edison Galbraith, general manager for channels, relationship and marketing at the DBJ, put some of the reticence down to cycles and the perceived risks the financial institutions see in lending for solar projects outside of large projects aimed at supplying the grid.
“The financial sector is fairly broad and they have a lot of options available to them, so they are looking at all different products and determining where to put their money, so it’s critical, and we’ve done some work over the years and getting financial institutions, suppliers in the market, energy auditors to go out there and get businesses to take up renewable energy,” Galbraith said.
He said one of the key outcomes of the SESR-Jamaica programme is that it has re-energised the industry to get more persons onboard.
DBJ provides loans, grants for energy audits, guarantees under the credit enhancement facility and work with suppliers in the market to get leads and customers from JERA.
He said there was a lot of activity from companies wanting to instal solar systems from 2013 to 2017 but that interest died down and is only now being rekindled.
“DBJ started its energy programme probably around 2012 and over that period we supported over 300 businesses getting energy efficiency in the first instance as well as renewable energy systems,” Galbraith pointed out.
He said that programme covered the poultry sector, factories, barber shops, offices, small hotels and residences which can borrow to $5 million.
“The bulk of that money, $4.5 billion, was done between 2013 to 2019,” Galbraith added.
He said the default rate on those loans is less than one per cent, leading players in the industry to question why private sector banks are still hesitant to lend for the projects.
The revelation brought consternation from Robinson.
“The majority of Jamaicans want solar for their homes and the lending for that is extremely difficult… even from small and medium-sized enterprises, it’s difficult to get the financing for it, and the banks really should be using the systems as collateral, not asking for additional collateral because the systems have extreme value,” Robinson said.
He pointed out that if it wasn’t for the DBJ launching their energy facility, a renewable energy system sector for distributed energy would not have developed.
He wants Government to give more support to the sector to help get loans to fund the systems which save entities millions in electricity bills each year.
“We have installed for many factories and that offset up to 70 per cent of bills,” Robinson pointed out.
“The banks should just be giving money away to those types of businesses [to instal solar systems], in my opinion, because the impact is so huge because there is no demand charge,” he added.
Nicholas Chen, director at Jamaica Macaroni Factory, which installed a solar system at its factory 18 months ago, said he had to put up collateral to get a loan for a solar system at the factory and questioned how many other companies can find such collateral to get a loan.
He said his system has saved the factory 20 per cent of its energy bill since installation in January last year.
But all is not lost, Dennis noted. From the seminars, he said he is seeing positive responses from banks to consider lending to companies wanting to instal solar systems.
“The responses were good and we saw a marked difference after the workshops. They are now more willing to lend. At the end of the programme, we managed to mobilise over US$5 million in financing for solar PV systems; half of that has already been invested already.”
The DBJ itself said 17 financial institutions are working with the DBJ and a lot of these are not required to put cash up for loans.
Jamaica Observer
