COVID-19 outbreak leads to uncertainties in renewable project financing space, says GlobalData

Delays in renewable projects financing is expected during COVID-19 because lenders are aware of the volatility existing in the market and are likely to refrain from making short-term investments, says GlobalData, a leading data and analytics company.

Somik Das, Senior Power Analyst at GlobalData, comments: “The inability to assess emerging risks would likely increase debt pricing in the short term. The increase in debt pricing would not be an attractive proposition for developers seeking to commit to long-term contracts, because in the long run, markets are expected to eventually stabilize and consequently the financing rates is expected to drop.”

Finances are released based on project milestones. Therefore, developers are either liable for not adhering to development timelines or are forced to source equipment from other markets at higher prices and remain committed to development schedules. It is likely that existing deals will need to be refinanced at a cost for all the stakeholders involved to provide flexibility for developers to execute projects while mitigating the COVID-19 impact.

Das continues: “The emerging uncertainties in the market are expected to have a significant impact on project finance transactions for renewable energy development in the short term. The high risks and volatility in the market are defining the mitigation measures being implemented by stakeholders and this would likely serve as a template for formulating future financing deals.

“The current market poses a significant risk to projects in terms of project delivery, time and cost overruns, and profitability, which might lead to the closure of the projects and affect investors. The long-term outlook remains brighter, as institutions across the world are committed to renewable energy, and the ongoing crisis is likely to prompt investors to manage their capital more effectively and remain resilient.”

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