Funding the key obstacle to renewables in Asia

Published onAugust 29, 2018

Despite China and India taking major steps forward, financing is still a significant obstacle to the development of the renewable energy sector in Asia, according to an Asian Development Bank (ADB) report. Renewable energy projects are, by and large, capital intensive and require big loans. Given the capital market – including venture capital – is not well developed in many Asian countries, and that the Asian financial system is dominated by banks, such lenders are the main source of funding for projects. The ADB report finds many Asian banks are reluctant to finance renewable project development for two interrelated reasons: perceived high risk and a low rate of return, compared to fossil fuel projects. Startup companies in particular, are finding it increasingly difficult to borrow because of strict Basel capital requirements – brought in to strengthen bank balance sheets in the wake of the global financial crash ten years ago. Riskier small and medium-scale enterprises also face difficulty in borrowing, and that category is held by banks to include renewable energy projects. Lenders are concerned at the risk posed by renewable energy technologies which are still new in many cases, at least as far as banks are concerned.