The green energy market has witnessed several growth catalysts over the last couple of decades but it still faces challenges especially from the perspective of financing. Credit accessibility is a big issue for renewable energy projects due to the high setup costs involved.
In addition, project success is not always guaranteed and this raises the risk levels for potential financiers. As a result, governments and other alternative sources of funding have been forced to step in offering different types of credit facilities to startups operating in the renewable energy market.
However, one major advantage of investing in green energy projects is the residual efficiencies that emanate from low operational costs. Therefore, if financiers could see beyond the inception challenges, the renewable energy market could witness a faster acceleration in growth.
As it stands, reports already indicate that solar energy in the US has been growing at an annual rate of 30% since the year 2010. Overall, renewable energy is estimated to account for about 10% of the Nation’s total energy production. The rapid growth of renewable energy in the US has been partly because of the operational efficiencies of solar energy.
Furthermore, the government has stepped in with several incentives including tax rebates, grants and subsidized loans to try to encourage more players to embrace green energy.
Why credit providers are strict on Renewable energy projects
According to a report published by the Asian Development Bank, one of the main bottlenecks in green energy financing is inadequate credit information. Some of the players in this space are unable to provide verifiable credit information to back their applications for project financing.
The report suggests that it is imperative that the necessary policies and financing interventions be put in place to improve the quality of credit information both technically and commercially.
Based on technological advances, some of these challenges are already being addressed. The use of blockchain technology in various markets including the credit sector has enabled players to gather more credible information about their customers.
The distributed ledger technology keeps a list of records that can be immutably accessed by all concerned parties indefinitely. This has emerged as one of the best ways to obtain verifiable credit information of customers thereby helping to mitigate the risk of credit default.
Technology is also playing a key role by providing potential customers with alternative funding methods. Disruptive Fintech startups like this one here provide businesses with more flexible lending requirements depending on their credit profiles. They range from quickly accessible collateral-free loans to asset-backed loans, which are processed expeditiously.
This has helped to boost credit access in the tricky renewable energy market, which often requires high initial cash outlay to set up electricity generation plants. This has also made it easier for individuals to join the green energy market enabling them to sell to third parties the excess renewable energy that they produce in their homes or businesses.
Conclusion
In summary, access to credit financing is crucial to the success of the green energy market. Most of the players in this space are small startups, which lack the required financial muscle to self-finance the launch of a green energy plant.
And while venture capitalists and government organizations have stepped in to offer financial backing, the need for debt financing from the private sector continues to grow as more people embrace the use of renewable energy.
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