Triodos has invested close to EUR 3 billion in more than 400 renewable energy projects. Through its funds under management, Triodos Investment Management counts for close to EUR 1 billion invested in over 100 projects of this amount. Until recently, predominantly in Europe but increasingly in Latin America, Asia and Africa. We met with Gerrit-Jan Brunink, Senior Investment Officer Energy & Climate, to talk about why and how Triodos Groenfonds is expanding its activities and outreach to emerging markets.
Why financing renewable projects in emerging markets?
“These projects have a double impact. According to the Energy Access Outlook 2017, 2.4 billion people worldwide have no or limited access to electricity, and 2.7 billion people use wood, charcoal and biomass as their primary energy source. This impedes entrepreneurship, has a negative impact on health and contributes to deforestation and climate change. By promoting renewable energy, we stimulate social and economic development and help limit climate change.”
Can you share some concrete investments?
“I recently visited Nepal where we are among the investors in a hydroelectric power plant Lower Solu, which will add 10% to the country’s power supply and is expected to greatly improve the reliability of electricity supply. Another example is the Qartli Wind Farm, the first wind power plant in Georgia and the Caucasus region, which is expected to act as a model for other investments in this sector and support the diversification of the country’s energy resources. And in Honduras we have provided a loan to Cohessa to build a ground-mounted solar plant that will improve the country’s national energy production and make it less dependent on fossil fuel imports.
Was it an easy step to expand to emerging markets?
“For us it was a logical step to make. We’ve been active in renewable energy since 1987 and have built up an inclusive finance portfolio in emerging markets for 25 years. By combining the two we aim to catalyse private sector investments to a new category of projects, and at the same time become active with real energy projects – utility scale project finance transactions. The projects we finance generate energy at competitive prices and the deals are structured according to international standards. The world needs significant amounts of investments in the next decade to meet the energy demands of these countries. If Triodos as impact investor can demonstrate, even on a smaller scale, that private sector investment is possible, that you can have an acceptable risk profile, then undoubtedly more private sector investors will come in.”
What are the selection criteria for projects in emerging markets?
“Triodos Groenfonds falls under the Dutch Green Investment Scheme. This means that to be eligible for investment, at least 70% of the projects that Triodos Groenfonds finances, in the Netherlands or in emerging markets, needs to be declared green by the Dutch government by meeting specific criteria. For example, it must adhere to specific environmental and social standards and create positive impact. For emerging markets, there also needs to be positive advice from the embassy of the country stating that the project creates significant added value. It needs to increase access to energy and create economic development for the community in terms of local jobs.”
What kinds of projects are eligible? And where?
“We focus on proven technology, wind, solar and run-of-the-river hydro. The projects tend of be of utility scale - transactions that are project financed in a professional manner. With our inclusive finance investments, we have exposure in around 50 countries and with our renewable energy business we’ve built up experience over a period of 30 years. In combination with an excellent network of development banks and multilateral finance institutions that often act as arranger, this enables us to source good-quality transactions. We also check whether the country meets the Dutch government’s green project criteria. We take a broad approach and look at the development status of the country, and we’re open to learn about projects in countries where we don’t have an existing presence. We weigh up the status of the portfolio, and the impact and risks of the project.”
How do you manage the risks?
“The risk in project finance transactions is generally the same everywhere, but in emerging markets there are some additional risks. We work with a good network of partners – mostly development banks and multilateral institutions such as IFC, World Bank, African Development Bank, and EBRD. They have solid experience and a good understanding of local challenges. In addition, some of the institutions benefit from a preferred creditor status, which also benefits us when cooperating with them. Our projects must, of course, create positive impact, but they also need to have an acceptable risk profile. Renewable energy is increasingly competitive and most of our projects are structured without subsidies. In combination with a well-balanced portfolio across technologies and geographies, this results in an acceptable risk profile.”
Do you only work with these partners?
“We’re seeing more and more clients in Western Europe that want to move into emerging markets. Going forward, and in addition to our transactions with development banks and multilateral finance institutions, we expect to be able to realize more transactions with partners from our European Energy & Climate network. We also see opportunities in working more closely with our network of partners in the financial sector in emerging markets, both clients and associated impact driven banks from the Global Alliance for Banking on Values-network.”
Is there room for growth?
“Absolutely, and we are working hard on that. As I stated earlier, significant investments are necessary to meet the energy demands of many emerging economies. And there is a great opportunity to meet this demand by investing in clean energy technologies. So far, we have committed to ten utility scale renewable energy projects built up of about EUR 50 million in senior debt transactions projects. There is room for growth as 20% of Triodos Groenfonds’ volume can be invested in emerging markets. We’re planning to grow to more than EUR 170 million by the end of 2019 by increasing the number of transactions whilst increasing the transaction size.”