Emerging markets and developing countries are facing a dual challenge. On the one hand, they are particularly vulnerable to climate change, lacking the financial power to prevent or adequately respond to the impacts of climate change. On the other hand, a dependable and affordable energy supply is crucial to further socio-economic development.
“Financing renewable energy in emerging markets requires expertise, experience and a strong network. At Triodos Investment Management we have all three, built up in many years investing in many different projects”, says Angeles Toledo. “By investing in renewable energy in emerging markets we generate triple impact with each investment: we stimulate social and economic development and we contribute to a sustainable energy transition.”
Thorough risk assessment
“Investing comes with risks. Systemic risks, either economic or political, are inherent in investing in emerging markets. The environmental and social risks also need a careful assessment, especially those of utility-scale projects”, explains Toledo. “Possible negative impacts must always be compensated, for example by replanting trees or relocating people, or by making sure that communities directly benefit from the project.”
“For us, the environmental and social risk assessment is extremely important. There is more needed than simply doing your homework if you intend to have a positive impact on local communities”, adds Blackie. In addition to applying strict ESG criteria, we aim to achieve this positive impact by both improving the access to affordable energy – which is our priority - and by identifying potential development opportunities, together with the developer or owner of the project, which bring social and economic benefits to the community.”
We know what we are doing
“It is crucial to have knowledge about the renewable energy markets in emerging countries - for example about fall-back scenarios or insurances when a client cannot pay back the loan - and have a strong network of trusted partners”, continues Toledo. “This is not something you can build up overnight. We have a track record of more than 20 years of financing projects in emerging countries and more than 30 years in financing renewable energy projects. This combined knowledge is firmly anchored in our funds and in every transaction we do.
“As we usually enter a contract for at least 15 years, we agree on a set price with the off taker of the energy”, Toledo continues. “This is usually the national electricity company, owned or backed by the government. Working with a good network of partners we enjoy strong structures and negotiation power should it be needed. To mitigate currency risks, we always hedge our positions in local currencies. In addition, some of the institutions benefit from a preferred creditor status, which also benefits us when cooperating with them. The combination of a well-balanced portfolio across technologies, financial instruments and geographies results in an acceptable risk profile and a solid return for investors.”
Set the example
“But most importantly: we must walk the talk. It is one thing to talk about urgency and opportunities, but we must also act”, concludes Blackie. “Nearly 40 years ago, in the early 80s, we financed the first wind turbines in the Netherlands, and today we are still a pioneer in the energy transition. It is now time to increase our impact on financing the energy transition in emerging markets and inspire others to join us and unlock more funding.”
Triodos Emerging Markets Renewable Energy Fund
In October 2021, Triodos IM launched Triodos Emerging Markets Renewable Energy Fund. This fund provides long-term senior debt to utility-scale wind, solar and run-of-the-river hydro projects, and finances commercial and industrial initiatives and innovative projects that reach individuals, such as mini-grids. It also has a limited allocation to invest in high-impact energy transition funds, with a focus on the development stage of new renewable projects.