Standard Chartered expands renewable energy coverage

Peter Gutman of Standard Chartered's renewable energy and environmental finance group explains how the bank is expanding to cover the broader clean-tech sectors.

As the science related to global warming and climate change becomes clearer, governments are getting more serious about policy support. China has set renewable energy targets of 10% by 2010 and 15% by 2020, requiring more than $300 billion of investment. India plans to get 10% of its power from renewable sources by 2012. Thailand, the Philippines, even Bangladesh have all introduced specific renewable energy legislation over the past two years.

Meanwhile, the US is taking the lead in the so-called green stimulus effort, with the Obama administration earmarking more than $112 billion for the sector -- to boost jobs, build low-carbon energy infrastructure and support technology development. We talk to Peter Gutman, global head of the renewable energy and environmental finance group at Standard Chartered, about how he is positioning the bank to take advantage of these opportunities.

Tell us about your group, what it does and how you've changed it.
Our group is called the renewable energy and environmental finance (Reef) group and sits within Standard Chartered Bank's corporate finance business. Standard Chartered has had a renewable energy group since 2004, and the group has mobilised more than $4 billion of capital in 15 deals across virtually all the renewable energy sources. Historically, the vast majority of business was senior debt/project finance for renewable energy power generation projects. But we are now taking a more holistic approach and covering the broader clean-tech sectors.

We have developed a strategy that is very much aligned with the bank's client-focused approach. An increasing number of the bank's clients are engaging in the Reef sector and we are working with our colleagues in the client and product groups to add value to these clients.

We have adopted a relatively simple two-phase approach to serve our chosen clients across the footprint. Phase one is about building on our core renewable energy strengths and franchise in project finance, and leveraging that it in two key areas: across the bank's full product offering, i.e. advisory, equity, M&A, principal investment; and across the full supply chain, i.e. the manufacturing sector supporting wind and solar.

Phase two is about expanding to support clients in the broader environmental finance and clean tech areas of energy efficiency, waste, water, forestry and carbon.

What type of investments have you made?
Examples include a $70 million investment in the China waste water treatment sector and a €50 million ($71 million) investment into Climate Change Capital's carbon fund. In water we have several active project finance and principal transactions proceeding in India and China. We have also done several project financings for desalination deals in the Middle East.

We financed the largest solar farm in Asia, which was a 24 megawatt solar PV (photovoltaic, which is a technology for turning solar light energy into electricity) farm in South Korea and we have worked in an advisory capacity with major PV players in the world.

In wind, we are working on a couple of financings for clients that are looking to build capacity in India and China. Our team has also looked at a number of waste-to-energy and biomass projects.

How does your footprint help your business?
Standard Chartered's geographic footprint makes us uniquely relevant to this sector. Our footprint contains:

  • 70% of the world's population.
  • 60% of projected growth in energy demand.
  • 75% of the growth in carbon emissions through 2030.
  • 60% of the global solar energy potential and, excluding the US, 50% of global wind energy potential.
  • Also, water scarcity is an issue across our footprint.

Basically, our geographic footprint is critical to all solutions for global warming/climate change. McKinsey estimates that approximately $350 billion of capital expenditure is required, per year (on average) to 2030, to support low-carbon-energy infrastructure in emerging and developing countries alone, to avoid catastrophic climate change. The companies that can provide this renewable energy need project finance, advisory and equity help and we can offer these services. So there's a lot of work to be done.

On the solar front, manufacturing is certainly taking place in Asia -- China currently represents 40% of the solar PV manufacturing capacity in the world -- but where do you see the use of it likely to increase?
In countries like India, the orientation to renewable energy is more straightforward -- India has a severe energy supply deficit (up to 18%), particularly at peak hours. Renewable energies, like solar, are becoming a critical part of filling the gap. India has limited reserves of economic coal, and also has plans to tap nuclear, which takes considerable time and investment. Consequently, solar is becoming a very viable alternative. Increasingly, it is being viewed as a strategic source of energy given: the abundant solar resource; solar energy is "in phase" with peak day demand (where wind is typically out of phase); a number of solar technologies have compelling cost curves which will bring them to 'grid parity' over the next few years; and given that the price of the sun doesn't change, it is a hedge against another rise of energy prices as well.

I would gather your primary focus is China and India, right?
When I talk about wind, solar and water, China and India are a big component of that. It is very important for us to get these markets right and we are very focused on that.

That said, when I talk about solar resource, that includes the Middle East and Africa -- all the leading players have a large opportunity in the Southwest US where there are good solar characteristics. But they are also keen to roll out in the international market -- Standard Chartered's core footprint -- where the relative opportunity is much greater. Policy support has been most prominent in southern Europe, particularly in Spain which has become the largest solar power market in the world. However, we are starting to see increased activities in the markets of India, North Africa, the Middle East and China. Water scarcity is also an issue across our footprint, with the Middle East and Africa being important places on that front.

Are you having a hard time convincing people to make investments now, given the global financial downturn, or do people see this downturn as an opportunity?
It depends who you are talking to. Some are very focused on the opportunity and think that the current environment offers an excellent opportunity to position themselves, like Standard Chartered.

However, it would be hard to say that the sector hasn't slowed down. Certain basic facts of the sector remain. From the power generation side, these are infrastructure-oriented projects, so they work based on a fair amount of leverage, which is required to make equity returns attractive. When you have a situation where liquidity is tight, with less leverage versus any given project, the outcome is clear -- overall more equity is required, but being offered a lower return, and hence the marginal projects do not get financed. So, this dynamic has played out and the sector has slowed down.

But we haven't really slowed down that much because if you are a financial institution that has liquidity and are open for business, like we are, you can be a catalyst to make deals happen. The institutions that have balance sheet capability can work on projects that others can't. Standard Chartered is well capitalised and we're very busy, but we're also very disciplined, so it's really critical to figure out those clients and projects that you want to support from a strategic perspective.

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