The Malaysian government has
introduced various incentives and strategies (e.g., Feed in Tariff, Net Energy
Metering and Large Scale solar projects) to encourage the growth of renewable
energy. The initiative has been driven by the environmental concern of fossil
fuels. China being the world largest carbon emitter has resorted to renewable
energy in an effort to save the environment (http://www.reuters.com/article/us-china-solar-idUSKBN15J0G7).
Funding is key to implementing a
solar project. Shareholders need to be able to decide which type of financing
would maximise their return on investment. Choosing the right financing mix is
the first step for a successful project.
Key types of financing instruments
include: -
1. Debt Financing
Bank loans offer a simple,
inexpensive financing option of up to 80% of the solar asset. Loans for solar
project are often easier to procure as it is backed by long term Renewable Power
Purchase Agreement and a good-credit off taker (Tenaga Nasional Berhad). Nevertheless,
lenders will still require a solid credit rating or a credit-worthy guarantor. In
which case, bonds may be considered.
2. Equity Investment
If the shareholders have sufficient
cash, then an all equity investment may be a good option. A well designed
solar facility in sunny climates generates enough savings to break even
quickly.
3.
Operating Lease
This is a flexible finance
instrument that allows for the use of the solar asset, with no ownership
rights. Operating leases typically have shorter terms and may provide a
fast track to system ownership while substantially reducing capital
requirements. Operating lease is still new in Malaysia.
Tax incentives, inexpensive debt
and prudent matching strategies help establish a robust and diverse solar
project finance environment.
We welcome the opportunity to help
your organization think through solar opportunities and assist in securing project finance, financial modelling and financial advisory for
your project.
Photo source: pixabay.com
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