Banks willing to invest in renewables

Caribbean banks are well aware of the potential for investing in renewable energy across the region. What is required, however, is a more streamlined approach to policy.

The Caribbean is blessed not just with hydrocarbons but also major resources for renewable energy like solar, wind and geothermal energy, First Citizens CEO Karen Darbasie said during the opening panel discussion at the TT Energy Chamber’s 2020 Energy Conference at the Hyatt Regency, Port of Spain on Monday. The financial sector is willing to partner with companies that look into developing these types of projects and determine if they are indeed bankable in the long term.

“We are speaking about an energy policy for the Caribbean but we have capital across the Caribbean that we need to holistically be able to bring to the table and not have the cross border restrictions of having the capital move from one jurisdiction to the other to be able to facilitate the investments of projects,” she said.

There’s a lack of standardisation for the process of capital movement. “There are different requirements, for example, to list on the TT Stock Exchange versus in Jamaica or Barbados. If the standards are all the same then it will make ease of registration in each jurisdiction (easier) to allow the pools of capital to be brought together to facilitate large capital investments.

Banks and other financial institutions came under fire earlier in the session from Barbados Prime Minister Mia Mottley, who accused the sector of being “as risk averse as humanly possible,” potentially stymieing growth in the region.

“We can choose to accept those circumstances and risk the possibility of becoming that poor region in 2050 or we can choose a different road,” Mottley said in her feature address at the conference.

The private sector and the government have not traditionally worked as closely together in terms of national development and returns on investment, she said.

As the relationship evolves, “we have equally to recognise that we have to make these investment opportunities available to each other.”

“No doubt that renewable energy comes from the patrimony of our people. It would be a crying shame if the opportunities for investment in those investments don’t include ordinary people so we need to find creative financial instruments to allow people to participate in the sector. It doesn’t necessarily require same lumpy investments as the hydrocarbon sector but it does also create mechanisms by which our people can understand that they will not be left to be tenants in their own lands.”

The region has a complicated relationship with hydrocarbons. Fossil fuels are one of the biggest contributors to global warming and rising sea levels. The Caribbean, which includes a collection of small island developing states, are on the frontlines of the battle against climate change. At the same time, TT and now Guyana and Suriname are major hydrocarbon-dependent economies. It’s a balance that Mottley, and TT Prime Minister Dr Keith Rowley, acknowledged, calling for a discourse at a Caricom level to determine meaningful policy change.

But for banks in the region, many of which are involved in hydrocarbon investment, there has to be a transition, even as international trends show that some of the world’s biggest financiers are now analysing their investments and moving away from investments in fossil fuels and towards more sustainable sources of energy.

RBC Caribbean CEO Darryl White said banks now have “foisted" upon them a new circumstance that requires new strategies. “A couple of things are happening that to me are exciting. One, we are now acutely aware of renewable solutions. We are also aware that renewable solutions need to be transitioned. And there is a big part that fossil fuels will continue to play. We want to be more efficient in the use of it and in the production of it. There’s a lot of capital invested in it and on the ground so economically it makes sense for us to exploit as much of that capital that has already been invested.” But banks have an absolutely critical role to play in terms of bringing about the partnership, he added. While Mottley noted the US$50 billion in collective domestic savings among the countries in the region, White suggested that that money needs to be considered in buckets, used for different applications along different timelines. “You have to have patient capital, liquidity that is willing to wait on the sidelines while it gets through everything. You need to have short-term capital. That liquidity will chase different things at different times.”

Darbasie added that for the sector, there needs to be a risk-reward balance, as in every industry. “Yes there is appetite. The financial sector is not just the banks; there are a broad range of financial institutions that have capacity to provide financing. I would mention the regional equity market has seen the launch in 2019 of a fund cross-listed between the TT and Jamaican stock exchanges that funds (renewable projects in the region).”

White added: “If we talk about renewable energy you have to talk about incentives and tax relief and not just at the institutional level but at the household level, the investment fund level. In TT, we have had a couple of energy funds a while back and they didn’t do very well, not because of the fact there wasn’t capital, there simply just weren’t enough available assets to go into the fund. We need to work on the supply side and the demand side.”