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World Bank sees rise in energy financing for LNG, RE projects

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By Myrna M. Velasco

SINGAPORE – The World Bank Group is anticipating that financing flow in energy projects will be largely dominated by new projects in the liquefied natural gas (LNG) and renewable energy (RE) sectors in the near- to longer-term investment horizons.

“LNG will remain to have a lot of space in energy financing as gas demand increases in Asia. LNG will play a key role as the cost of gas comes down substantially, so I see LNG financing going up,” said Ranjit Lamech, regional director of the World Bank’s Infrastructure Department in East and the Pacific region, at the Singapore Energy Summit.

The Philippines is among the countries in Southeast Asia that is cementing its pathway into having fresh investments in the LNG sector because of the anticipated production decline of its only commercial gas-producing field.

Another sector that he sees gobbling up most of available energy funding will be the RE ventures. “Renewables has been accelerating for quite a while and that will continue,” Lamech emphasized.

Nevertheless, he said there are now manifest challenges when it comes to financing new RE projects given the precipitous slide in the technology costs – primarily for solar and wind installations.

“One issue that is emerging with the financing of renewables — where banks and institutions like ourselves are often challenged to increase the level of the financing — is because of risks on the asset side,” he stressed.

Lamech cited a case wherein a bank may be extending financing for a solar project at 7 to 8 US cents at the project’s construction, and then suddenly, the cost of the technology would go down to the level of 3 to 4 US cents and there could be tendencies for governments or policymakers to exert pressure on developers to bring down electricity costs without seriously considering the economics that the project sponsor and its lenders have had at the approval and construction phase of such installations.

“So the technology risk – from a consumer perspective it’s good for the world in general. But oftentimes, these pose challenges on the collateral and technology risks side. This is an issue that concerns us, along with all the other banks, whether we can continue financing these assets — so that’s an important factor to consider,” the World Bank executive noted.

Beyond these two industry segments, he indicated that energy access or electrification ventures in many remote areas of various countries in Asia – including Cambodia, Myanmar, Vietnam and the Philippines, will also be cornering funding for projects as well as those that are packaged as grants or technical assistance.

“In terms of growth on energy financing, a couple of Southeast Asian countries still need access to electrification financing – whether you are Myanmar, countries in the Pacific Island or other countries like Vietnam or the Philippines,” he said.

The distribution segment of the power industry although unpopular, is similarly perceived to be having its share on available cash or lending portfolios being funneled to the energy sector.

“Financing in distribution is going to scale up because people deserve valuable service. That is not just a very popular side, many people don’t talk about it but their loads are increasing,”Lamech said.

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