DFCC Bank leads the way for Green Energy and Blue Sky businesses to prosper

Wednesday, 2 April 2014 00:00 - - {{hitsCtrl.values.hits}}

DFCC Bank, the pioneer development bank with a 60-year track record of being the ‘wind beneath the wings’ of Sri Lankan enterprise, is in the forefront of promoting and supporting start-ups in Green Energy and Blue Sky businesses. The business case for Green Energy is now stronger than ever. Entrepreneurs are beginning to appreciate the potential and the financial gains possible in this sector. Following are some thoughts of DFCC Bank Chief Executive Arjun Fernando, on the work that has gone into developing this sector and where it is heading: Q: What is the business case for Green Energy projects? A: The Government of Sri Lanka opened the energy sector to private investments in the 1990s having recognised the role the private sector can play to reduce the deficit between demand and supply. In 1996 Sri Lanka’s electrification rate stood at 42%. The potential was great and several entrepreneurs saw the opportunity but it was not easy to find a financier who would back them up, especially because the regulatory and environmental framework was not in place for such investments. However DFCC took on the challenge of supporting a science graduate’s dream of launching the county’s first small scale grid-connected hydropower project of 0.96 MW in Dikoya, which paved the way for a lucrative industry.

Since then DFCC has been the forerunner in leading financing and developments in this sector. The ground breaking cash flow based repayment system which was introduced by DFCC was a game changer in the way Green Energy projects were being looked at by investors. The instalments payable on loans were computed according to the rainfall pattern, differentiating between the wet and the dry seasons of the year. With this and other developments, now it makes good business sense to invest in the sector. Q: To what extent have you encouraged private sector participation in the renewable energy sector? A: Once we financed the first few projects and the viability was evident, many corporates and businesses were encouraged to start new projects. This led to DFCC financing 54 mini hydropower projects equalling a total capacity of 146 MW. It accounted for around 54% of the total installed capacity in Sri Lanka and includes the 9.9 MW power plant at Kuruwita which is one of the largest mini-hydropower projects yet to be commissioned in the country. We are also the pioneer financier for private sector wind power projects in Sri Lanka. The bank played a key role in facilitating the introduction of cost-based, technology specific tariffs enabling projects using wind technology to be commercially viable. This has spurred development of wind power plants in Sri Lanka with nine projects being commissioned and several more in the pipeline. DFCC Bank went on to manage the World Bank and Global Environment Facility funded Energy Services Delivery (ESD 1997-2002) and Renewable Energy for Rural Economic Development (RERED 2002-2011) lines of credit successfully negotiated by the Government of Sri Lanka. The low cost funds helped transform the renewable energy landscape and firmly established the non-conventional renewable energy sector as a viable option for power generation in the country. These credit lines supported 83 mini hydropower projects with a total capacity of 195.5 MW, two wind power projects with a total capacity of 20 MW and one bio-mass project of 1 MW. In addition, as off-grid projects, electricity has been provided to households in remote areas through solar home systems (131,528 households), village hydro schemes (7,913 households) and bio-mass based projects (39 households). Q: How do you see the future of Green Energy project financing? A: The development of indigenous renewable energy sources has lead to many benefits both socially and economically. The country has benefitted by way of development of local technical skills, employment creation, technology transfer, saving of foreign exchange and protection from fossil fuel price volatility to name a few. It is a sector which needs continuous support in terms of long term funds and guidance of experts. We are now looking beyond electrification and more towards the energy efficiency aspect. Most commercial establishments are now carrying out energy audits to identify areas of improvements. Being energy efficient will directly add to the bottom line of any organisation, and help to increase their competitiveness in both local and overseas markets. Exporters will especially benefit from energy efficiency initiatives both by passing on the saving to the customers, as well as improving their corporate image by reducing its carbon footprint. Having played a dominant role in this sector, together with the expertise developed over the years, DFCC Bank is well poised to continue in its journey of contributing significantly towards this sector. Q: Long term funding would be critical for the future of this sector. As the foremost development bank are you ready for this? A: We have put in a tremendous amount of work to bring this sector to what it is today. We paved the way and encouraged many others to join the industry and export technical knowledge to other countries as well making Sri Lanka a resource centre for renewable energy projects. We did well with the ESD and RERED dedicated credit lines and received ‘Highly Satisfactory’ ratings for exceptional performance by the World Bank. To ensure the continuous availability of long term funds for this sector, with the concurrence of the Government, DFCC Bank lobbied strongly with multilateral agencies it had links with to secure a new line of credit to fund energy efficiency solutions for businesses. Considering DFCC’s track record, including the in-house capabilities of its staff to handle a project of this nature, DFCC Bank has been selected as the administrative unit to manage the funds. These low cost funds will be used to support enterprises to implement solutions to reduce energy consumption or shift to renewable resource based electricity generation. Q: You mentioned Sri Lanka as a resource centre for renewable energy. Is there a possibility of exporting technological knowhow to other countries? A: International recognition received for the development of Green Energy in Sri Lanka has opened the door to other emerging economies. DFCC has conducted several study tours in Sri Lanka for countries such as Uganda, Ghana, Nepal, Philippines and Cambodia to share our experience and expertise in renewable energy development. Contacts and partnerships developed during such tours have been mutually beneficial for downstream business development. Several of the pioneering mini hydro developers have successfully exported their technology in the form of consultants and contractors resulting in foreign currency earnings to Sri Lanka. One local turbine manufacturer is exporting locally manufactured hydropower machinery to projects overseas demonstrating the technological development Sri Lankan mini hydro sector has witnessed.