Investing in Renewable Energy

Renewable energy is claimed to be one of the key measures in fighting the adverse effects of climate change. With world leaders pushing to reduce reliance on fossil fuels, the past years have witnessed massive growth in renewable energy projects. According to the International Energy Agency (IEA), the global capacity to produce renewable energy has increased by 50 per cent and will continue to rise in the next five years. 

However, from the perspective of investors, the shift to a more sustainable environment through renewable energy projects brings both rewards and risks. Studies have shown that investing in such projects can give organisations positive financial returns, energy security, and the perception of a socially responsible investment. Still, it comes with the risk of expensive equity and project delays from vulnerable market conditions. 

One way to mitigate these risks when entering the renewable energy industry is to use Special Purpose Vehicles (SPVs). SPVs are independent legal entities that help finance, develop and protect companies that invest in different, usually high-risk projects or emerging technologies, such as renewable energy. 

One study suggests market players should maximise SPVs when financing renewable energy projects. According to the study, SPVs offer significant benefits to investors, such as reduced agency costs and risk contamination.  

Below, we explore some of the benefits of utilising SPVs for renewable energy projects.  

Isolating Risks 

As an emerging technology, renewable energy projects may be considered high-risk investments. High borrowing costs make them difficult to complete, while fluctuations in market conditions may disrupt the supply chains of raw materials. Technological risks also include challenges in acquiring the natural resources needed for generating renewable energy. 

Additionally, compliance and regulatory laws surrounding renewable energy projects are constantly evolving and implemented. Once new policies are in place, regulatory requirements may slow down the progress of projects and expose them to risks of non-compliance. These risk factors may contaminate an entity that invests in the project, which is why using an SPV to finance the project may protect the “parent company” from liabilities.  

This isolation also streamlines asset management because a separate company is responsible for financing, managing and developing the project. 

Furthermore, SPVs have measures in place to meet regulatory requirements, providing legal protection for the project and the parent company regardless of future policy changes.  

Project Financing

Renewable energy projects face financial pressures, such as expensive capital and cost inflation, which often lead to project delays or cancellations.  

The same study cited above also found that SPVs are more suitable when investing in renewable energy projects because these vehicles can facilitate capital raising. Project financing uses nonrecourse debt in balance sheets which prevents claims on corporate assets and protects the parent company from financial risks.  

Recent studies on SPVs and project financing have also shown that leveraging this framework for renewable energy projects has the potential to successfully mobilise the necessary resources to maintain the project. 

Plus, SPVs can effectively target investors interested in diversifying their portfolio by venturing into clean energy projects.  

Public-private partnership

The United Nations (UN) ‘s initiatives to achieve its Sustainable Development Goals include reducing carbon emissions through adapting renewable energy sources and eliminating the world’s reliance on fossil fuels. The UN urges world leaders to continuously create policies that will help ensure energy security by 2030. 

On that note, SPVs may bridge the gap between public and private entities with similar interests in developing renewable energy industries. SPVs can help secure capital from equity investors while utilising feed-in tariffs provided by governments with great capacity to support renewable energy projects. 

Promoting this partnership may also expedite the approval process of the projects in countries where public entities support the development of renewable energy projects.  

Establishing an SPV in a tax-efficient jurisdiction also maximises the tax benefits through this public-private partnership. Studies on SPVs for renewable energy projects forecast that government support ensures renewable energy projects achieve financial viability and success. 

The opportunities in the renewable energy market 

A report by the International Energy Agency (IEA) found that annual spending on solar and wind projects reached $300 billion in 2023, accounting for a third of the $1.8 trillion global investment in renewable energy.  

The growing demand for renewable energy presents an opportunity for market players to reap the benefits of using SPVs when venturing into the industry. As renewable energy is forecasted to be the primary source of energy in the coming years, investing in this emerging technology early on may provide organisations with a good transition to a more sustainable future. 

Structuring your SPV with Bolder Group 

Bolder Group assists many players in the solar and wind energy sector globally with setting up and administering their SPVs. We tailor structures based on our clients’ specific requirements to ensure everything is aligned with their long-term financial and business goals.   

For more information about the benefits of using SPVs for renewable energy projects, please email info@boldergroup.com.  

Bolder Group does not provide financial, tax or legal advice, and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information or the consequences resulting from any action taken by a reader based on the information provided herein.

Bolder Group refers to the global network of independent subsidiaries of Bolder Group Holding BV. Bolder Group Holding BV provides no client services. Such services are provided solely by the independent companies within the Bolder Group which are each legally distinct and separate entities and have no authority (actual, apparent, implied or otherwise) to obligate or bind Bolder Group Holding BV in any manner whatsoever. The operations of the Bolder Group are conducted independently and have no affiliation with third-party financial, tax or legal advisory firms or corporations.