The Scottish Low Carbon Investment Conference

Andrew Buglass is Director of Power, Structured Finance, RBS and will lead a session on economic models to support the financing of offshore renewables at the Scottish Low Carbon Investment conference on 28 September.

Q: What can this conference achieve?

A: It could be a very useful mechanism to bring interested parties together because there are so many different aspects to renewables. Hopefully, it will help get more people talking to one another and it would be great if it can make the breakthrough.

Q: What are its limitations?

A: This is a very long lead-in business and it’s hard for one specific event to make a [massive] difference. It’s much more about chipping away and playing a valuable role in continuing the debate.

Q: What is the biggest problem in financing offshore renewables?

A: There are lots of issues – such as power price mechanisms and technology issues as you go further offshore – but I think the biggest problem is one of scale. We are coming out of a financial crisis and we are still in a recessionary environment where the government is cutting back and so are the corporates – yet the sums involved in constructing offshore projects get bigger and bigger as they go further offshore. The costs are going up from a few hundred million to a few billion – and to meet the carbon reduction targets we need to deliver lots of these projects.

Q: What comes first – the supply chain or the developments?

A: A number of suppliers are saying if you build, we will invest in capacity, for example offshore cables. There are not many manufacturing options in this area and we could run into a supply constraint – but will people invest hundreds of millions in a manufacturing plant if you do not have the offshore wind farms supplying the power?

Q: What are the misconceptions about financing renewables?

A: There are a number of misconceptions. One in particular is the perception that we cannot do it without Feed In Tariffs (FITs). That’s not the case at all – we have 20 years’ track record of projects being financed successfully under the Renewables Obligation and its forerunner. FITs are not so significant. As a bank, we have financed all sorts of different projects in different countries with different support mechanisms. If a project has a strong commercial basis and there are good regulations, you can finance it – FIT or not.

Q: Why do some investors like FITs?

A: FITS are easy to understand but can cause problems. Spain offered generous FITs subsidies and is now having to pull back. Something like Renewables Obligations have that element of being able to respond in a more market-based way rather than just turning a tap on and off.

Q: What is the role of government?

A: There is a role but it is always difficult. Government is always nervous about picking technologies and playing a commercial role, which it shouldn’t do – but there are big issues about regulation and sending clearer signals to the market.

Q: How do you view the future of the renewables industry?

A: I am cautiously optimistic. It is by no means easy against the backdrop of a market challenged by the economic situation. The banks are returning to lending but they are lending cautiously.

Q: Is lending hampered because renewables are still seen as a risky industry?

A: Most banks active in the area do not see it as a hugely risky sector, though offshore is obviously materially riskier than onshore – there are a whole other bunch of risks but offshore is becoming more acceptable to lenders and more mainstream. Wave and tidal is still seen as a bigger risk.