May 7, 2024

How to Enter the Renewable Energy Asset Financing Market

Recently, we’ve spoken with a number of funders looking to enter the renewable energy financing market, or to significantly grow their existing limited offering in this space.  The rationale for their decision is twofold and compelling – firstly, it’s a rapidly growing economic sector that offers strong opportunities and higher profitability for finance companies; and secondly, it’s an important aspect of the firm’s broader ESG strategy.  Both factors will continue to gather pace, with early entrants who’ve developed applied experience, skills and know-how likely to be the most successful as the market continues to scale.

Developing a Successful Market Entry Strategy

So how can you develop a successful market entry strategy?  This will depend on the specific characteristics of your business, including your ambition, depth of understanding of the sector, and appreciation of the risks and their mitigants.  The market is not straightforward – asset categories are diverse, ranging from LED lights and small solar or single electric car charging points to highly complex, industrial-scale installations costing hundreds of millions of pounds.

Drawing on deep, hands-on sector experience, we have helped a number of finance companies with this challenge.

Taking an Asset-Centric Approach

In most cases, an asset-centric approach makes most sense.  Few organisations have the breadth of understanding to cover all aspects of the market, so an incremental approach makes sense; though an understanding of which assets may be clustered under a single installation is important to remain relevant for the customer’s needs. 

Asset-related considerations include managing asset risks, market scale, complexity of installation, distribution channels and willingness to support the financial structures required to be successful. Crucially, it’s also key to consider how the potential assets fit within both the funder’s and the borrower’s E.S.G. strategies, taking into account just how sustainable each asset type really is. Certain assets are simply energy-saving whilst others have both energy-saving (and cost saving) attributes plus the ability to generate “green” energy and earn revenue.

Managing Risk Effectively

A key element to consider is the management of risk, both at the underwriting stage and crucially, in a distressed situation.  An appreciation of asset-related incomes, their longevity and transferability is essential.  In many cases, asset recovery is impractical; in other cases, assets and related income-generating contracts can be transferred.  Risk policies need to be re-thought, new lending practices need to be introduced and staff and sales partners need to be trained. 

Gaining Market Insights and Navigating Regulations

To ensure a finance company's proposition fulfils a market need, is attractive, and sustainable, it is crucial to gather direct feedback from key stakeholders such as business introducers, vendors, installers, and design consultants.

This feedback, coupled with an understanding of current and anticipated governmental and regulatory policies, as well as the direction of travel for existing and new technologies (e.g., EV batteries, battery storage, fuels such as hydrogen, carbon capture and storage), will help shape a successful market entry strategy.

Partnering for Success

We've worked with forward-thinking lenders in this space, and they're now enjoying the early stages of market success.

Our deep sector experience and insights into the renewable energy financing market can help your organisation develop a comprehensive market entry strategy, manage risk effectively, and stay attuned to market feedback and regulatory changes.

For more information on how we can assist in your growth in renewable energy asset financing, please contact Phil Gerrard, email: phil.gerrard@finativ.co.uk

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