World’s Biggest Backer of Renewables Is Scaling Back Lending

  • Development bank to publish policy Sept. 13, Abeeolica says
  • BNDES seeking to shift more lending to private banks

Brazil’s development bank, the world’s biggest backer of renewable energy, is revising its clean-energy strategy, pushing more lending to private banks in a move that will probably drive up borrowing costs.

The development bank BNDES will continue to fund renewable energy projects and is now seeking to share more of the risk with other lenders, according to Elbia Gannoum, president of the Brazilian Wind Energy Association Abeeolica. The plan is expected to be included in the agency’s new operational policy that will be released Sept. 13.

Banco Nacional de Desenvolvimento Economico & Social, as the development bank is formally known, first signaled its intent at a conference last week in Rio de Janeiro. While details remain scarce, the plan may involve creating a joint fund with local banks to develop a debenture market to help finance projects, Gannoum said. The strategy may also boost financing costs, and a sudden transition may hinder development, she said.

“If BNDES makes the changes overnight, it will leave the market without a way out, because the financial market is illiquid now,” Gannoum said in a telephone interview from Sao Paulo. “Changes need to be made in a gradual way. The transition must be soft.”

Biggest Lender

The country’s booming wind industry helped BNDES become the largest lender for renewable energy, financing as much as 70 percent of the country’s projects, according to Bloomberg New Energy Finance. It loaned 2.18 billion reais ($679 million) for wind projects in the first six months of the year, up 30 percent from the same period last year. The lender has arranged almost $25.9 billion in financing for clean energy to date, more than any group or organization, according to New Energy Finance.

Brazil has 10 gigawatts of installed wind capacity, the most in Latin America, though it’s small compared to the U.S., which has 73 gigawatts, or world-leader China, with 139 gigawatts.

“New financing conditions will adhere to the new model that is being planned for the sector,” Ligia Chagas, head of BNDES’s alternative energy department, said at the conference in Rio de Janeiro last week. “We want banks to be more active, to participate in the long-term financing with BNDES for energy projects.” A spokesman for BNDES declined to provide additional details.

Presidential Transition

BNDES is seeking to reduce the industry’s dependence on its low-cost financing amid a historical fiscal crisis that’s dried up liquidity at commercial banks. The country is transitioning to a new government after the impeachment of Dilma Rousseff last week.

Making this kind of transition when credit is becoming tight will be difficult, according to Edson Ogawa, head of project finance at Banco Santander SA.

“The big question mark is how the capital market can absorb all the demand for financing amid an economic crisis scenario,” said Ogawa. “When financing a project with a 20-year contract, banks in general don’t want to stay for the whole period of time with the asset. Banks, instead, need to move their portfolio -- it is a matter of capital allocation.”

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