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What exactly is environmental finance? |
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Environmental finance can be defined
as financing for projects based on environment-friendly technologies. Examples
include wind, solar and biomass power generation projects, waste disposal schemes,
wastewater treatment projects and biofuel projects.
The ECA & Project Finance Department in the Structured Finance
Division is responsible for natural resource and infrastructure project finance,
including environmental finance, all over the world. In particular, we have a
strong track record in wind power projects in Japan and overseas. I would like
to emphasize that, in the United Kingdom, we are involved in financing wind power
projects that account for 40% of the country’s wind power generation
capacity. |
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Wind
power is the most rapidly growing form of alternative power generation.
Why is that? |
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| As the reduction of greenhouse
gas emissions becomes ever more urgent worldwide, there is an increasing need
to find alternatives to coal-fired power generation. Wind power is one of the
most promising and commercially viable solutions, given that the number of sites
where hydroelectric facilities are viable is limited, and that opinions are divided
on nuclear power. Although wind power also has weaknesses, including inconsistent
output and a lack of suitable sites, subsidy schemes and technological advances
have
expanded its usage potential. In recent years, the capacity of wind turbines has
increased,
and there are now systems capable of delivering up to about 3 MW. An increasing
number of facilities are located offshore. |
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What factors do you take into account when financing wind power projects? |
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| Financing structures and
risk profiles for wind power projects vary depending on whether facilities are
to be constructed or already in operation. If facilities are to be constructed,
we have to look into the risks relating to the construction. If the loan life
covers the operational phase, the key factors to consider include market risks,
operational risks and wind risks. Deep knowledge about these factors gives us
a competitive edge against both international and local banks. We have accumulated
considerable experience and knowledge about wind from projects, particularly regarding
the assessment of wind risks, which arise from uncertainties about the force and
directions of wind. |
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What aspects of environmental finance require particular care? |
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To provide finance in
an area in which we cannot fully ascertain whether or not the risks are acceptable,
we first need to understand the specific technologies used for various power generation
methods. This is because renewable power projects often use large amounts of new
technology,some of which is not yet fully proven or not known to financial institutions.
Another issue is that environment related
projects may not be as cost competitive as other forms of power generation, such
as coal and gas. For this reason, renewable energy projects are usually supported
by various government initiatives, such as tax concessions, commitments to purchase
renewable energy at fixed prices and usage obligations under special laws, such
as Japan’s Renewable Portfolio Standards (RPS) Law. Because finance is provided
over periods of 10—15 years, we must carefully gather evidence about the
level of long-term commitment by the governments of the countries concerned. |
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How do you expect this area of business to evolve in the future? |
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Many governments are now taking steps
to combat global warming. For example, the EU has set a target calling for 20%
of its energy to be generated from renewable sources by 2020. Such governmental
support will continue to be a major growth driver in the market for environmental
investment. A key priority for us is to increase our understanding of trends in
new technologies, government initiatives and regulations. We are continually updating
our information, as we wish to avoid situations in which we must decline financing
a project due to our own lack of understanding about technologies and regulations.
Materials and equipment for wind farm construction
are sourced worldwide, and a wide range of people are involved. In this sense,
our global networks and contacts with customers in many countries give us an important
advantage.
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