The topic came up time and again at the Latin American Carbon Forum in Santiago, Chile, late last month, where BNamericas sat down with Nikolaus Schultze, director for project finance at First Climate, one of Europe's leading carbon asset management companies.

In this interview, Schultze discusses his view of the renewables market in light of current economic conditions and his company's strategy for weathering the storm.

BNamericas: Does renewable energy pose a specific challenge for project finance considering, for example, that wind projects could be intermittent?

Schultze: What we need to take into account is that obviously registration of the project as a clean development mechanism according to the rules set by the Kyoto Protocol is the starting point for any financial model we might be looking at. Depending on the technology, certain projects might be easier to bring about than others. Of course, from the project finance point of view, that's an issue.

With the current development in oil prices, renewable energy will surely be less competitive than only months ago. Two months ago everybody was complaining about high oil prices and here we are virtually back to a situation where we think oil prices will stabilize at a lower level.

BNamericas: Have you seen the impact of these low oil prices on renewable projects?

Schultze: No, but we can see it's about to happen. The credit crunch will have an impact on one side, but we haven't seen it yet, and the relative competitiveness of renewable energy projects versus conventional energy will have an impact as well.

BNamericas: Can you tell me about the scope of your office and the projects on which you're focused?

Schultze: As a global carbon asset management company, we aim to add renewable energy projects and carbon credits to our portfolio. We strongly believe project promoters are interested in solutions rather than just being given a price for carbon. What they want is a solution to their overall financing needs.

That's the perspective we're taking. We're looking at our entire portfolio. Where and if needed, we believe we can assist the project promoter in coming to a financial close for his or her project.

BNamericas: So is it part of your role to work with and identify banks for financing?

Schultze: Absolutely. When we see project promoters actually sitting on an asset, we want to make sure the value of that asset is recognized today and in future. So we're looking at all forms of monetization of these carbon assets and how that value can be incorporated in the overall financing plan the project promoter might have.

That's what we really want to be involved in. First of all, we focus on monetization of the asset and secondly, really through our network in the public and private financing sector, we see how we can raise the best financing model for the project promoter.

BNamericas: What is your strategy to overcome challenges posed by falling oil prices and tight credit markets?

Schultze: To overcome the credit crunch, as I said earlier, the monetization of carbon assets will become even more important than it is today. To bring a project to financial closure, you will need far more equity than in the past because it will be much more difficult to mobilize and leverage local and international capital markets.

On the issue of renewable energy, we are covering the entire range of projects you might find in CDMs, so we are not putting all our eggs in one basket.

BNamericas: Given the current situation, has any one form of renewable energy become more attractive than another or easier to finance?

Schultze: Not really. I think they all are pretty much in the same situation. I think there will be an automatic natural selection where those projects that are less competitive - look at solar, for instance, which already is not terribly competitive - will become even less attractive.

Technologies that will survive in a big way are those that already are close to being economically viable, like wind farms and small-scale hydro.

BNamericas: Is there a particular region in the world that might be less susceptible to the financial crisis, where it might be easier to finance these projects?

Schultze: Latin America obviously is of tremendous interest to us. But I think in the end, the financial crisis will filter down to every single country and there won't be much of an escape. I think the best strategy is to spread our risk globally to different regions with different levels of development. That's the way we operate.

BNamericas: Can you tell me about some of the specific projects on which you're working in Latin America?

Schultze: We're working on a range of projects in hydro, wind farms, biomass-to-energy, biogas, landfills. As I've said, we're spanning the entire spectrum.

If you ask me to identify our competitive strength, I think FirstClimate has probably a more advanced risk management culture than our competitors We are rather cautious. But when we get involved in a project, we deliver.

BNamericas: A number of governments in Latin America are trying to attract investments in renewable energy. From your financial perspective, what's the best way to do that - long-term subsidies, fines, tax incentives? Is one particular approach better than another?

Schultze: In order to make renewable energy and carbon markets a success, I think we need public-private partnerships and approaches. We need to understand there are different levels of risk and different partners that can come in to cover risk.

Guarantee vehicles obviously are an area where a combined approach between the public and private sector would be needed. We want to see instruments that allow project promoters to be able to finance their projects and have viable ones.

So it's a whole range of instruments. It's up to governments to think how best to employ taxpayer money to make these processes viable. So say in Chile if you have the objective of reaching x percentage of energy from renewable sources, you have to look at the best instruments. I'm certainly confident in this country the government has a good idea of what can be done.

BIOGRAPHY:
Nikolaus Schultze was elected chairman of the Investors Committee for the World Bank-managed BioCarbon fund. He helped support development of the voluntary carbon standard and was involved in consultations leading to the Forest Carbon Partnership Facility. He helped mobilize resources for an SME Venture Capital Vehicle in Africa.

He has a doctorate in Pharmaceutical Sciences from Paris University and an MBA from the London Business School.

Schultze has lived and worked in France, Germany, Italy, Peru, Switzerland, the UK and Venezuela and currently focuses on Africa, Europe and Latin America.

ABOUT THE COMPANY:
First Climate has 10 years experience in the market and is one of the few intermediaries to cover the entire carbon credit value chain. First Climate develops, finances and implements CDM, JI and VER projects, purchases the resulting carbon credits and offers trading solutions for companies subject to the EU ETS. As advisor to several institutional investors, First Climate structures and develops carbon funds and related products. In the voluntary market, the company provides VERs verified according to international standards.


Source: Business News Americas