The Tribune

• ‘High interest’ in funding Bahamas 100 MW roll-out

• Fund targeting investors willing to inject $30m-$50m

• IPO of shares to Bahamian investors in ‘long-term’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday said he is targeting summer 2024 for the launch of an up to $200m fund that will finance renewable energy’s build-out across The Bahamas.

Simon Wilson, the financial secretary, told Tribune Business that initial market soundings suggested there is “high interest” from foreign funds and investment managers in the proposed Bahamas Renewable Energy Fund, which will serve as a vehicle to mobilise private capital, grant and multilateral development capital in financing the roll-out of utility-scale solar and other sustainable forms.

Speaking after the Government launched an expression of interest (EOI), a process designed to explore just how much genuine interest there is in both investing in and managing the Bahamas Renewable Energy Fund, he described its structuring and creation as “a very important priority” towards delivering more affordable, cleaner energy as well as a lower national carbon footprint.

“I’m thinking before summer of next year,” Mr Wilson told this newspaper, when asked when the Government is seeking to launch the Bahamas Renewable Energy Fund. “When we did the formal soundings of the market, there was high interest and support, really I can say from foreign-based funds and foreign-based investment managers. We had strong support, good interest.”

While much remains to be determined on how the Bahamas Renewable Energy Fund will be structured, as that will depend on the ideas and interest generated during the EOI as well as the private fund manager selected to operate it, the financial secretary signalled that it will be established under the umbrella of the proposed National Investment Fund that replaced the previous sovereign wealth fund.

When asked if the Bahamas Renewable Energy Fund will be structured as a segregated accounts company (SAC) or have multiple sub-funds, so that investors can select which projects to participate in, Mr Wilson said this was unlikely and that all investments would be pooled together.

“It’s too early to say, but some projects will have a higher return on investment than others,” Mr Wilson said. “Obviously a project in New Providence will have a higher return on investment than, say, a project in the southern Bahamas. What we don’t want is the funds to go to New Providence projects and not to Family Island projects. We want to be able to allocate the funds evenly.

“The EOI is a very important step. We’ve been pushing more and more renewable energy, so it’s a very important priority.” The Bahamas has “an investment pipeline of more than $200m” in renewable energy projects, the EOI tender document said, with some 100 Mega Watts (MW) of projects set to be installed throughout the country over the next five years.

The Government is seeking expressions of interest from investors willing to invest between $30m-$50m in equity “over the life” of the Bahamas Renewable Energy Fund rather than all at once. The Government is proposing that the Bahamas Renewable Energy Fund be created in two phases, with itself contributing the start-up capital via a $20m equity injection using Inter-American Development Bank (IDB) loan proceeds.

Once this is accomplished, private investors will be given the chance to acquire minority or controlling ownership positions via their own equity investments. The Bahamas Renewable Energy Fund is aiming to mobilise between $150m to $200m in private capital to finance these projects, and Mr Wilson confirmed that, “long-term”, an initial public offering (IPO) of the fund’s shares to Bahamian retail investors will occur.

“As part of its private capital mobilisation strategy into sustainable infrastructure, the Bahamas is developing a Renewable Energy Fund to help meet its renewable energy targets of generating 30 percent of its electricity from renewable sources by 2030 to 2035,” the EOI tender said, signalling that the initial ‘hard’ 2030 target has been adjusted.

“With about 1 percent of the 438 MW installed generation capacity currently coming from renewable resources, the investment potential for renewable energy projects in The Bahamas is sizeable. Further, the economic motivation to reduce dependence on imported, volatile and expensive fossil fuel requires an accelerated energy transition to enhance energy security and climate resilience.

“In the next five years, more than 100 MW of generation capacity is foreseen to be installed, which requires supporting investments in generation, transmission, and storage and distribution to improve energy reliability, to replace aging infrastructure, and to rebuild back better grid infrastructure in areas which were previously affected by Hurricane Dorian,” the document added.

“This translates to an investment pipeline of more than $200m and the private sector is expected to play a critical role in developing and investing in renewable energy projects.” These projects included utility-scale solar photovoltaic (PV) generation; commercial and industrial generation; decentralised generation and mini-grids, particularly in the Family Islands, and other cleaner energy and efficiency initiatives.

Introducing renewable energy on a much wider scale was described by the EOI report as being “of paramount importance for the country to accelerate its sustainable development”. The document added: “These investments shall be commercially sound, considering that The Bahamas has one of the highest electricity rates in the Caribbean....

“Where space is available and technically feasible, utility-scale PV solar farms (or other feasible technology) can be developed. In New Providence, rooftop solar and other space-efficient measures are expected to be of interest with public buildings expected to lead by example.

“The tourism sector, such as hotels and resorts, will benefit from stable and reliable clean energy projects as well as energy efficiency projects to improve affordability of electricity tariffs. Efforts to hybridise existing mini-grids will be of interest in the Family Islands. Private sector innovation and enterprise will be sought in initiating and developing the pipeline of projects.”

As for the Bahamas Renewable Energy Fund’s structure, the EOI report said the plan is for it to be capitalised “by a blend of concessional and commercial capital in a layered capital structure, as needed, to ensure affordability for the Bahamian government and public as well as meet the required risk-adjusted returns for private investors”.

Describing a two-stage process, the report said: “In its initial phase it is envisioned that the Renewable Energy Fund will be capitalised via an equity injection from the Government of Bahamas of approximately $20m funded via an IDB sovereign loan. In addition, it is expected that donors and development financial institutions (catering to the private sector) will also participate in the equity structure for the core capital.

“In this second phase, immediately after the core capital structure is subscribed, private investors will be offered equity participation in the Renewable Energy Fund - varying from a minority position to controlling ownership - to the international public bidding conditions and other requirements in Bahamian legislation.”

The second phase could occur alongside the first, and a private sector manager will be selected to manage the Bahamas Renewable Energy Fund and take an equity stake in it. It would have the option to divest those shares after a certain period of time.”

“As the fund matures, and demonstrates a financially attractive track record, the Renewable Energy Fund will also seek to engage Bahamian investors via an IPO in accordance with Bahamas capital markets legislation,” the EOI document said.

“Learning from the experience of the Arawak Port Development Company (APD) IPO in 2012, engaging Bahamians citizens in the Renewable Energy Fund ownership will increase local impact and mitigate political risk in the future.

“The Renewable Energy Fund expects to mobilise $150m to $200m of capital in its initial two phases and will seek commitments from private investors to capitalise the fund to support this mobilisation strategy,” the EOI report added.

“It is expected, based on similar experiences in developing countries, that the Renewable Energy Fund could additionally leverage private capital mobilisation in ratios of four to one via smart use of blended finance structures at the project level.

“While capital-raising will be staged to match the development maturity of the Renewable Energy Fund, interest from investors seeking to commit $30m to $50m over the life of the fund is sought.”