Periodic Reporting for period 2 - RESFARM (Developing and implementing financial instruments for the mobilisation of investments in renewable energy in the agrarian sector)
Berichtszeitraum: 2016-03-01 bis 2017-12-31
The development of energy production technologies from renewable sources and cost reduction at these facilities has meant they are a technical alternative and economically competitive compared to traditional sources of fossil origin. In the case of the European agricultural sector, the potential of most farms to produce clean energy offers a great opportunity to improve its economic and environmental sustainability. From a social point of view, a change of energy model in the agricultural sector is crucial for meeting environmental objectives, since it is directly responsible for more than 10% of the total greenhouse gas emissions on the continent. However, the high initial investment required by these facilities is slowing its spread among potential users. These financial constraints, coupled with a complex and changing regulatory environment, have caused the almost total paralysis of new facilities for renewable energy production in many EU countries. Be that as it may, the investments needed to change the energy model in the European agricultural sector are on the scale of the hundreds of billions of euros, a figure that is only affordable through direct recourse to capital markets.
On the other hand, technological and regulatory innovations are allowing the introduction of alternative models for financing projects based on the philosophy of bank disintermediation and specialisation in specific sectors. Capital market resources can be channelled towards projects and consumers that would otherwise find it complicated to have access to traditional bank loans or would have to pay very high interest rates. These types of financial instruments, such as consumer loans and certifications in consumer debt collection, when properly designed and applied, demonstrate their ability to finance the development of renewable energy production systems on a massive scale. The adaptation of these types of financing models, based on asset aggregation in a specific context of the European agricultural sector, are dependent on the creation of technical and contractual standards which are compatible with capital market financial instruments. Moreover, these standards must be the result of the widest possible consensus among the different consumers, whether originators, investors or regulators, and they must ensure the protection of the end-users interests; the European farmers.
The promoters of RESFARM have produced a capital market financial instrument, which is specifically designed to introduce renewable energy production systems on European farms. This instrument, once implemented, will serve as a reference for promoters and investors and would enhance necessary confidence in these kinds of assets. Another important element, which has been inspired by the RESFARM project, has been the need to provide agrarian organisations with the necessary tools to advice farmers correctly on the technical and economic opportunities of renewable energy systems.
On the other hand, technological and regulatory innovations are allowing the introduction of alternative models for financing projects based on the philosophy of bank disintermediation and specialisation in specific sectors. Capital market resources can be channelled towards projects and consumers that would otherwise find it complicated to have access to traditional bank loans or would have to pay very high interest rates. These types of financial instruments, such as consumer loans and certifications in consumer debt collection, when properly designed and applied, demonstrate their ability to finance the development of renewable energy production systems on a massive scale. The adaptation of these types of financing models, based on asset aggregation in a specific context of the European agricultural sector, are dependent on the creation of technical and contractual standards which are compatible with capital market financial instruments. Moreover, these standards must be the result of the widest possible consensus among the different consumers, whether originators, investors or regulators, and they must ensure the protection of the end-users interests; the European farmers.
The promoters of RESFARM have produced a capital market financial instrument, which is specifically designed to introduce renewable energy production systems on European farms. This instrument, once implemented, will serve as a reference for promoters and investors and would enhance necessary confidence in these kinds of assets. Another important element, which has been inspired by the RESFARM project, has been the need to provide agrarian organisations with the necessary tools to advice farmers correctly on the technical and economic opportunities of renewable energy systems.
During the project’s 30-month period of execution, RESFARM's partners have conducted extensive documentation and research work, including a survey of more than 1,200 farmers across Europe and interviews with hundreds of experts in technology, finance and legal issues. Based on all the information gathered, a process of dialogue was initiated among the relevant actors, which involved specialised engineers, financiers, administration technicians, academics and the farmers themselves. This dialogue agreed on a series of detailed conditions in three documents making up the framework for the proposed financial instrument: standardised contracts, protocol for best practices in installation, operation and maintenance and the valuation model for the resulting assets from the perspective of capital market investors. On this basis, RESFARM has proposed mobilising the various interested groups in such a way that investment is forthcoming. To this effect, three different lines of action targeted farmers who could potentially benefit from the facilities, potential investors interested in the resulting profitability, and the authorities and regulators who can create the optimal conditions for these projects to be performed on a massive scale. One of the key elements has been the creation of a set or "pool" of potential users with the appropriate size and characteristics. At the project’s end this pool had 2,157 farms with installation blueprints for renewable energy production systems and exceeded 33.5 MW of power. The elaboration of this pool has been possible through the creation of an infrastructure including dozens of trained technicians advising farmers on the most appropriate technologies for each case and the use of a computer application for assessment, validation and recording of those projects that meet the necessary "Resfarmapp” requirements. This infrastructure was put into operation through a major outreach campaign, attendance at industry fairs and lecture-sharing. Tens of thousands of farmers were offered the chance to enjoy individual assessment on the suitability of their farms for the installation of renewable energy systems. All the projects included in the pool are compatible with the application of RESFARM materials. This way the pool is presented as a single investment project which is equivalent to a large wind farm or a hydro power station, but with thousands of distributed facilities.
In order to facilitate the first real use of the proposed financial instrument, investors and the authorities need to be involved. For this reason a proposal for specific collaboration has been distributed to benchmark investors at a European-level. In addition, RESFARM's partners have formed a Sustainable Energy Finance Platform. This is focused on seeking institutional support for both the pool’s development and for the improvement in the framework for regulating and supporting these investments in the agrarian field. The contents of this platform are based on a thorough analysis of the regulatory framework and the relevant policies in Spain, whose main conclusions were made public in a document to this respect. This action has culminated in a real changes including new lines of public funding, which have already mobilised several million euros in investments.
In order to facilitate the first real use of the proposed financial instrument, investors and the authorities need to be involved. For this reason a proposal for specific collaboration has been distributed to benchmark investors at a European-level. In addition, RESFARM's partners have formed a Sustainable Energy Finance Platform. This is focused on seeking institutional support for both the pool’s development and for the improvement in the framework for regulating and supporting these investments in the agrarian field. The contents of this platform are based on a thorough analysis of the regulatory framework and the relevant policies in Spain, whose main conclusions were made public in a document to this respect. This action has culminated in a real changes including new lines of public funding, which have already mobilised several million euros in investments.
As a result of RESFARM, all the elements required for the promotion of renewable energy system installation for self-consumption with direct financing from institutional investors has been established for the first time in Europe. In RESFARM’s case, the elaborated contracts are designed to allow for the creation of asset pools from different originators. This development is particularly significant as it enables more, smaller companies to benefit from capital market financing. In this way, it fits in better with the business fabric that surrounds the European agricultural sector, consisting mainly of SMEs in direct contact with the farmers themselves. Another noteworthy result from the project is the large amount of information and analysis generated, especially resulting from the survey on farmers and interviews with experts. The survey has made it possible to obtain a detailed picture of both the level of renewable energy installation and energy efficiency systems in the European agricultural sector, as well as the conditions and barriers that limit their generalisation.