SG Helps Canadian Renewable Energy Producers Go Global

The mainstreaming of climate and clean energy concerns, sustainability and ESG investment has created a wide range of opportunities in recent years—not just in financial services and for institutional investors, but for the energy producers themselves. Energy companies with established operational knowledge in renewables fields like hydroelectric, wind farms and solar are now finding a broader array of projects to apply their expertise, both in new geographies and with new partners. One of the more interesting tasks for investment banks lies in helping energy clients transpose their expertise from one market to the next, as the globalization of renewables continues apace. That has created interesting relationships in the energy sector that tap into unlikely sources of knowledge and models for financing. One good example of this can be found in Canada.

Old Requirements, New Wrinkles

Though not well known to much of the world, Alberta is in many ways a natural place for an energy revolution. Michel Hurtubise, a Calgary-based Managing Director on Societe Generale’s energy project finance team, notes that the province has historically provided much of Canada’s non-renewable energy resources (primarily oil and gas) and a recently published study projects Alberta will likely become Canada’s fastest growing in the renewables sector.

“This is owing largely to wind and solar projects that will replace the region’s coal generation,” says Hurtubise.  “Alberta’s traditional strength in energy production, combining with Canada’s strong public mandate to transition away from fossil fuels, has created a formidable engine for growth.”

Many of Societe Generale’s major energy clients in Alberta and across Canada face a mix of requirements that are familiar to the renewables space. Challenges lie in the non-recourse project financing incumbent within most energy mandates—structuring the mix of equity and debt to be used by participants, designing concession agreements to align with expected output over time, tackling legalities and ensuring repayment.  These technicalities are the crucial underpinning for a successful project’s completion and demand a mix of expertise across project finance, debt capital markets, and advisory services.

At the same time, broader trends are creating wrinkles within those financing requirements, as well. In one illustration, Societe Generale recently provided a large Canadian energy infrastructure provider with a three-year sustainability-linked loan – one of the first of its kind in Canada and the first for a utility – in which the loan’s terms are designed to modulate several basis points up or down according to the company’s performance across multiple ESG criteria. This structuring will indirectly support the company’s existing interests in a range of emerging platforms driven by the ongoing energy transition, including wind farms but also carbon capture, sequestration and storage, hydrogen and renewable natural gas (RNG).

Looking Ahead

Large Canadian energy companies serve to highlight an additional trend. Many of them have renewable  investments located off European shores—rather than Canada’s—in an example of how renewables providers are increasingly looking for ways to leverage their expertise at scale, taking advantage of government incentives as well as energy pricing in regions of the world that are less familiar.

Indeed, as the competition for renewables heats up and demand for clean power grows, this globalized approach has become a necessity. But it is a tricky one for energy firms to navigate, particularly if they are accustomed to only working in known markets like Canada. Compressed timing; sponsors and stakeholders both public and private; at-times unproven technology; and forecasting new risks that may be years or even decades away—all of these play their part in the shaping of financing and concessions.

Looking towards the future, they will become even more important as sponsors’ objectives and credit profiles evolve; for instance, as major corporations look to secure dedicated renewables infrastructure as a source of power to their datacenters. Likewise, new partners and investors entering the fray are willing to take on different types of structuring such as merchant power agreements. These, by contrast to traditional power purchase agreements (PPAs), do not require energy users (known as contractual off-takers) to be in place before the infrastructure is built.

“Knowledge gathered from Canada is already helping to show the world how to manage these elements thoughtfully,” Hurtubise points out. “It’s clear that renewables will not only transform energy production, but the infrastructural finance used to produce it.”