International Finance Corporation’s Sean Whittaker on the risks of emerging markets
By Frances Salter
What has been IFC’s involvement with wind projects?IFC has been involved in wind for over ten years now, and during that time we’ve invested in many of the first wind farms to be built in emerging markets all over the world.
By the end of the fiscal year in 2018, we had invested just over $1.6bn in over 40 projects around the world, with a total capacity of around 4GW in 19 countries. Wind is something we’re very familiar with, and we’re very optimistic about the sector.Are there particular investments which stand out to you as causes for optimism?
The majority of the investments we’ve made to date have been in countries where previously there were no wind projects. Largely, these projects had to set the stage for further development. There’s been lots of private capital that’s come in afterwards as we’ve helped to de-risk the market, so you get a flourishing wind industry.
Those have been some of our greatest areas of success – we like to create markets using our local knowledge and networks, alongside our knowledge of global trends. That’s true of other sectors as well, like solar.
Where do you see the most exciting emerging markets?
You probably saw the UN’s recent report, which calls for a massively increased use of renewable energy. So, frankly all markets have to move because in order to meet the targets, it can’t just be a handful of countries that increase their use of renewables – it must be all of them.
With the falling cost of wind and solar, you can have your cake and eat it too – you can have low-cost, reliable power which reduces greenhouse gas emissions. Wind has changed a lot even in the last three to four years: now we have wind turbines with huge rotors and very tall towers. As a result, there are a lot more places in the world where you can get cheap power from wind than we previously thought – ten years ago, it was more limited.
We’re particularly interested in bringing wind to sub-Saharan Africa, which currently has less than 1% of the world’s wind capacity. We’re looking to explore those countries in particular and we’re quite optimistic – but all these markets where wind hasn’t traditionally got a foothold present tremendous opportunities.
One example of a project we’re working on there is with the Moroccan renewable energy developer Gaia Energy, developing wind power and other renewable energy projects in Africa – it’s got a pipeline of more than 3GW. It’s an example of how IFC is working to roll out wind power solutions at scale, and could make a big difference in sub-Saharan Africa where wind power resources are under-developed at present.
In new, underdeveloped markets like sub-Saharan Africa, there must be different risks to investors – can you tell us about the key risks they should be aware of?
Project developers and investors are specialists in analysing risks. Whether you’re investing in the UK, US, Zambia or Senegal, you sit down and you assess all the risks you’re trying to mitigate.
There are some risks that are particularly relevant to emerging markets – like in sub-Saharan Africa, the issue can be the creditworthiness of the off-taker. Plus, there’s currency risk, in terms of the currency your PPA is paid in. There’s political risks too, issues where political uncertainty represents a risk to investors – this is really where we have a big role to play.
We know these places as we have staff in every region, and we know all these countries very well as we’ve been investing since 1956. IFC’s role is to help investors understand risks and manage them. It goes back to our primary mandate of creating markets.
Most of the attention in emerging markets has been on onshore wind, but we think there are exciting prospects for offshore wind as well. Particularly in countries with good offshore resource, this is something we’re looking to explore. We’ve yet to finance any offshore wind projects, but we’re very interested in doing so in the future.
Want to hear more from IFC? Chief Renewable Energy Specialist Dana Younger will be speaking at our Financing Wind Europe conference tomorrow at the Crystal, London. Click here for more information and tickets.
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