Regulations such as ELTIF 2.0 and the IRA are acting as strong tailwinds for the renewable energy investment sector. However, catalysts such as these are a small part of the overall regulatory and compliance framework for complex cross border projects. Staying compliant with all regulations as well as preparing for those around the corner is critical to keeping renewable energy projects financially viable.
Regulation in the form of the European Long-Term Investment Funds framework (ELTIF 2.0) and the Inflation Reduction Act (IRA) in the U.S. are acting as strong tailwinds for the growth of the project finance sector, particularly the growth of renewable energy investment.
However, catalysts such as these are often a small part of the overall regulatory and compliance framework of large-scale, highly complex, cross border infrastructure and renewable energy investment projects.
Renewable energy projects: how will regulations shape investment opportunities?
CSC’s recent research into the global project finance sector found a market full of confidence and growth expectations, with renewables firmly at the top of the agenda:
- An overwhelming majority (86%) of industry experts told us project finance as a method of financing large scale infrastructure projects will grow in use over the next two years.
- Renewable energy projects such as wind and solar are seeing the most activity, cited by more than half (55%), followed by infrastructure (29%).
- Within renewables, solar was expected to have the biggest increase in deals over the next 24 months.
- North America was predicted to see the most significant uptick in project finance activity over the next two years, selected by more than a third (39%) of our respondents.
And while around three quarters (75%) of respondents said they were prepared for evolving regulatory requirements in project finance, concerns were raised in some key areas, including:
- 63% felt the biggest challenge to successful project finance transactions was adapting to the ever-changing subsidies and tax programs.
- 30% noted uncertainty in the political landscape or a lack of consistent support from government backers.
Why compliance is key in keeping renewable energy projects attractive investments
Staying compliant with all regulations, rules and compliance-led regimes, as well as preparing for those around the corner, is critical to keeping renewable energy projects financially viable.
For instance, a fund investing in a solar infrastructure project in another country must navigate the legal landscapes of both countries. This involves not only understanding national policies, but also ensuring compliance with regional and local regulations. Legal and regulatory frameworks are not the only areas of consideration, tax incentives may also play a pivotal role in reducing upfront capital costs.
The three steps to staying on top of regulations in project finance
Renewable energy projects are subject to a complex array of regulatory requirements, making due diligence a critical component of success. Non-compliance can threaten both the viability and profitability of a project. Every project finance transaction is different and needs a nuanced, flexible mindset, with complete oversight of all relevant regulatory environments bring it to a successful completion.
At CSC, we see three steps to staying on top of regulations in project finance:
1. Knowledge and understanding
A strong understanding of both local and global regulations is increasingly important for the countries you are operating in. One example is the MiFID II framework in Europe. We know that the impacts on fund managers can range from compliance costs that coincides with the need for enhanced reporting and compliance systems, to budget implications in terms of having to pay for research. Other implications can also include the need for greater product governance, and further transparency around reporting activities.
2. Proactivity and communication
It is essential for fund managers to be proactive in anticipating issues with compliance and implement strategies to deal with those issues. Communication is key. To implement those mitigating strategies, fund managers need to maintain consistent communication with investors, compliance officers, and legal advisors to help identify and remedy risks, in order to address them before they become an issue at a later date.
3. Technology and training
Another way of compensating for compliance risks is leveraging technology and operating models. It is also important for internal members of staff to be adequately trained and educated, so that internal processes are as smooth and efficient as possible, and compliance issues can be responded to proactively and efficiently.
How CSC can help
Having a global partner such as CSC helps fund managers navigate regulatory and compliance requirements from a fund and investment perspective, across markets, regulatory environments and time zones. Leveraging the right technology and operating models can also greatly cut compliance risks, such as automatically flagging transactions issues.
At CSC, we offer a comprehensive suite of middle and back-office services, including fund accounting, reporting, legal operations, and compliance support. Our ecosystem of services ensures that our clients have the tools and resources they need to manage their projects efficiently.
Our capabilities include the management and support of regulatory and compliance requirements, including infrastructure and real assets. We take a client-centric approach, creating bespoke solutions tailored to each client’s unique needs. Whether it’s building custom reporting metrics or offering support at any stage of the project lifecycle, we prioritize transparency and client satisfaction.
With a global footprint, CSC provides 24×7 support, ensuring that our clients receive the attention they need, wherever they are. This dedication to client service fosters confidence among investors and helps build lasting relationships.
Stay ahead of renewable energy regulations: download our full report, Project Finance Report 2024: Exclusive insights on key industry trends, opportunities, and obstacles, and find out more about our recent global research with project finance professionals, including views from respondents in the U.S., North America, and Europe.
