Supply chain disruptions take toll on green infra projects

Implementation of sustainable energy infrastructure projects globally has received setback due to supply chain slow down on account of the pandemic and rising geopolitical related tensions, among others.

This has kept many announced projects from being undertaken as envisaged.

"Between pandemic-related worker shortages and construction delays, rising geopolitical tensions, supply chain slowdowns and growing macroeconomic uncertainty, hundreds of projects have been sidelined," said Refinitiv, an LSRG business, in a detailed report.

Among the 1,346 total solar and wind projects announced in 2020, for example, just 47 (3.5 per cent) were completed. Likewise, among the 1,048 solar and wind projects announced in 2019, just 90 (8.6 per cent) have been completed, it said.

One high profile example of these challenges at play can be found in the experience of Siemens Gamesa, the world's largest wind turbine manufacturer, which reported a 20.3 per cent decline in Q1 2022 revenues due largely to ramp-up challenges cause by supply chain interruptions, it said.

Eventually, the string of delays and consistent missed opportunities cut the market value of the offshore wind giant by half and led to the untimely exit of its chief executive, it added.

A record $627 billion in sustainable infrastructure projects in the renewable and nuclear energy sectors were announced across categories including wind, solar, nuclear, clean waste and several others in 2021, according to Refinitiv data.

That total includes 1,521 individual projects throughout the Americas, Asia-Pacific region, Europe and Japan, which is more than 3.5 times the total number of sustainable infrastructure projects launched a decade earlier and more than four times the total dollar value.

Of those 3,088 total renewable energy and nuclear infrastructure projects, 194 were sustainably financed, which mean that the funding for the project came from social bonds, sustainably linked bonds, green bonds and/or funding sources where a proportion of investment proceeds are being used for sustainable outcomes.

The total dollar value of these sustainably financed infrastructure deals was $59 billion in 2021.

In terms of the types of projects being financed, solar has emerged as the clear leader, with 957 projects announced in 2021, accords to the Refinitiv report.

Wind projects – which were the lead category in last year's Sustainable Infrastructure Investing Report – followed with 459 new initiatives announced last year.

Both categories saw record high new project announcement volume in 2021, with solar projects growing at a rate of 6.5x versus 2011 totals, it said.

The June announcement from the Biden administration that the US would implement a 24-month tariff exemption for solar panel products from several Southeast Asian nations, gave another boost to solar.

To promote domestic production of solar panels, the US has also invoked the use of the Defense Production Act. Both efforts were implemented specifically to address widespread project delays due to supply chain issues, Refinitiv said.

The funding sources for sustainable infrastructure projects have also become volatile. Bulk of the investment is still coming from the major global commercial banks. The top 10 commercial banks poured over $35 billion into sustainable infrastructure projects last year, up from $29 billion in 2020, according to Refinitiv data.

Japan's Sumitomo Mitsui Banking Corporation and Mitsubishi UFG Financial Group took the top two slots for total deal financing volume in 2021.

Similarly, investor interest in the space of sustainable finance has grown rapidly and is creating some fundamental changes to underlying market structure in global capital markets.

Though interest in sustainability is at an all-time high among stakeholders, we are far away from ushering in the green infrastructure revolution.

(Kalinga Nath is a Mumbai based senior journalist)