Financing Indigenous-partnered renewables in Alberta

Through finance streams such as the Alberta Indigenous Green Energy Development Program (AIGEDP) and the Indigenous Green Loan Guarantee, the Alberta Government is encouraging communities to participate in renewable energy projects.

In addition to providing funding for Indigenous-partnered projects, it has also included a minimum 25% Indigenous equity ownership requirement for projects submitted for Round 2 of the province’s Renewable Electricity Program (REP).

However, despite the drive for inclusivity, financing remains a hurdle for projects with Indigenous partners. Many Indigenous communities are unaware of the financial assistance available to them and struggle to navigate project financing structures or raise sufficient equity for participation.

Rep Round 2 drives Indigenous participation

In line with the goals of Alberta's Climate Leadership Program, REP Round 2 was developed to encourage the highest level of participation by Indigenous communities. Projects put forward for Round 2 require a minimum 25% Indigenous equity ownership that will need to be maintained for a minimum of three years, following the commercial operation of the facility.

However, as Darren Huculak, Manager for Business Development in Alberta with the First Nations Power Authority (FNPA) points out, while a 25% Indigenous equity ownership requirement does promote participation from larger, well-organized communities, it also limits participation to those who are able to raise the required equity.

“From the FNPA’s point of view, REP Round 2 is a great start,” he comments. “We were happy with the Indigenous equity ownership feature. Our observation would be that it potentially limits the number of Indigenous groups or First Nations that could participate because it is a pretty high threshold and it's pure equity.”

Guaranteed revenue stream reassures lenders

As Joseph Duperreault, President of First Renewable Energy Partners points out, the guaranteed revenue stream for REP Round 2 projects, provided by the Renewable Electricity Support Agreement (RESA), is a vital component in securing financing for Indigenous-partnered projects.

“The structures available depend on the Nation and the particular limited partnership, but generally, when these projects win, they get guaranteed revenue through the RESA agreement with the government,” he comments. “Because of that agreement, these projects are highly bankable, which means that they can be highly leveraged.”

With the full details of successful projects in REP Round 2 expected soon, the FNPA anticipates most projects will follow a familiar limited partnership structure. As Huculak notes, the success of the limited partnership structure for other Indigenous-partnered projects provides lenders with a level of reassurance, easing the path to successful project financing.

“Most structures follow the typical limited-partnership type of structure. It's definitely what we're seeing in the projects that we are working with in Saskatchewan, for example,” he comments. “Lenders are always more comfortable with structures that were familiar with, so the limited partnership structure is something that they're happy to contemplate.”

Developers guaranteeing community equity

To secure financing for REP Round 2 projects, developers are guaranteeing the equity contribution of their Indigenous partners in order to address lender’s concerns about the ability of Indigenous groups to raise potentially several million dollars in equity.

“There's always some risk about the lender until they actually see the deal, which doesn't happen until after the project wins the award,” comments Duperreault. “If one of these projects wins the award then the developer and the Indigenous community will take it to their respective lenders and only at that point will they know if they will actually get the money to finance their equity.”

“What ended up happening is the developers guaranteed the Indigenous community's financing as part of the project because the developer wasn’t going to take the risk the Indigenous community wouldn’t be able to get the equity financing that they're expecting,” he adds.

Green loan guarantee complications

One of the funding structures put in place by the government of Alberta to support Indigenous-partnered projects in REP Round 2 is the Indigenous Green Loan Guarantee. Fifty million in Green Loan Guarantees will be available to support Indigenous participation in REP Round 2, with the funds awarded in December.

The Green Loan Guarantees will secure up to 50% of the minimum equity participation of 25% to a maximum guarantee of $25 million per loan, for up to 10 years. However, Duperreault, notes, the guarantee represents an additional layer of complexity to be navigated by communities that already lack a grounding in the details of project financing.

“We did investigate the Green Loan Guarantee early on, and that loan guarantee seemed complicated. It just added another level of complexity or another complexity factor in putting the projects together,” he observes. “For REP2, we found other sources of financing for our Indigenous clients.”

According to Duperreault, an insufficient understanding of project financing represents a common barrier to Indigenous participation in renewable energy projects.

“We ended up discovering those sources of financing on behalf of our Indigenous clients because they weren't aware of those different options,” he comments. “They just didn't have an awareness of those options, and they also didn't have the financial capacity or knowledge to be able to explore those options to see if there was actually something that they could put in place.”

Project financing knowledge remains a barrier

Lack of financing knowledge and project experience can be a deal-breaker for Indigenous partners. “If you have a minority shareholder, like a First Nation, and a majority shareholder, the developer, who is very experienced and savvy, and you try and put those two parties together, there is a risk that the minority shareholder will lose confidence, because they may not understand the complexity of these deals,” points out Duperreault. “Their default mechanism in that situation is to withdraw and not take the chance. If that happens at the eleventh hour, then the developer is left without a partner.”

While the Indigenous equity ownership requirement for REP2 and the funding provided by the Green Loan Guarantee and the ADIGEDP are an excellent start, further education for Indigenous communities is essential. “From our point of view, it's more about getting the Indigenous communities themselves comfortable with the transaction and understanding what they need to bring to the table in terms of their own corporate governance structures and policies,” notes Huculak.

The Alberta Indigenous Green Energy Development Program (AIGEDP)

The Alberta Indigenous Green Energy Development Program (AIGEDP) was launched in 2017, as part of the Alberta Climate Leadership Program, and aims to assist Alberta's Indigenous communities and organizations in acquiring an ownership stake in Alberta's growing renewable energy sector.

The AIGEDP provides funds in the form of grants to support Indigenous community-owned renewable energy projects that have a generation capacity above 1 Megawatt (MW) through two separate funding streams.

The Project Development stream provides support for projects in the pre-development stage through preliminary design, technical, financial and legal stages, market assessments, and the procurement of the required technical documentation.

The Project Implementation stream provides support for Indigenous communities or organizations in funding the capital costs of community-owned renewable energy generation projects, in either commercial or community scale, that are able to start operations or are at the engineering, procurement, and construction (EPC) stage of the project within the funding year.

The funding available to Indigenous community-owned projects has no maximum funding cap, can cover up to 100% of eligible project costs, and the funds provided can be stacked with other government and industry funding sources.

John is a freelance journalist working for Canadian Clean Energy Conferences and focussing on Indigenous participation in Canada's renewable energy market and carbon taxation policies at both a federal and provincial level.