Royal Bank of Scotland Group Plc said its loans to U.K. renewable-energy projects in 2012 will probably top last year’s 300 million pounds ($466 million) on expectation the industry will withstand slower economic growth.
Britain’s biggest state-owned bank is likely to lend more to renewables this year than last, Andrew Buglass, head of energy in RBS’s structured finance division, said in an interview. “Generally as an asset class compared to others that we are involved in, it is a very robust product.”
RBS has renewed its commitment to renewables after scaling back loans to all energy projects following its 2008 government bailout. The Edinburgh-based bank, now focusing its clean-energy investment on the U.K., is continuing to fund the wind, solar and biomass industries even after cutting jobs and selling assets amid stumbling economic growth.
“RBS is one of the big lenders to renewable-energy projects in the U.K. but is less active in the rest of Europe than it was before the financial crisis,” said Angus McCrone, a senior analyst at researcher Bloomberg New Energy Finance. “Its lending to the sector in Europe as a whole would certainly put it in the top 20 commercial banks and possibly the top 10.”
The bank is working to close four to six deals by the end of this quarter with a combined value of as much as 150 million pounds, Buglass said in London. Renewables projects have “predictable, solid cash flows and are underpinned by a very good regulatory regime, specifically in the U.K.,” he said.
Britain’s Renewables Obligation Certificate system supports clean-energy generation by awarding tradable credits, and compels utilities to buy power from wind farms, biomass plants and wave and tidal-energy projects.
Of the six deals targeted for this quarter, RBS is “fairly confident” it will complete two to three, Buglass said. These are in the solar, wind and biomass industries.
Some clean-energy projects in Europe have struggled for financing in the past year as the sovereign-debt crisis and tightening credit markets limit available funds. The 27-nation European Union is sticking to clean-energy targets for member states, aiming for an average 20 percent share of energy from renewable sources across the bloc by 2020.
“Every bank out there has been affected by the euro zone issues,” Buglass said. The cost of financing for banks has increased “dramatically” since mid-2011, meaning some lenders in Europe have lacked sterling and stopped lending to British ventures, he said.
Before the credit squeeze there were 50 to 60 banks that would lend to U.K. projects, and now there are about 15 to 20, according to Buglass. The uncertainty is likely to continue as Europe’s debt crisis shows no signs of being resolved, he said.
RBS shares have rallied 30 percent this year as the bank announced plans to cut about 4,800 jobs and divest unprofitable assets. The lender said Jan. 12 it will sell or close its cash equities, mergers advisory, corporate broking and equity capital markets operations to reduce costs amid volatile markets.
In renewables, RBS will probably focus on biomass and wind in 2012, Buglass said. The bank has seen a “surge” in biomass developments after the U.K. reviewed its Renewables Obligation banding in October, he said. Biomass plants generate power from organic materials such as woodchips, municipal waste and straw.
The government’s review proposed greater subsidies for so- called enhanced biomass co-firing generators and left incentives for other forms of biomass power mostly unchanged, easing uncertainty in the industry.
“To date we have financed about 6.5 billion pounds’ worth of renewable projects globally, which is just under about 9 gigawatts of capacity,” Buglass said.
Among projects being considered by RBS, almost half are developed by companies or people it’s worked with in the past, Buglass said. The lender has previously worked with companies including Kedco Plc (KED), Helius Energy Plc (HEGY) and RidgeWind Ltd.
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