Capital Stage Grows Abroad as German Clean-Power Yields Drop

Capital Stage AG (CAP), Germany’s biggest solar-farm operator, is shifting its investment focus to Italy, France and Scandinavia as new clean-energy projects on its home turf no longer boast double-digit returns.

Vying for profitable solar and wind projects in Germany’s state-backed renewables market, the company faces increased competition from insurers and pension funds trying to plug a fixed-income void, said the head of Capital Stage, which made headlines in 2011 selling a solar-farm stake to Google Inc. (GOOG)

“Solar parks mostly offer about 20 years of reliable returns and enjoy political support,” Chief Executive Officer Felix Goedhart said at the company’s headquarters overlooking Hamburg’s port. “That’s driving up prices, while depressing returns at new German projects to 8 percent from 10 percent.”

Germany’s solar industry is mired by insolvencies of module producers such as Solarworld AG (SWV) as green-energy subsidies fall and competition from China weighs on margins and panel prices. At the height of the solar boom in 2007, Conergy AG (CGYK), which filed for insolvency on July 5, was valued at more than 2.2 billion euros ($2.9 billion) and is now worth about 10 million euros.

Capital Stage has quadrupled in value to 201 million euros since 2010, ranking second after SMA Solar Technology AG (S92) in Germany’s solar industry. The company, whose supervisory board is led by former EON AG (EOAN) management board member Manfred Krueper, is a candidate to join the German SDAX index of smaller stocks.

Acquisition Ethos

Its relative success results from purchasing medium-sized solar and, to a lesser extent, wind farms, Goedhart said. That way it steers clear of utilities that prefer larger projects and avoids module manufacture and development of farms, he said.

“Forget about module production in Germany, but you can earn money at the right end of the value chain,” he said. “We mostly buy parks that have been on the grid for some years so we can see exactly how much they earn a year.”

Since 2009, Capital Stage has accumulated capacity of about 193 megawatts at peak times, or MWp, enough to power about 80,000 average households. Solar projects have a share of about 75 percent. The biggest is a 18.6-MWp farm in northern Germany, in which Google bought a 49 percent stake. The smallest is a 0.99-MWp park in the Italian region of Emilia-Romagna.

“We currently have about 18 million euros to spend on enlarging our portfolio,” Goedhart said. Sometimes the company buys a project with its own equity, while at others lenders typically cover 80 percent of the investment, he said.

Loan Terms

Capital Stage has teamed up with banks such as BayernLB’s Deutsche Kreditbank unit and Commerzbank AG (CBK) in Germany, and with Italian lenders including Unicredit SpA (UCG) and Intesa San Paolo SpA (ISP), Goedhart said. “Our loans usually run about 18 years with a fixed interest rate of currently about 3 percent for a decade, after which we calculate very conservatively with a 6 percent interest rate on remaining debt.”

Northern Italy, where the company operates nine solar farms and one wind park, helps compensate for falling returns at new projects in Germany. Italy runs a reliable feed-in tariff system similar to Germany’s, with costs passed on to consumers and not the state, while the yield averaged 14 percent, Goedhart said.

“Italy’s system is less risky than Spain’s, where the government has retroactively cut feed-in tariffs. In Germany, all parties, including the Liberals, have ruled out such banana-republic policy,” he said.

Goedhart’s team is also studying France for solar and wind opportunities and Scandinavia’s wind industry. “In about three years we might also look at other countries that are politically stable such as Canada, Australia or the U.S.”

Solar Maintenance

Solar-park maintenance, with profit margins of 50 percent, is another business where Goedhart is eager to expand. “We earn 150,000 euros a year from servicing a 10-megawatt solar park,” he said. Capital Stage has a maintenance division in the east German city of Halle.

In the runup to Germany’s parliamentary election in September, which Chancellor Angela Merkel’s Christian Democrats are set to win, operators of clean-energy plants are trying to spot shifts in the government’s renewables strategy.

Economy Minister Philipp Roesler, a member of the liberal Free Democratic Party, said he seeks to replace feed-in tariffs that guarantee state aid for 20 years with fixed levels of renewable generation.

The government has said it plans to end fixed-price guarantees for solar-power production when total capacity tops 52 gigawatts, compared with about 34 gigawatts today. That could happen within five years, according to Goedhart. “Until then we need to cut solar-plant prices by another 30 percent to 700 euros a kilowatt-hour, which is possible. The goal to operate plants in a profitable way without subsidies is within reach.”

To contact the reporter on this story: Nicholas Brautlecht in Hamburg at nbrautlecht@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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