Commerzbank Sees Clean-Energy Loan Yields Rising Amid Law Change
Interest rates on loans to Germany’s renewable energy industry may climb to more than 4 percent as government plans to change policy and reduce state aid increase the level of risk, according to Commerzbank AG. (CBK)
The rising yields may lure more institutional investors seeking to bridge the gap between current rates of as much as 3.5 percent and the 4 percent returns targeted by pension and insurance funds, said Ingrid Spletter-Weiss, the head of Commerzbank’s renewable energies unit, in a Feb. 18 interview in Hamburg, where the branch is based. The policy changes will probably increase price volatility on wind and solar power markets, she said.
“The long-term goal of the renewable energy law is to develop a functioning market mechanism for renewables, and more market means increased volatility,” said Spletter-Weiss. The result “means heightened risk, which in turn should lead to higher credit spreads.”
Germany, Europe’s biggest clean-energy market, wants to derive 80 percent of its electricity from renewable sources by 2050, compared with about 25 percent now, as the country exits nuclear energy.
A surge in wind power, propelled by clean-energy subsidies, is prompting the government to limit the aid it pays to operators of land-based wind turbines to 9 euro cents ($0.12) a kilowatt-hour in 2015 as it seeks to curtail the rate of expansion to about 2,500 megawatts a year.
From 2017, the country plans to auction off aid for new clean-energy projects while forcing plant owners to sell power on the market.
Among major euro-area economies, German projects have benefited from the lowest margins on non-recourse financing, or loans in which lenders are only entitled to repayment from the profits of the project, Bloomberg New Energy Finance said in a research note published on Dec. 18.
This is in part because of competition among banks and because of the involvement of state-owned development bank KfW Group in refinancing some projects, according to BNEF.
Commerzbank’s renewable energy loan portfolio stands at 5.1 billion euros. This year, the Frankfurt-based lender plans to arrange new financing projects with a volume of about 750 million euros, Spletter-Weiss said. German onshore projects will probably make up about two-thirds of that, she said.
Onshore wind financing in Germany is dominated by programs offered by KfW, which provided 27.8 billion euros in loans to the industry last year, and other state-owned banks including Norddeutsche Landesbank Girozentrale and HSH Nordbank AG.
The offshore segment has a more international lender base. The 1.2 billion-euro Meerwind offshore farm, Germany’s largest, in 2011 was financed by Banco Santander SA (SAN) of Spain, Lloyds Banking Group Plc (LLOY) and Denmark’s export credit agency EKF, with KfW and Commerzbank included in the total of nine lenders.
Commerzbank shouldered about 15 percent of the borrowed capital in the Meerwind project and a similar level in the C-Power project in Belgium, also with a total volume of more than 1 billion euros, Spletter-Weiss said.
“Being a relevant player in the market requires a certain portfolio size, but for us growth must always come with quality,” she said.
Last year, Commerzbank funded 28 onshore wind farms with a total capacity of 316 megawatts. The average size in onshore wind project financing in Germany is 20 million euros to 30 million euros, she said.
Higher volumes are common in the offshore market, where investments in Europe may total 140 billion euros over the next 10 years, according to estimates by the bank.
Yet offshore projects are fraught with risk. In the U.K., which hosts more than half of the world’s offshore capacity, environmental concerns and high costs have slowed developments, leading each of the six largest utilities operating there to retreat from marine projects in the last three months.
Banks and investors shied away from financing larger projects in Germany last year as elections that saw Merkel elected for a third term added to the uncertainty about subsidies.
“Most offshore projects were put on hold as you need several years of advance planning,” said Spletter-Weiss, whose unit is part of Commerzbank’s Mittelstandsbank segment, which specializes in lending to small-and medium-sized businesses.
She doesn’t expect the German government to overhaul its clean-energy subsidy system, which is paid for with a levy on consumer bills, until parliament reconvenes after its summer break in September.
“I am confident that all market participants will be able to live with the new clean-energy law after a few months of uncertainty, which is manageable,” she said.
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