Risks Dissipating for Renewable Energy in Europe, Moody's Says

Europe’s renewable energy industry is becoming less risky because investor appetite for the assets is rising and more projects are able to refinance at attractive rates, a report by Moody’s said.

Solar and wind farms are drawing in capital from infrastructure debt funds and pension fund managers lured by returns at a time when interest rates are near historic lows. The industry also is recovering from clampdowns in subsidy rates in Spain, Italy and France that gutted confidence from 2012 to 2014, the report said.

Institutional investors’ “move into renewable energy comes in response to a decline in the number of public-private partnership projects as a result of government austerity policies,” said Christopher Bredholt, an analyst at Moody’s. These types of projects have typically accounted for the bulk of their investments, he said.

Subsidy programs for renewables were cut in Italy and Spain after a prolonged period of discussions, ending concerns for existing assets. France’s feed-in tariff program for wind energy was approved by the European Commission last year after a two-year wait.

“The governments have not made these changes in the most predictable manner, this created a cloud of uncertainty,” said Bredholt by phone. “Now that they have stated that this is the cut, asset owners and lenders are no longer wondering how much their cash flows will be impacted.”

Some renewable energy projects could have the opportunity to refinance on better terms, although it would also depend on their degree of leverage, diversification, and refinancing structure, the credit agency said. A strong operating history could also reduce credit risk.