“Europe is losing its leadership position”

Jörg-Rainer Zimmermann, 12 May 14
… in terms of investment in utility-scale renewable energy. And there are many policy uncertainties to clear up in Europe – says Angus McCrone, chief editor of Bloomberg New Energy Finance, London.

new energy: A recent Bloomberg headline stated: “Stronger first quarter for global investment in clean energy”. In fact, this is true for small-scale solar. What about onshore and offshore wind? And what are your predictions for the wind sector for 2014 and 2015?

Angus McCrone: Our latest Bloomberg New Energy Finance forecast is for total global wind installations of 47.3 gigawatts (GW) in 2014, up from 32.2 GW in 2013, and for 52.6 GW in 2015. Of these totals, offshore wind will be 1.5 GW in 2013, 2.6 GW in 2014 and 3.7 GW in 2015. This is different from the investment trend because financing may occur a year or more before commissioning of the project. In the first quarter of 2014, asset finance of utility-scale wind projects was USD 22.8 billion, down from USD 37.3 billion in the previous quarter and from USD 26.1 billion in the first quarter of 2013.

new energy: Private individuals and communities have played an important role in financing clean energy projects in Germany so far. Do you think this situation is going to change? All in all, how important are local initiatives as regards financing projects in Europe and worldwide?

Angus McCrone: Germany has led the way in this respect, but other countries are likely to follow as policy-makers become more sensitive to the views of local communities. For instance, in the UK, the coalition government is saying that it wants to see a higher proportion of community-led energy projects.

new energy: Are we witnessing a shift in the key players behind the financing of clean energy projects, such as fewer mid-market players? Who are the most important players at the moment? And is Europe now falling behind the US and China?

Angus McCrone: The most important change is probably that European utilities are cutting back on investment in renewable power projects. That is not true of all utilities – for instance, Enel Green Power is carrying on with a strong investment programme and so is Dong. But others such as RWE, SSE and Iberdrola are cutting back or have already cut back. European asset finance for renewable energy projects in 2013 was USD 23.5 billion, down from USD 37.1 billion in 2012. US asset finance was USD 19.8 billion, down from USD 27.1 billion, while Chinese asset finance was USD 53.3 billion, up from USD 51 billion. So Europe is certainly losing its leadership position in terms of investment in utility-scale renewable energy, although it remains one of the two most important locations for small-scale solar investment along with Japan.

new energy: Different types of investors have quite different expectations about the level of return on investments. Could you give some – perhaps extreme – examples of such expectations? Is the situation changing?

Angus McCrone: I don’t think it is changing, apart from the fact that institutional investors are increasingly seeing the attraction of stable yields of up to six percent on equity ownership of renewable power projects. Private equity investors and developers continue to look for much higher returns than, for instance, utilities or individual investors.

new energy: German banks have been calling for higher capital requirements for two years. This is lowering the equity return. What is the international situation like for onshore and offshore wind?

Angus McCrone: The Basel III rules have led to banks in some European countries, for instance the UK, moving away from offering long-tenor (15-year) debt. Instead they are only offering seven or eight-year loans. However, German and Japanese banks have been more prepared to offer 15-year loans, along with development banks such as the EIB.

new energy: In terms of the switch to renewables, Germany is one of the leading countries. There is policy uncertainty in Berlin and therefore – not only, but also – in Europe. In your view, is the situation slowly becoming more stable?

Angus McCrone: Not really. There are many policy uncertainties to clear up – from the details of how the Contracts for Difference programme will work in the UK, to the result of the Scottish referendum in September, to the fate of renewable energy subsidies in France against the backdrop of the legal challenge to the wind tariff, to the details of the new German system, to whether green certificate support in Romania will be retroactively reduced or not. Almost the only countries where uncertainty has diminished significantly are Sweden, with the new move in February to reduce the oversupply of certificates, and Ireland, where eligibility for the REFIT programme was extended last year until the end of 2017.

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