Commerzbank AG, Germany’s second-largest lender, expects a 10 percent decline in renewable energy financing deals after a spate of offshore wind projects moved ahead last year.
The lender this year plans to arrange new loans with a volume of about 750 million euros ($837 million), focusing on Germany, western Europe and the U.S., Ingrid Spletter-Weiss, the head of bank’s renewable energies unit, told reporters on Tuesday in Hamburg. This follows a surprisingly strong 2014, when wind projects were accelerated to nail down subsidies before the German government cut aid, she said.
“You need to really fight for good projects now,” Spletter-Weiss said. “We are seeing much more competition, in particular in the offshore market, which many players still didn’t dare to enter last year.”
Europe has more than 91 percent of the world’s offshore turbine installations. The region’s industry needs 10 billion euros by the end of 2016 to expand by about 20 percent, the European Wind Energy Association (EWEA) estimated on July 30.
Commerzbank’s renewable energy loan portfolio stood at almost 4 billion euros at the end of last year with onshore wind still accounting for a 70 percent share. The share of offshore wind, which made up 5 percent of the total volume, will probably increase to 10 percent in the coming two to three years as growth in the onshore sector slows, Spletter-Weiss said.
Institutional investors are showing more interest in offshore wind as the technology advances and costs decline. Income from operating projects offer an alternative investment to record low bond yields, she said.
Insurers and infrastructure funds, such as Allianz SE and Macquarie Group Ltd., are seeking to invest on the equity side of offshore projects to benefit from yields of more than 10 percent, said Spletter-Weiss. Loans by contrast earn less than 3 percent returns for onshore wind farms and as much as 4.5 percent offshore, she said.
“Institutional investors weren’t present in the offshore sector until last year, but this year we are witnessing more interest from their side in that area,” Spletter-Weiss said.
While the equity owners generally take stakes of 3 percent to 5 percent in the wind farms on land, the portion reaches 30 percent to 40 percent for offshore operations, which are fraught with risk in installation and maintenance costs. This provides opportunities for groups of institutional investors, said Spletter-Weiss.
Developers connected 2.3 GW of offshore projects to the grid in Europe in the first half of the year, bringing the industry’s capacity to 10.4 GW, Brussels-based EWEA said. About 1.7 GW of that was in Germany, according to the group. The region’s growth rate probably will drop next year because of the phasing of new projects, which can take years to develop, EWEA said.
Onshore wind financing in Germany is dominated by programs offered by KfW and other state-owned banks, including Norddeutsche Landesbank Girozentrale and HSH Nordbank AG. The offshore segment has a more international lender base, Spletter-Weiss said.
Lead image: Ormonde offshore wind farm. Credit: Ben Barden.