financing and investment trends - windeurope.org · this report summarises financing activity in...
TRANSCRIPT
Subtittle if needed. If not MONTH 2018Published in Month 2018
Financing and investment trends
The European wind industry in 2017
windeurope.org
The European wind industry in 2017Published April 2018
Financing and investment trends
TexT and analysis: WindEurope Business IntelligenceAriola Mbistrova
ediTors:
Daniel Fraile, WindEuropeColin Walsh, WindEurope
design:
Laia Miró, WindEurope
inVesTMenT daTa:
Clean Energy PipelineIJ GlobalAll currency conversions made at EUR/GBP 0.8774 and EUR/USD 1.1330Figures include estimates for undisclosed values
PhoTo coVer:
Courtesy of Unsplash/Taz B. K.
More inForMaTion:
[email protected]+32 2 213 18 68
This report summarises financing activity in the European wind sector from 1 January 2017 to 31 March 2018. It includes investment figures for the construction of new wind farms, refinancing transactions for wind farms under construction or operation, project acquisition activity, company acquisitions and capital market funding. Rounding of figures is at the discretion of the author.
CO
NTE
NTS
glossary ................................................................................................................... 6
WhaT are The diFFerenT soUrces oF Finance For Wind energy? .............................................................................7
execUTiVe sUMMary ............................................................................................ 10
1. inVesTMenT nUMBers in 2017 ......................................................................... 12
1.1 Wind energy investments per asset class ..................................................... 12
1.2 New asset finance per country ........................................................................ 14
2. soUrces oF Finance in 2017 ............................................................................ 18
2.1 Debt financing ...................................................................................................... 18
2.2 Green bond issuances ....................................................................................... 23
2.3 Equity financing................................................................................................... 25
2.4 Corporate renewable power purchase agreements (PPAs) .................. 27
3. oUTlooK For 2018 ................................................................................................. 29
6 Financing and investment trends – The European wind industry in 2017WindEurope
GLOSSARY
• Asset finance:includesallinfrastructureinvestmentsinonshoreandoffshorewindfarms,includingrefinancingtransactions.
• New asset finance:includesallinfrastructureinvestmentsintheconstructionofnewonshoreandoffshorewindfarms,excludingrefinancingtransactions.
• Final Investment Decision (FID): thefinaldecisiontogoaheadwiththeprojectoncethepermittingandfinancialarrangementsareinplace.
• Capital markets:referstoactivitiesthatgatherfundsfromtheissuanceofsharesandbonds.
• Venture capital and private equity (VC/PE):referstotheprovisionoflongtermequityfundingtoemergingcompaniesasadirectinvestment.
• Mergers and acquisitions:includescompanymergersandacquisitionsaswellastheacquisitionofinterestinonshoreandoffshorewindprojects.
• Corporate finance / on – balance sheet financing:includesallinvestmentsinwindpowergeneratingandtransmissionassetsfinancedeitherthroughtheequityofprojectownersorthroughdebtraisedatcorporatelevel.
• Project finance / off – balance sheet financing:includesallinvestmentsinwindpowergeneratingandtransmissionassetswheretheprojectdebtandequityusedtofinancetheprojectarepaidbackfromthecashflowgeneratedbytheprojectasopposedtothebalancesheetoftheprojectowners.Tothisend,projectsareestablishedasaseparatebusinessentity.
• Non-recourse debt:debtraisedinprojectfinancetransactions.
• Syndicated loan:aloanprovidedandstructuredbyagroupoflenders.
• Green bond:corporatebond,theproceedingsofwhichwillbeusedtofinanceaportfolioofrenewableenergyprojects.Unlessspecified,theuseofmoneyisoftenunallocated.
• Project bond:includesbondsissuedatprojectlevel,theproceedingsofwhichwillbeusedtofinanceaspecificproject.
• Initial Public Offering (IPO):theveryfirstsaleofstockissuedbyacompany.
• Corporate renewable power purchase agreement (PPA):alongtermbilateralagreementforthepurchaseofpowerfromaspecificrenewableenergyproject,wherethepoweroff-takerisacorporateasopposedtoapowerproducer.
7Financing and investment trends – The European wind industry in 2017WindEurope
WHAT ARE THE DIFFERENT SOURCES OF FINANCE FOR WIND ENERGY? Debt and equity
The twomain sourcesof capital inwindenergyfinancein Europehavebeen sponsor equity anddebt. Sponsorequityreferstoatraditionalequityinvestor,typicallytheowner(s)oftheprojectand/orthedeveloper.Equitycapi-talfacethehighestriskintheprojectbecausetheownersaretheresponsiblepartytobringtheinitialconceptideathroughdevelopment,constructionandcommercialop-eration.Inaddition,theownersarealsothelastinvestorstobe liquidated incaseofaprojectdefault.Becauseofthetoughrequirementsthatequitycapitalfaces,there-turnsarealsohigher.
Debt refers to a contractually-arranged loan that mustberepaidbytheborrower.Thelenderhasnoownershipshares inthecompanyorproject.However, ithassomecollateral coverage as a financial protection in case theproject isunabletomeetthedebtrepaymentschedule.Inthecaseofprojectdefault,thelendersarethefirstpar-tytobeliquidated,beforeequitytypeinvestors.Assuch,debtisgenerallyconsideredalower-riskinvestmentandtherefore comeswith lower-costfinancing compared toequity.
Therearetwomajortypesofdebtinwindenergyfinance:constructiondebtandrefinancingdebt.Constructiondebtisraisedforthepurposeoffinancingnewassets.Refinanc-ingdebtisraisedforthepurposeoffinancingconstructiondebtatalongermaturityand/orlowerinterestrate.
Corporate finance and project finance
Theproportionofdebtandequityinaproject,aswellasthewaytheyareutilised,willdeterminethecapitalorfi-nancial structure of the project. There are two types offinancialstructures:corporatefinanceandprojectfinance.
Inacorporatefinancestructure,investmentsarecarriedonthebalancesheetoftheownersandprojectsponsors.Debtisraisedatcorporatelevel,withthelendershavingrecourse toall theassetsof thecompany to liquidateanon-performing project. The project management andmanyofthecontractualobligationsareinternalisedwiththe owners and project sponsors. Corporate finance isthereforequickerandusuallylessexpensivethanprojectfinance.
In a project finance structure, typically called non-re-coursefinance,theinvestmentiscarriedoffthebalancesheetoftheoriginalownersandprojectsponsors.Thein-vestmentortheprojectisturnedintoaseparatebusinessentitycalledaSpecialPurposeVehicle(SPV)withitsownmanagement team and financial reporting, capable ofraisingdebtonitsown.Becausedebtisraisedatprojectlevel, the lendersdonothaverecourse to thecompanyassetsoftheownersandprojectsponsorsincasesofpro-jectdefault.Duetoincreasedcontractualobligationsandamoresophisticatedriskmanagementstructure,projectfinancecanbemoreexpensiveand lengthier tofinalisethancorporatefinance.
Debt-to-equityratiosinaprojectfinancetransactionmayvary considerably depending on the project specifics,availabilityofcapitalandriskprofileoftheprojectown-ers.Forwindprojectstheyrangebetween70%-80%debtand30%-20%equity.
The capital structure a company chooseswill be deter-minedbyitsparticularriskprofile,sizeandindustrysec-tor. Power producers and utilities with a large balancesheetwilloptforacorporatefinancestructureandbringtheprojectthroughconstructionasasingleplayer.Fund-raisingwilloccuratcorporatelevelthroughdebtandeq-uityvehiclesalike.
8 Financing and investment trends – The European wind industry in 2017WindEurope
Unlikeutilities,independentpowerproducerswithsmall-er balance sheets and those companieswhose primarybusiness isnotwindenergyhavebetterprojectfinancecapabilities. In a project finance structure, partnershipsarekeyfromaveryearlystage.Fundraisingwilloccuratprojectlevelthroughdebtandequityvehiclesalike.Pro-ject owners will need to form consortia to provide therequired equity whereas lenders will come together toprovidesyndicatedprojectloansonthedebtside.
Raising debt and equity
The project owners and sponsors can raise capital forprojectdevelopment fromdifferent sources. Thesemayincludeown-balancesheetfinancing,externalprivatein-vestors,fundingfromcommercialbanksandpubliccapitalmarkets.Thelatterinparticularhasbecomemoreprom-inentinrecentyearsinwindenergyfinancingforraisingbothdebtandequity.
Debt isusually raisedthroughthe issuanceofbondsei-theratcorporateorprojectlevel.Whereabondisissuedat corporate level, theproceedings go for thefinancingofaportfolioofprojects.Thebondcancarrythe“green”labelwhentheportfolioofprojectsitisfinancingismadeexclusively of renewable energy investments. Wherethebond is issuedat project level, theproceedings areused for the specific renewable energy project and aretherefore“green”.Projectbondsareissuedonbehalfofthe SPVandareusuallypartof anon-recourse, projectfinancestructure.
AbondisconsideredinvestmentgradeifitscreditratingisaminimumofBBB-byStandard&Poor’soraminimumofBaa3byMoody’s.Investmentgradebondsareconsid-eredbyratingagenciesaslikelytomeetpaymentobliga-tionsforinvestors.
Capital availability for wind power projects
Thefinancialmarketshavesupportedthegrowthofthewindsectorwithastrongliquidityonbothdebtandeq-uity. Thefinancing conditionsof low interest rates, costimprovementsandfurthertrustgainedinthetechnologyhaveallcontributedtoahealthydealflowofprojects.
Debtliquidityhasbeenavailablefromconstructionphasewithnewfinancingandrefinancingtransactionsinmajormarkets.Lendersincludeavarietyofbankandnon-bankinstitutions such as Export Credit Agencies (ECAs).Mul-tilateral Development Banks (MDBs) and other Interna-tionalFinancialInstitutions(IFIs)havealsoprovideddebtliquiditywherecommercialbankfinancinghasnotbeenavailable. International banks have also strengthenedtheir presence in the European wind sector and intro-ducedmore competition to the sector. Japanesebanks,driven by a prolonged low interest rate environment intheirdomesticmarket,featurepredominantlyinthetoplendinginstitutionsforEuropeanwindpowerprojects.
Ontheequityside,institutionalinvestorsarealsobiddingmoreaggressivelyforwindassets.Interestinthetechnol-ogyhaspickedupsignificantlyfrombothinstitutionalandstrategicinvestorswhoarenowlookingatwindprojectsforsteady,predictablereturnstomeetlong-datedliabil-ities.Muchlikewiththebanks,investorappetiteforthetechnologyappliestobothgreenfieldandexistingassets.However,asconfidencegrowsinthesectorandapositivetrackrecordcontinues,investorsarealsotargetingmoregreenfield projects earlier in the construction phase.
9Financing and investment trends – The European wind industry in 2017WindEurope
252 MW €1,3 bn31 Turbines
British Wind Energy GmbH
CONSTRUCTIONVan Oord
GRID CONNECTIONTenneT
OFFTAKER Vattenfall
O&M CONTRACTORSMHI Vestas
Loan agreements
Construction contract
Shareholders’ agreement
PPA contract
Gri
d c
onne
ctio
n co
ntra
ct
Turb
ines
and
O&
M s
ervi
ces
payment for construction
payment forcontractors
payment forelectricity
EQUITY INVESTORNorthland Power
25% of project cost ~€310m
LENDERS10 at financial close
75% of project cost ~€988m
debt finance
debt repayment
dividends
equity
ADVISORSFinancial, legal
& technical
ADVISORSFinancial, legal
& technical
EXAMPLE OF FINANCING STRUCTUREFOR TYPICAL OFFSHORE WIND PROJECT
Source:GreenGiraffe
10 Financing and investment trends – The European wind industry in 2017WindEurope
FIGurE 1 European wind energy investments in 2017 per asset class (€bn)
Source:WindEurope
exeCutive summaRy
In2017thewindenergyindustryinvested€51.2bninEu-rope.Thisincludedinvestmentsinnewassets,refinancingtransactions,mergersandacquisitionatprojectandcor-poratelevel,publicmarkettransactions,andprivateequi-tyraised.Windenergyrepresentedthelargestinvestmentopportunityinthepowersector,accountingforhalfofall
investments in2017.The technology is seenasamajordriver for moving beyond fossil fuels and convention-al power assets. Cost competitiveness and reduced riskperceptionshavebrought indomesticand internationalmarketplayerslookingtodiversifytheirportfoliosand/oralignwiththeirsustainabilitytargets.
€ 6.9bn
€ 9.1bn
€ 5.3bn
€ 7.6bn
€ 22.3bn
€ 51.2bn
New assetfinancing
Refinancing Projectacquisitons
CompanyAcquisitions
Capitalmarkets
Totalinvestments
11Financing and investment trends – The European wind industry in 2017WindEurope
Executive Summary
2017 annual figures
• Europeraisedatotalof€51.2bnfortheconstructionofnewwindfarms,refinancingoperations,projectandcompanyacquisitionsaswellaspublicmarketfundraising.
• Investmentsinnewwindfarmsamountedto22.3bn,adecreaseof19%from2016.
• Projectacquisitionsdoubledinvaluein2017to€9bn,from€4.3bnin2016.
• Companyacquisitionsalsodoubledinvalueasaresultofindustryconsolidation,from€2.5bnin2016to€5.3bnin2017.
• Banksextended€15.5bninnon-recoursedebtfortheconstructionofnewwindfarmsandtherefinancingofexistingones.
• Greenbondsraised€17.5bnin2017,representingthehighestlevelofissuanceinthelastfiveyears.
• WindenergywasthelargestinvestmentopportunityinthepowersectorinEurope.
Country highlights
• Investmentflowsin2017werelessgeographicallyconcentratedthanin2016,with20countriesannouncingFIDscomparedto16countriesin2016.
• NorthernandWesternEuropeheldthebulkofnewinvestments.GermanyandtheUKaccountedforhalfofthenewFIDsannouncedin2017.
• InvestmentsinSouthernandEasternEurope(SEE)remainedlow.Withatotalof€3.5bn,theSEEregionrepresentedonly16%ofthetotalnewassetsfinancedinEurope.
• ThelargestonshorewindfarmtoreachFIDin2017wasMarkbygdeninSweden,withacapacityof650MW.Theprojectbroughtinmajorfinanciersasinvestorsandlargeelectricityconsumersaspoweroff-takers.
• IntheUK,theHornsea2offshorewindfarmreachedFID.Withacapacityof1.4GW,thisisthelargestoffshorewindfarmtodatetobeconstructed.
Investment trends
• Thelowinterestrateenvironmenthasgivenrisetoadynamicrefinancingmarket.
• Offshorewindhasexperiencedanuptakeincorporatefinancetransactionsoverthepasttwoyears.However,offshorewindprojectfinancehasdeclinedfornewFIDs.
• Refinancingactivitiesandthesaleofprojectminoritystakesarenowincorporatedmuchearlierinthefinancialarrangementsofprojects.
2018 Outlook
• Investmentvolumesareexpectedtoincreasein2018.Thisisduetotheroll-outofauctionsacrossEuropeandthefactthatmanyprojectsalreadyawardedsupportwillreachFID.
• Over14GWofcapacitywasawardedsupportthrough2017andthefirstquarterof2018.
• Duringthefirstquarterof2018Europeinvested€3bninnewwindenergyprojects.30newonshorewindprojects,foracombinedcapacityof1.9GW,reachedFID.
• WindenergyprojectscurrentlyawaitingFIDareestimatedatover€23bn.
• Strongequityanddebtliquidityisexpectedtocontinueforbothonshoreandoffshorewindprojects.
• Inthenearterm,thedownwardtrendininterestratesisexpectedtoslowdown,withthequantitativeeasingcomingtoanendandexistingcommercialbanksestablishingtheircompetitivepositioninthemarket.
• Inthelongerterm,themerchantriskexposureinwindpowerprojectswilllikelychangeboththelandscapeandinvestorprofilesofwindenergyfinancing.
12 Financing and investment trends – The European wind industry in 2017WindEurope
1.
1.1 WIND ENERGY INVESTMENTS PER ASSET CLASS
FIGurE 2 Total wind energy investments in Europe 2010 – 2017 (€bn)
Source:WindEurope
iNvestmeNt NumBeRs iN 2017
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017
€b
n
New asset financing Refinancing Project acquisitonsCompany Acquisitions Capital markets
13Financing and investment trends – The European wind industry in 2017WindEurope
Investment numbers in 2017
Windenergysaw€51bninfinancingactivityin2017.Thisrepresentsa9%increasecomparedto2016.Thebiggestcategory within wind energy investments is new assetfinancing. In 2017, new asset financing for wind pow-er projects stood at €22.3bn, a 19%decreaseon2016.Technological cost reductions and lower offshore windinvestmentswere the twomain reasons for thedrop ininvestmentsinmonetaryterms.
Projectandcompanyacquisitionswerethemaindriversfortheoverallgrowthinwindenergyinvestments.Projectandcorporateacquisitionsprovidedacombined€14.4bnin investment activity. This compares to only €6.8bn in2016.
With€5.3bn,companyacquisitiondealsdoubledinvaluein2017asaresultoftheconsolidationphasethewinden-ergyindustryhasexperiencedinrecentyearsacrossthesupplychain.Projectacquisitionsalsodoubledinvaluein2017 to€9bn,up from€4.3bn in2016.Sectormaturityandtechnologycompetitivenesshavebroughtinmorein-vestorsasequitypartners inprojects, inparticular fromthe financial services industry. These partnerships are
key forpowerproducerswhoneed to recyclecapital tofinancenewassets.
Theoverallincreaseinwindenergyinvestmentswasalsoaresultofhigherdealflowinpubliccapitalmarkets.Com-paniesaremakingmoreuseofthelowinterestrateenvi-ronmentand liquidity inthefinancialmarketsbyraisingdebtandequityviacapitalmarkets.In2017companiesinthewindenergysectorraised€7.6bnin2017frompubliccapitalmarkets.
FIGurE 3Annual change in the main categories of wind energy investments (%)
Source:WindEurope
-19% -1%
110% 111%
37%
0%
50%
100%
150%
New asset financeCompany acquisitionsRefinancing
Capital marketsProject acquisitions
14 Financing and investment trends – The European wind industry in 2017WindEurope
1.2 NEW ASSET FINANCE PER COUNTRY
FIGurE 4New asset finance in wind energy 2010 ‒ 2017 (GW and €bn)
Source:WindEurope
6.6
4.8 4.5 5.0
7.9 6.7
5.3
9.0 2.2
1.5 1.3 1.6
2.1 3.0 5.0
2.5
16.4
12.7 11.7
14.5
21.1
26.2 27.5
22.3
0
5
10
15
20
25
30
0
2
4
6
8
10
12
14
16
18
20
2010 2011 2012 2013 2014 2015 2016 2017
€b
n
GW
Offshore wind: New Capacity Financed (GW)Onshore wind: New Capacity Financed (GW)Wind energy investments (€bn)
2017wasa recordyear fornewcapacityfinanced.11.5GWofnewcapacity,12%morethanin2016,reachedFi-nal InvestmentDecision (FID) inEuropeacross200pro-jects in 20 countries. Onshore wind projects were themaindrivers forthisgrowthwith9GWofnewcapacityfinanced.NewoffshorewindFIDsdroppedto2.5GWofnewcapacityfinancedin2017,halfofthe2016level.
In monetary terms, investments in new projects weredown by 19% to €22.3bn. Reduced offshore wind FIDshave brought down the overall level of investments innew projects. Offshore wind has higher Capex require-ments compared toonshorewind. Therefore its impactonthelevelofinvestmentsismuchmorevisible.
As a general industry-wide trend, sector maturity andcompetitiveauctionsfornewrenewableenergycapacityhave resulted in cost reductions across thewind indus-try’s value chain. Thefinancial sector has alsomade itsfaircontributiontothistrendbyofferingcheaperfinanc-ingforthedevelopmentandconstructionofwindpowerprojects.
Investment numbers in 2017
15Financing and investment trends – The European wind industry in 2017WindEurope
Investment numbers in 2017
FIGurE 5New asset finance in wind energy per technology, 2010 ‒ 2017 (€bn)
Source:WindEurope
€8.1bn €6.5bn €6.7bn €7.2bn €12.3bn €13.1bn €9.3bn €14.8bn
0%
-19%
3% 8%
71%
6%
-29%
60%
2010 2011 2012 2013 2014 2015 2016 2017
Onshore Wind Investments
€8.4bn €6.1bn €5.0bn €7.2bn €8.8bn €13.1bn €18.2bn €7.5bn
0%
-26% -19%
46%
22%
49%
39%
-59%
2010 2011 2012 2013 2014 2015 2016 2017
Offshore Wind Investments
Annual Growth Rate
Annual Growth Rate
16 Financing and investment trends – The European wind industry in 2017WindEurope
1. GrantThornton(2018):Renewableenergydiscountratesurveyresults.
FIGurE 6 New asset finance in wind energy per country, 2017 (€bn and GW)
Source:WindEurope
Wind energy investments in 2017were less geographi-cally concentrated than in2016. The top three investorcountries owned 64% of FID announcements in 2017,comparedto73%in2016.However,Europeanwindener-gymarketsarematuringatdifferentpaces.
Northern andWestern Europe held the bulk of new in-vestments. Germany was the biggest investor in 2017.Germanygeneratedatotalfinancingactivityof€6.7bnfortheconstructionofnewonshoreandoffshorewindfarms.Thisaccountsfor30%ofthetotalwindenergyinvestmentsmadein2017.TheUKcamesecondtoGermanywith€5bn,or22%ofthetotalwindenergyinvestmentsin2017.
TwolandmarkprojectsinNorthernandWesternEuropereached FID in 2017. The largest offshorewind farm todate,Hornsea 2 – anØrstedwind farm– adds 1.4GWofnewcapacity toprojectsawaitingconstruction in theUK.Earlier in theyear cameMarkbygdenonshorewindfarminSweden,withacapacityof650MW.TheprojectbroughtinmajorfinancierslikeGreenInvestmentGroupas investors and heavy electricity consumers like NorskHydroaspoweroff-takers.
Nevertheless, investments in Southern and Eastern Eu-rope(SEE)remainedlowin2017.Investorconfidencehasbeen slow in recoveringmainly due tomacroeconomicandpoliticalfactors.Withatotalof€3.5bn,theSEEregionrepresentsonly16%of thetotalnewassetsfinanced inEurope.Thediscountrate,aproxyforthecostofcapital
remainshigher in theSEEcountries compared toNoth-ern1 andWestern Europe. For onshorewind this variesfrom9%inItalyand8.5%inSpainto6.5%inGermanyand7.25%intheNordics.
TherehavebeenpositivedevelopmentsinSouthernandEastern Europe (SEE). Following the auctions in recentyears Spain is starting to attract some investments. TheGreekmarketisalsoreviving,inparticularwiththehelpofforeigncapitalandmultilateralfinancialinstitutionslikethe European Investment Bank (EIB) and the EuropeanBankforReconstructionandDevelopment(EBRD).
InmanyEUmarkets therearecurrentlynowind invest-mentstakingplace,despitethesignificantpotentialthesecountrieshaveforfurtherexpansionofwindpower.ThelackofastableregulatoryenvironmenthasaffectedboththelevelofinvestmentandfinancialcommitmentsofhalfofEUMemberStates.Closelytiedtoregulatorystabilityisthecostofcapital,whichpricesinuncertainfuturepoliti-caleventsasriskpremiums.Higherriskswillleadtohigh-ercostsofcapitalandnegativeimpactsontheeconomicviabilityofwindprojectsinthesecountries.
2017 saw European non-EU countries investing morein wind energy. While the value of new FIDs in EUcountries dropped by 25%, FIDs in non-EU Europe in-creased by 60% to €2.9bn. Russia alone announced€1.2bn in new investments. The remaining €1.7bncame from Norway, Ukraine and the Western Balkans.
-
0.5
1.0
1.5
2.0
2.5
3.0
0
1
2
3
4
5
6
7
8
Germany UK
Sweden
Russia
France
SpainIta
ly
Greece
Irela
nd
Norway
Serbia
Turkey
Austria
Netherla
nds
Finland
Others
Ca
pa
city
fin
anc
ed in
GW
New
ass
et f
ina
nce
in €
bn
Offshore Onshore Capacity GW
Investment numbers in 2017
17Financing and investment trends – The European wind industry in 2017WindEurope
Investment numbers in 2017
FIGurE 7 Investments in new power capacity in Europe, 2010 ‒ 2017 (€bn)
Source:WindEurope
-
5
10
15
20
25
30
2010 2011 2012 2013 2014 2015 2016 2017
Fossil fuels Nuclear
Biomass Hydro, geothermal and other RESUtility scale solar
Wind energy
In2017windenergy representedhalfof the renewableenergyinvestmentsinnewpowercapacity.Onshorewindalonemadeupone thirdof themarket.Overall, invest-ments in new wind power capacity have been steadily
increasing in the last five years at a compound annualgrowth rate (CAGR) of 6%. All other technologies haveseenfallinginvestmentsforthesameperiod.
18 Financing and investment trends – The European wind industry in 2017WindEurope
2.1 DEBT FINANCING
FIGurE 8 Non-recourse financing 2010 ‒ 2017 (€bn)
Source:WindEurope
sOuRCes OF FiNaNCe iN 2017
2.
8.5
6.5 5.4
6.5
11.7
13.7
12.3
15.5
0
2
4
6
8
10
12
14
16
2010 2011 2012 2013 2014 2015 2016 2017
€bn
Construction debt Refinancing debt Total non-recourse debt
19Financing and investment trends – The European wind industry in 2017WindEurope
Sources of finance in 2017
Therehasbeenahealthyflowofdebtfinanceover thelast five years. Emerging new business and ownershipmodelshavediversifiedthepoolofinvestorsinwinden-ergyandunlockedthepotentialforlong-termsourcesoffinancefrombanks,institutionallendersandExportCred-itAgencies(ECAs).Thishasledtoasignificantamountofaffordabledebt,inparticularintheformofnon-recoursefinancing.
In2017over€15.5bninnon-recoursedebtwereraised:€8.5bnfor theconstructionofnewprojectsand€6.9bnfortherefinancingactivitiesofwindfarmsunderconstruc-tionoroperation.Thisrepresentsa26%increaseon2016.
FIGurE 9Non-recourse construction debt per technology 2010 ‒ 2017
Source:WindEurope
4.3
3.0 3.2
4.1
6.5 6.8
7.5 8.5
0
1
2
3
4
5
6
7
8
9
2010 2011 2012 2013 2014 2015 2016 2017
€bn
Onshore wind construction debt Offshore wind construction debtTotal construction debt
Inthelasttwoyearstwodifferentpatternshaveemergedforonshoreandoffshorewindfinancing.Whileonshorewindhasusednon-recoursestructuresprimarily for thefinancingofnewassets,offshorewindhasusednon-re-coursestructuresfortherefinancingofwindfarmsunderconstructionoroperation.
Non-recourse finance has been the predominant mod-el for onshorewind. This trend continued in 2017withnon-recourse debt leveraging 77% of new capital ex-penditurerequirements.Onshorewindraisedthemajor-ity of constructiondebt, a total of €6.9bn.Only €1.6bn
in non-recourse debt were raised for the constructionofnewoffshorewindfarms.Followinganuptake incor-poratefinance fromoffshorewinddevelopers in recentyears,newcapacityfinancedonanon-recoursebasisfellto19%in2017,downfrom33%in2016and44%in2015.
20 Financing and investment trends – The European wind industry in 2017WindEurope
FIGurE 10 Share of non-recourse debt in new capacity financed 2010 ‒ 2017
Source:WindEurope
22% 50%38% 18%
36%
45%33%
19%
88%
70%62%
83%76%
69% 69%77%
0%
20%
40%
60%
80%
100%
2010 2011 2012 2013 2014 2015 2016 2017
Offshore windOnshore wind
In2017thewindsectorwitnessedadynamicmarketforrefinancing transactions, inparticular foroffshorewind.Ofthe€6.9bninnon-recoursedebtraisedforrefinancingactivities,€4.6bnwasforoffshorewindprojectsand€2.3foronshorewind.
Thecurrentfinancingconditionsoflowinterestrateshavecontributedtothistrend.Developersarenowrestructur-ingolddebtsformorefavourableterms,beitforpriceorloan duration.However, somepart of this growing refi-nancingtrendisconsistsinchangestohowwindprojects,particularlyoffshoreprojects,arefinanced.
Competitive pressures driven by the surge in auctionshave altered thefinancial arrangements inwindenergyinvestments. Opting for a corporate finance structure
whereyouinternaliseprojectmanagementallowspowerproducers to raise cheaper debt at corporate level dur-ing constructionphase, and therefore lower the costoffinance.Buttherefinancingorthesaleofminoritystakesare now incorporated much earlier in the financial ar-rangementsofaproject.Owingtoyearsofsectorexpe-rience,partnershipshavealreadybeendeveloped.Powerproducersknowataveryearlystagewhenandtowhompartoftheproject isgoingtobedisposed.Thegrowingconfidenceanddemandforwindenergyassetshasmadeiteasierforpowerproducersanddeveloperstoexittheirprojectsandsellthemontodifferentinvestorswhothenuseprojectfinancetopurchasetheirownershipshare.
Sources of finance in 2017
21Financing and investment trends – The European wind industry in 2017WindEurope
Sources of finance in 2017
FIGurE 11Non-recourse refinancing debt per technology 2010 ‒ 2017
Source:WindEurope
The debt markets have supported construction activ-ityonattractive terms. Transactions this yearhave con-tinued to reflect thegeneral trendofeasing loan termswhenitcomestopricing,maturityandtranche.Thelowinterestrateenvironmenthasprovidedwindenergypro-jectswithcompetitivefundingandlowerfinancingcosts.
Largerprojectsarenowabletofundraiseundermorefa-vourablemarket conditions. Debt/Equity structures canvary considerablybetweencountries.However, they re-mainwithintherangeof70/30to80/20.
4.2
3.5
2.2 2.5
5.2
6.8
4.7
6.9
0
1
2
3
4
5
6
7
8
0
2
4
6
8
10
12
2010 2011 2012 2013 2014 2015 2016 2017
€bn
€bn
Onshore wind refinancing debt Offshore wind refinancing debtTotal refinancing debt
22 Financing and investment trends – The European wind industry in 2017WindEurope
FIGurE 12Interest rates: basis points per MW financed 2010 – 2017 (size of the bubble represents project capacity)
Source:GreenGiraffe,WindEurope
FIGurE 13Debt / Equity structures for wind projects in different countries
Source:WindEurope
0
50
100
150
200
250
300
350
400
2010 2011 2012 2013 2014 2015 2016 2017 2018
Ba
sis
poi
nts
over
Lib
or
Offshore wind farms Linear (Offshore wind farms)
20
40
60
80
100
Austria
Belgium
Bulgaria
Croatia
Cypru
s
Finland
France
Germany
Greece
Hungary
Irela
ndIta
ly
Netherla
nds
Poland
Portugal
Romania
Spain
Sweden
Turkey
United K
ingdom
Debt leverage (%) Weighted Average Debt Leverage
The attractive sector yields have diversified the profileof lenders.Over82 lenderswereactive in2017, includ-ingmultilateralfinancial institutions,exportcreditagen-cies and commercial banks. As confidence grows in the
European wind sector international banks continue tostrengthentheirpresenceinthemarket.
Sources of finance in 2017
23Financing and investment trends – The European wind industry in 2017WindEurope
Sources of finance in 2017
FIGurE 14Market share of banks active in wind energy financing in 2017
Source:WindEurope
82BANKS ACTIVEIN WIND ENERGYFINANCING IN 2017
Santander6.0%
NordLB5.7%
HSH Nordbank5.6%
ING Group5.2%
Societe Generale4.7%
Mitsubishi UFJ Financial Group4.6%
Sumitomo Mitsui Financial Group4.5%
Banco Sabadell3.6%
Credit Agricole Group 3.6%
BNP Paribas3.5%
Goldman Sachs3.0%
Others50.1%
2.2 GREEN BOND ISSUANCES
Bond issuanceshavebeenan importantpartofdebtfi-nancingforwindenergyprojects.Theissuanceofgreenbondshasbeensteadilygrowingoverthelastfiveyears.At€17.5bn2017wasarecordyearforgreenbondsissu-ances, both at project and corporate level. The fundingraisedfromtheseissuancesservestofinancerenewableenergyportfolios,includingwindpowerprojectsandoff-shoretransmissionlines.Institutionalinvestorshavebeenthemainsubscriberstothesebonds.
The majority of these issuances, a total of €13.9bn,camefromcorporatebonds.AmongstthetopissuersareIberdrolawith €3.5bn, ENGIEwith €2.7bn, TenneTwith€1.9bn,Innogywith€1.7bnandØrstedwith€1.3bn.
Despite a slowdown in 2016, project bonds are slowlyemerging as alternative sources of debt. To date, therehave only been a few transactions of capitalmarket fi-
nancing,mainly inoffshorewindandtransmission lines.Therehavebeenfewerprojectbondtransactions inon-shorewind.Foronshorewindtoaccessthismarket,pro-jectswillneedtobeaggregatedinlargerportfolios.
In 2017 wind energy projects raised €3.6bn in projectbonds, including three offshore wind issuances. Thesethreeissuancescombinedraisedarecord€2.5bnandsup-portedtherefinancingof1.3GWofcapacityundercon-struction in Borkum Riffgrund 2,Walney Extension andNorthwind.Thelattertwoalsorepresentthefirstinvest-mentgradeprojectbondsissuedintheUKandBelgiumforoffshorewindfarmsunderconstruction.
24 Financing and investment trends – The European wind industry in 2017WindEurope
FIGurE 15Green bond issuances 2013 – 2017 (€bn)2
Source:WindEurope
1.5 4.2 3.5
5.4
13.9
0.4
3.6 3.6
1.9
4.2
7.1 5.4
17.5
2013 2014 2015 2016 2017
Corporates (€bn) Projects (€bn) Total bond issuance (€bn)
2. Figuresincludeunallocatedgreenbondscategorisedunder“Others”.
FIGurE 16Green bond issuances in 2017 by technology
Atleast40%ofallthegreenbondissuancesin2017camefromcompaniesdirectlyoperating in thewind industry,eitherthroughprojectorcorporatebonds(forthosecom-panies operating uniquely in the wind energy sector).CorporateRESportfolioreferstorenewableenergyport-folioswhich includewindenergybutarenotexclusivelywind-based.
Source:WindEurope
Transmission lines €1.9bn11%
Wind energy €7.0bn40%
Corporate RES portfolio€8.5bn49%
Sources of finance in 2017
25Financing and investment trends – The European wind industry in 2017WindEurope
Sources of finance in 2017
2.3 EQUITY FINANCING
FIGurE 172017 project acquisitions by country (GW)
1.4
1.9
0.5 0.5 0.5 0.4 0.4 0.4 0.3
0.1 0.3
2.0
0.8
0.1 -
0.5
1.0
1.5
2.0
2.5
3.0
3.5
UK
Sweden
Germany
Italy
Norway
France
Portugal
Irela
nd
Greece
Belgium
Finland
Others
GW
Onshore wind Offshore wind
Source:WindEurope
Project acquisition activity in 2017 stood at 9.4 GW ofcapacity traded:2.9GWofwhichwas inoffshorewind,with the remaining 6.5GW in onshorewind. TheUK isthebiggest secondarymarket, followedby Sweden andGermany.Thecombinedactivityinthesethreecountriesaccountedfor70%ofallthewindpowercapacitytradedatthedevelopment,constructionandoperationalphases.
The majority of transactions happened at the pre-con-structionstage,wheredevelopmentcapitalisstillscarce
andprimarilylimitedtopowerproducers.However,inthelastfiveyearstherehasbeenasteadyincreaseindemandforassetsunderconstruction.Asconfidencegrowsinthewindenergysector,institutionalinvestorsandthefinan-cial services industryaremorewilling to invest in theseprojectsduringtheconstructionphase,longbeforetheybecomeoperational.
26 Financing and investment trends – The European wind industry in 2017WindEurope
FIGurE 18Project acquisition activity by project phase (GW)
Source:WindEurope
In 2017 both onshore and offshore wind brought in amorediversemixofcorporate,financialand institution-alinvestors.Notablyforonshorewindassetacquisitions,
the financial services industry purchased a total of 4.5GW,or70%,ofonshorewindassetsavailableforsale.Thiscomparesto36%in2016.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016 2017
Pre-construction Under construction In operation
FIGurE 19Project acquisition activity by type of investor in 2016 – 2017 (GW, %)
Source:WindEurope
0%
20%
40%
60%
80%
100%
2016 2017
Offshore Wind
0%
20%
40%
60%
80%
100%
2016 2017
Onshore Wind
Power producers Institutional investors Diversified financial services Corporates
Sources of finance in 2017
27Financing and investment trends – The European wind industry in 2017WindEurope
Sources of finance in 2017
3. Therehavebeentwocross-borderPPAs,betweentheNetherlands-BelgiumandFinland-Belgium.
The financial services industry has made an increasingcontributiontooffshorewind.Infrastructurefunds,pen-sion funds,assetmanagersanddiversifiedfinancial ser-vicesowned35%ofthecapacitytradedthroughout2017.Thiscomparestoonly27%in2016.
Corporate players such as IKEA, Lego, Colruyt andMarubeniarewellestablishedinthewindenergysector,with shares increasing on a yearly basis. Both sustaina-bilityandeconomic factorsare themaindrivers for thistrend.Thedifferentscalesandtechnologyriskprofilesofonshoreandoffshorewindhaveattracteddifferenttypesofcorporates.
Japanesetradinghousesormajorindustrialretailerslook-ing for infrastructure investments as an asset class aremorepresentinoffshorewindprojects.Corporateslook-ingforcleanenergytopowertheirfacilitieswillmorelikelyinvestinonshorewindfarms.Forthelatter,costcompet-itiveness,locationandtheproximityofthewindfarmtotheirfacilitiesarethemaindriversfortheseinvestments.
2.4 CORPORATE RENEWABLE POWER PURCHASE AGREEMENTS (PPAS)RecentyearshaveseenagrowthincorporaterenewablePPAdealsinEurope.Thevolumeanddemandforcorpo-rate renewable PPAs has tripled in the last three years.Therewas just500MWofcontractedcapacity in2014.Today,over1.4GWofnewcapacityhasbeencontractedthroughcorporatepowerpurchaseagreementsinEurope.
Windenergyisverywellplacedamongotherlowcarbontechnologies toaccommodate corporates’needs for re-newableelectricityduetoitsscale,costcompetitivenessand risk profile.Over 80%of the contracted renewablecapacityinthelastfouryearshasbeenprovidedbywindpowerprojects.
FIGurE 20 renewable energy corporate sourcing through power purchase agreements (MW)3
Source:WindEurope
0
200
400
600
800
1,000
1,200
1,400
1,600
2010 2011 2012 2013 2014 2015 2016 2017
Sweden UK Norway Netherlands Ireland Belgium* Finland*
28 Financing and investment trends – The European wind industry in 2017WindEurope
Sources of finance in 2017
Therearedifferentmodelsofcorporateengagement.Themostimportantcanbebroadlysummarisedaccordingtotwocategories:investingdirectlyinprojectsandowningthe underlying asset, or acting as an off-taker throughpowerpurchaseagreements(PPAs).
Froma corporate’sperspective, actingas anoff-taker isa feasiblemodel tomeet sustainability targets,diversifyenergysourcesandcontrolenergycostsoverlongperiodsoftime,attimesforupto20years.Owningtheassetmaycomewithcertaincost-of-capital implications forcorpo-rates. This is due to the large pay-back period forwindenergy projects, but also due to increasing competitionforownershipinwindenergyassets.Corporatesnotop-eratinginthewindsectormightfindithardtowinrenew-ablecontractsatbetterpriceswhencomparedtopowerproducersorotherbusinesseswithmoreexperience.
Corporate renewable PPAs also comewith certain ben-efits forgenerators.Pricevisibilityovera longperiodoftimeandaguaranteedoff-takeareimportanttolowerthecostofdebtfinancing.Lenderswouldtypicallyneedpro-tectionforadownsideinprojectrevenuestoensuredebtrepaymentobligationsaremet.Assuch,lenderstendtoprefer lowerrevenuesovera longperiodoftimeratherthanhigherbutuncertainrevenues.
Corporate renewable PPAs to date are still limited to ahandfulofcountries.TheNordicregion,followedbytheUKandtheNetherlandsarethebiggestmarketforsuchdeals.
Thesemarketsshareagoodtrackrecordinrenewableen-ergydevelopment,coupledelectricitymarkets,sufficientdemandforgreenelectricity fromcorporatesand,mostimportantly, a lackof explicit regulatorybarriers to signcorporaterenewablePPAs.
OneimportantelementforcorporatePPAsistheunder-lying renewable energy support scheme in the countryof thePPA. In Feed-in Tariff jurisdictions, for instance itcanbechallengingtofindthevaluepropositionforsuchcontracts. Therefore, market-driven countries will likelyseethevolumeofcorporaterenewablePPAsincreaseinthenearfuture.Elementsofmerchantfinancingthatarestarting toemerge in thewindsectorwill require someformofadditionalrevenuestabilisationthroughsupportschemes, corporate renewable PPAs and other hedginginstruments.
In spite of the recent European and global growth ofrenewable energy corporate sourcing, the potentialof this businessmodel is largely untapped. In terms ofboth speed and volume, the amount of investments inthisbusinessmodel iscurrently insufficienttobringthevolumeof renewableenergyneeded tomeet the2030targets.Todate,corporaterenewablePPAsstillfacereg-ulatory barriers in certain EUMember States. The newRenewableEnergyDirectiveopensthedoortoaddressingregulatorybarriersandchallengesrelatedtothetracea-bilityofgreenelectricityprocurement.
29Financing and investment trends – The European wind industry in 2017WindEurope
3. Detailedauctionscheduleisavailableatwindeurope.org.
Both2016and2017havebeentransitionalyearsforthewindsector.Whiletherewasadipininvestmentsin2017,the large volume of investments in 2016 reflected theregulatoryuncertaintythatwouldcomeasaresultofthetransitiontoauctionsandFeed-inPremiums.However,in-vestmentvolumesareexpectedtostabilisein2018withtheroll-outofauctionsacrossEuropeandprojectsaward-edsupportexpectingtoreachFID.
Over14GWofcapacitywasawardedsupportin2017andthefirstquarterof2018:5.3GWinGermany,4.1GWinSpain,3.2GWintheUK,1.4GWintheNetherlands,500MW in France.3 Themajority of the auctioned capacitywasinonshorewind.SomeoftheseprojectshavealreadyreachedFID.Othersawaitingconstructionareestimatedatover€14bn.
Newannouncedoffshorewindtransactionsareestimatedatacombinedcapacityof3.9GW,as tenderedprojectsawardedsupportareexpectedtogothroughFID.Thisin-cludesanumberofprojectsintheUK,DenmarkandtheNetherlands, as well as floating offshore wind projectsinPortugalandFrance.Financingneedscouldtop€9bnbasedondisclosedtransactioncosts.
Between2018and2020,morethan17GWofaddition-alonshoreandoffshorecapacityisset intheauctioningplansoffourcountries:Germany,France,theNetherlandsandTurkey.Mostofthiscapacity isexpectedtobeauc-tionedin2018.
OutLOOK FOR 2018
3.
30 Financing and investment trends – The European wind industry in 2017WindEurope
4. WindEurope(2017),Thevalueofhedging:Newapproachestomanagingwindenergyresourcerisk.
FIGurE 21 Investment outlook to 2020 (€bn)
Source:WindEurope
7.1 6.1 6.1 6.7
11.3 13.1
9.3
14.8 14.2 13.0
10.4
8.4
6.1 5.0
7.2
8.8
13.1 18.2
7.5 9.0
13.0 13.8
-
5
10
15
20
25
30
2010
€bn
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Actual investments Investment outlook
Onshore Wind Offshore Wind
Financial markets will continue to support wind ener-gyprojectswithsimilar loanpricing,maturityandothercommercialterms.However,thedownwardtrendininter-estratesisexpectedtoslowdown,asexistingcommercialbanksestablish theircompetitiveposition in themarketandthequantitativeeasingprogramoftheEuropeanCen-tralBankcomestoanendin2018.Arebootoftheloansyndicationmarket for offshorewindfinancing is yet tocomein2018,followinganincreaseduptakeincorporatefinancetransactionsbypowerproducersinrecentyears.
Inthelongerterm,windassetownerswillhavetoaddressthe merchant element in wind power projects. Wind-Europeexpectsthatby2030morethan25%ofthewindinstalled capacity will be fully exposed to market risk.4
While banks are used to dealing with portions of mer-chantfinancing,equityinstitutional investorsmayfinditchallengingtoadapttothenewreality.Thisunderscoresthe importanceof financing solutions that factor in thenatureofmerchantriskandstabilisetherevenueflowsintheseprojects.
Outlook for 2018
31Financing and investment trends – The European wind industry in 2017WindEurope
Outlook for 2018
FIGurE 22New asset financing 2010 – 2018 ytd (€bn)
Source:WindEurope
2
4
6
8
10
12
14
16
18
2010 2011 2012 2013 2014 2015 2016 2017 2018
Q1 Q2 Q3 Q4
€bn
During the first quarter of 2018 Europe invested €3bninnewwindenergyprojects.30newonshorewindpro-jects, for a combined capacityof 1.9GW, reachedFinalInvestmentDecision (FID).Non-EUcountries likeRussia,
UkraineandTurkeyarehavingamoreprominentroleinwindenergyfinancing,with0.6GWofnewannouncedFIDsandover€1bnininvestments.
windeurope.org
Rue d’Arlon 80, 1040 Brussels, Belgium T +32 2 213 1811 · F +32 2 213 1890
WindEurope is the voice of the wind industry, active-ly promoting wind power in Europe and worldwide. It has over 450 members with headquarters in more than 40 countries, including the leading wind turbine manufacturers, component suppliers, research insti-tutes, national wind energy associations, developers, contractors, electricity providers, financial institutions, insurance companies and consultants. This combined strength makes WindEurope Europe’s largest and most powerful wind energy network.