Financing and investment trends - windeurope.org · This report summarises financing activity in the European wind sector from 1 January 2017 to 31 March ... equity of project owners

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.


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.


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


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


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.


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

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30

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2010 2011 2012 2013 2014 2015 2016 2017

€b

n

New asset financing Refinancing Project acquisitonsCompany Acquisitions Capital markets


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


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

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2010 2011 2012 2013 2014 2015 2016 2017

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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.




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


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.

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Germany UK

Sweden

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Turkey

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Netherla

nds

Finland

Others

Ca

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fin

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GW

New

ass

et f

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in €

bn

Offshore Onshore Capacity GW




FIGurE 7 Investments in new power capacity in Europe, 2010 ‒ 2017 (€bn)

Source:WindEurope

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15

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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.


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

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15.5

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2010 2011 2012 2013 2014 2015 2016 2017

€bn

Construction debt Refinancing debt Total non-recourse debt


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

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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.


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.




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

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2010 2011 2012 2013 2014 2015 2016 2017

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€bn

Onshore wind refinancing debt Offshore wind refinancing debtTotal refinancing debt


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

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2010 2011 2012 2013 2014 2015 2016 2017 2018

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Offshore wind farms Linear (Offshore wind farms)

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Austria

Belgium

Bulgaria

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Cypru

s

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Greece

Hungary

Irela

ndIta

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Netherla

nds

Poland

Portugal

Romania

Spain

Sweden

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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.




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.


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%




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.


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




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*



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.


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.


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


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.

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Financing and investment trends - windeurope.org · This report summarises financing activity in the European wind sector from 1 January 2017 to 31 March ... equity of project owners