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Germany

Germany

The wind fund model

Closed-end wind funds have been the favoured investment vehicle for raising capital for financing the construction and subsequent operation of an individual or group of wind power projects in Germany. The wind fund capital would typically meet 30-40% of the entire project cost, with the remainder provided as a "soft" loan with low interest rates from Germany's development bank, KfW. Investors in wind funds are often professionals looking to lever the tax advantages on offer for such investments.

A key to the success of closed-end funds is the fixed payments that power companies are required by law to pay for all output from wind plant. In effect, the government guarantees a return on the investment.

Over the last two years alone, about 37% of all wind energy investment in Germany has been in wind funds, leading to the financing of 1200 MW in 2002 and 1000 MW in 2003. Individual ownership of single or groups of turbines probably accounted for about the same volume of wind investment as closed-end wind funds. Private equity companies or corporations are largely responsible for the remainder.

A "closed end" fund, as its names suggests, is an investment vehicle which only raises money once. It is then closed. There is no new investment and the money is returned to investors when the fund is shut down at the end of its life. In an "open ended" fund, such as most mutual or stock funds, investors can increase their participation or take their money out. Investors in closed-end funds are typically not able to sell their investment until the fund is shut down.

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