Development bank will invest as UK waits at starting line

OFFSHORE: German bank KfW Bankengruppe and the Federal Ministry for the Environment have kicked off a new offshore wind energy programme, making EUR5 billion available for financing offshore wind farms.

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In the UK, meanwhile, progress with the Green Investment Bank (GIB) has been criticised by employers' federation the CBI, which has accused the UK government of failing to provide sufficient detail to inspire confidence among potential investors in the "green economy".

The German offshore wind energy programme comes as the country faces an energy deficit after announcing the abandonment of nuclear power generation (see page 59).

KfW chief executive Dr Ulrich Schroder says the programme is an important building block in the development of offshore wind. "With the new offshore wind energy programme, as promotional bank, or lead arranger, we provide the financial impetus to use innovative wind farm technologies at sea," Schroder says.

"We expect the programme to facilitate intended future private financing of offshore wind energy."

In exchange for allowing KfW to invest in project companies and take around a third of the equity, developers will have access to one of three financing options providing up to EUR700 million in debt.

Three finance options

The bank says that projects can then be co-financed by one of the three options: direct loans made by bank syndicates up to a maximum of EUR400 million per project; a financing package comprising a commercial bank loan and a KfW loan up to a maximum of EUR700 million per project; or a direct loan for financing contingent additional risks, up to a maximum of EUR100 million per project.

The maximum loan term available for each of these financing arrangements is 20 years, with no more than three redemption-free start-up years.

Meanwhile, in the UK the CBI published its latest Climate Change Tracker report, saying it wanted to see more measures to encourage investors in green projects such as offshore wind. The government's response is that it believes that the GIB, the Fourth Carbon Budget and the Energy Market Review White Paper, due later this month, are all contributing to the "greenest UK government ever".

Low-carbon energy trade body Renewable UK says that, although KfW and the GIB share a facilitating investment role, they are different types of organisations.

"Germany's KfW has a pedigree going back many years and now has a more direct lending role than the Green Investment Bank will have," says Renewable UK head of economics Paul Bourke.

"The UK Bank will focus more on underwriting construction risk, is not on the same scale and is starting from scratch. Nevertheless, we welcome it, it is a positive development. The earlier it starts operating the better."

Scope of the GIB

In June the UK's Department for Business (DECC) published a progress report on the GIB that outlined some of the risk-mitigation products it would be likely to offer. These include junior debt tranches for the construction and operating phases of projects.

These "first loss" loans - a small portion of the overall debt - would provide a protective buffer for the senior debt against any losses and would improve projects' credit ratings, making them easier to finance.

A refinancing commitment allowing an exit for long-term bank finance after the construction phase was also suggested, along with the provision of equity and senior debt.

At the end of May, UK deputy prime minister Nick Clegg announced that the GIB was on course to finance £15 billion (EUR17.2 billion) of low-carbon investments, including wind energy schemes, over the next four years.

The DECC progress report has since confirmed a start date of April 2012, with powers to borrow from 2015 subject to European Commission state-aid approval.

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