Small investors keep wind on the move

GERMANY: Instead of heading for the bank, small wind developers are covering their equity needs for project development by inviting small investors to buy profit-participation rights known as Genussrechte.

In October, German wind developer Abo Wind announced that it was issuing EUR5 million in Genussrechte with a minimum investment sum of EUR2,500. Investors get an interest rate of 8% plus a guaranteed profit participation of 0.2%. The funds will be used in a rolling system to provide the equity finance for new wind farms. When a wind farm is sold, the equity finance is released for investment in the next project.

"A company credit from the bank would cost about the same, but Genussrechte are more secure," said Alexander Koffka of Abo Wind. When Unikredit bank was unable to syndicate a loan for a German offshore wind project two years ago, it reacted by reducing its exposure in the wind-energy sector.

"The bank gave Abo Wind six months' notice on a EUR2 million company loan even though our credit rating was unchanged and we needed the funds," he explained.

In contrast, the Abo Wind Genussrechte have a five-year term with a notice period of six months, and are then extended year by year. But not all investors will want their money back at the same time, Koffka said. Currently around 1,300 investors own Abo Wind Genussrechte with a total volume of EUR10 million from previous issues.

There is a clear trend of developers issuing more Genussrechte, Gabriele Glahn-Nussel, investment counselling expert at the German Umweltbank said.

She cited two main reasons. First, there are tighter conditions placed on provision of bank loans so alternative sources of finance are being sought. Second, Genussrechte have gradually increased in popularity as a means for small investors investing in wind and other renewable projects since a change in tax law in 2005 undermined the attraction of the so-called closed-end fund mechanism that had served this purpose until then.

The Umweltbank pioneered the use of the Genussrecht for renewables projects in 2005 - until then a seldom-used mechanism and still largely unknown outside Germany.

Other companies using Genussrechte for wind development include Boreas Invest, Prokon, Enertrag and Windwaerts. In such offers, investors have to be informed that profit participation rights can also result in losses. Investors' rights in these cases rank below those of other creditors in the queue for reimbursement should the companies run into financial trouble.

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