European wind investments up 9%

EUROPE: Investors in new wind farms got more for their money last year as auction systems and technological advances drove down costs, according to a new report.

New asset financing accounted for 43.55% of total investments last year (pic: WindEurope)
New asset financing accounted for 43.55% of total investments last year (pic: WindEurope)

A total of €51.2 billion was invested in wind power across the continent in 2017, up 9% on the previous year, new figures show.

The development of new wind farms accounted for €22.3 billion (43.55%) of this total, with the remainder made up by refinancing of existing sites, acquisition of projects and companies involved in wind, and public market fundraising.

Investments in new wind farms fell 19% from the €28 billion spent in 2016, but this covered more capacity — 11.5GW in 2017, compared to 10.3GW the previous year.

This change reflects the falling costs of wind power, WindEurope stated in its Financing and Investment Trends report.

WindEurope chief policy officer Pierre Tardieu added wind was "delivering more capacity for less money".

"This is largely due to increased competition in auctions and technology advances that are driving cost reductions in the supply chain," he said.

Auctions across Europe repeatedly resulted in cost reductions last year.

In Germany, for example, the weighted average winning bid of €38.20/MWh in November was 16% cheaper than the €42.80/MWh offered in August, which in turn was 25% cheaper than the €57.10/MWh average in May.

Meanwhile, offshore strike prices of £57.50/MWh (€64.10/MWh) in the UK’s second auction round in September reflected a price reduction of more than 50% from a previous auction round in February 2015.

The competitive pressure of auctions and the maturity of the wind power sector as a whole is changing the way projects are financed, WindEurope added in its report.

Power producers still carry projects on balance sheets through to Final Investment Decision (FID), but refinancing or the sale of minority stakes in wind farms takes place much earlier in the financial arrangements of a project, the authors stated.

Partnerships have already been developed through years of experience and a growing confidence in the sector makes it easier for developers to sell projects, the authors added.

More investors are entering projects as equity partners, particularly from the financial services industry, WindEurope noted. These partnerships allow smaller producers to recycle capital to finance new wind farms.

Market share of banks active in wind energy financing in 2017

Eighty-two lenders were active in European wind last year, including multilateral financial institutions, export credit agencies and commercial banks from both Europe and Asia.

Green bonds are emerging as an alternative source of debt and helping risk-averse institutional investors — the "main subscribers to these bonds" — gain access to the wind sector, WindEurope stated.

Last year, €17.5 billion was raised through green bonds — more than the amount raised during the last three years combined, Wind Europe found.

This shows investors "have more and more trust in the industry and are confident they will see a healthy return", it claimed.

Green bond issuance, 2013-2017

Of the €17.5 billion total, €8.5 billion was in corporate renewables portfolios, €7 billion was in wind power, and €1.9 billion was in transmission lines.

At least 40% of this total was through companies directly operating in the wind power industry, WindEurope added.

The issuance of project bonds is also steadily growing, with €3.6 billion was raised last year, WindEurope found.

Project bonds for three offshore wind farms — Borkum Riffgrund 2, Walney Extension and Norhwind — raised €2.5 billion of this total.

Investors are also coming from further afield, with 20 European countries making investments in 2017, compared to 16 a year earlier.

Investment in southern and eastern Europe remained low, representing 16% (€3.5 billion) of total new assets financed in Europe.  WindEurope claimed "a lack of regulatory stability" was to blame for this.

The report’s authors added: "Investor confidence (in southern and eastern Europe) has been slow in recovering mainly due to macroeconomic and political factors."

Tardieu added with auction systems "settling down" and successful projects reaching FID, "the outlook for 2018 is strong with investment volumes expected to increase".

Between 2018 and 2020, more than 17GW of additional capacity is expected to be auctioned in just four countries — Germany, France, the Netherlands and Turkey — with most of this capacity expected to be auctioned this year, WindEurope stated.

"The investment outlook to 2020 is strong but there remains a lack of visibility on new projects after 2020.

"Having visibility throughout Europe is crucial to providing the right investment signals," Tardieu noted.

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