Financing bottleneck threatens progress -- Investors could be in short supply

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Projects already planned by Germany's commercial wind plant developers could become stymied for lack of money. Not only is finance being sought for this year's projects, there is also a backlog of plans from 1999 in need of investment. As a result, wind projects seeking DEM 1.3 billion in capital are now competing for investors, according to Stefan Loipfinger, an independent analyst who contributed to a report by Nord/LB Research of Hannover for Energiekontor, one of Germany's major wind developers. This is three times the capital invested in wind development last year.

Start-up finance for wind projects is raised by developers through "wind funds" which are set up to attract seed capital for specific projects or groups of projects. Fund investors become the owners of the plant, which get the rest of their finance from bank loans. Wind funds have specific tax advantages under German law, but they must compete with other fiscally-advantaged funds to win investors, including those for the shipbuilding and aviation industries, leasing and media funds, closed property funds, private equity and venture capital and foreign funds.

Last year, wind funds made up no more than 2% of this finance market, just DEM 394 million. Indeed the sum raised was DEM 500 million less than in 1998, says Loipfinger. This year he forecasts that wind funds will make up 6% of the market and require investment of DEM 1.1 billion. That amount is questioned by wind project financier Jörg Bold of Bobikiewicz and Partner, who suspects that Loipfinger's market survey could have counted projects twice. Even so, sizeable investment sums are required.

The potential wind funding bottleneck facing developers is partly the result of projects backlogged from 1999 because of the uncertainty over the future of Germany's wind law, which discouraged investors. The situation is also exacerbated by a change in income tax law aimed at closing the tax haven for investments where the returns after tax were more than twice as high as those before tax. Losses may now only be written off against earnings from the same investment, or similar investments, instead of against all sources of income. Furthermore, it seems the government intends to stop fast depreciation of wind plant over just 12 years.

Waiting for clarification

"Regulations clarifying the tax law changes were ready around early June, but the North Rhine Westfalia finance ministry, which initiated the changes, raised objections. It's all now on ice and we don't know when it will move again," says Kai-Kristian Meyer of wind financing company, König and Cie Emmissionshaus of Hamburg. Until the tax write-off rules are clear, investors are being advised by some accountants not to sink money into new wind funds, says Meyer.

With new fixed tariffs in place, however, under the Erneuererbare-Energien-Gesetz (EEG) law, investor confidence is returning. The EEG gives developers enough latitude to change their wind fund investment structures to soften the effect of the tax law change, says Karin Meibeyer of Nord/LB Research.

Bobikiewicz and Partner agrees. "This year we will continue to work with our existing finance products but by spring 2001 we'll have developed a new concept, know-how, new marketing methods and will present a new product which takes into account the changed tax situation," says Bold. He expects to do more financing abroad "where we will have to work without tax write-offs anyway."

It remains to be seen whether wind funds will once again become attractive enough to pull in the large sums of money being sought. EnergieKontor of Bremen, one of ten commercial wind power developers in Germany (table), is alone seeking investors for six separate wind funds aiming to raise DEM 102.5 million to build 42 MW of wind plant. Among its projects is an offshore wind station at Nordergruende, which it hopes to start building in 2004 at a cost of DEM 709-DEM 810 million, depending on the number of turbines.

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