Danes invest in foreign projects -- Small bank, niche business

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A small bank in the town of Ringkøbing in the windswept and sparsely populated west of Denmark has carved out a niche for itself as a specialist lender to small wind power projects. Over the past 12 years, Ringkjøbing Landbobank ("country living bank") has lent DKK 2.24 billion (EUR 300 million) to Danes investing in new wind turbines in Germany and France. It is now preparing to expand into other wind markets, including those of Sweden, Bulgaria and the Baltic states. It has already taken first steps into Britain.

The non-recourse loans are on a project finance basis with repayment of debt and interest covered by earnings from sale of electricity. No further security for the loan is required. Owners are typically expected to stump up an equity share of 20% to 40% of the capital investment, depending on who is applying for the loan and the expected profitability of the project. The equity expectation is generally lowest for German projects where the repayment period is "reasonably secure, both with regard to purchase prices and wind conditions," says the bank's Lars Knudsen.

He declines to be specific about interest rates, saying that it depends on the project, the market, the currency, how long the loan will run for and if a fixed or variable rate is selected. But for German projects, the bank has full access to the low interest loans provided to the German wind sector by the country's development bank, KfW, adds Knudsen. While the KfW money is generally administered by local German banks, Ringkjøbing Landbobank has access to the funds on an equal footing with its competitors south of the Danish border.

New markets

The bank established its wind turbine investment division in 1995, purely focussing on the Danish market. "In 2000 we could see that there were few prospects for installing further wind turbines in Denmark so we began looking for new markets. Germany was the first," says Knudsen.

Since 1995 the bank has provided both construction loans and final debt requirements for about 200 wind turbines in the 2 MW size range costing DKK 23-27 million (EUR 3.1-3.6 million). The loans make up about 16% of the bank's overall business. The Danish investor most often owns just one wind turbine, but in some cases Ringkjøbing Landbobank has provided loans for up to four or five turbines, representing a total investment in the region of DKK 100 million. Danes make up 99% of the wind turbine investors in both Danish and German projects, but a loan is not conditional on nationality, says Knudsen.

Thorough ground work, particularly with regard to wind measurements, lies behind the bank's success, according to Knudsen. Ringkjøbing Landbobank demands three independent estimates of wind strengths and likely wind turbine output as a condition of its loans. In that way it avoids the kind of nasty surprise suffered by German investors who discovered they had made investments based on overly optimistic wind strength forecasts (Windpower Monthly, July 2007).

For this reason neither the bank nor its wind turbine investors have faced bankruptcy or lesser financial catastrophe due to a wind project not meeting production forecasts. Some, however, have had to accept that their investment in a wind turbine in Germany has not been as good as expected.

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