Financing Wind 2015: Europe in transition

It has been a year in the planning and caused many sleepless nights, but it is almost here.

On Thursday, we will host our fourth-annual conference, called Financing Wind 2015, in London. Sponsored by SgurrEnergy the conference will bring together some of the biggest hitters working on the financial side of the wind industry to discuss key issues for next year and beyond.

Speakers include David Jones, managing director of renewable energy at Allianz Capital Partners; Paul Battelle, director of infrastructure and energy finance at Deutsche Bank; and Marc Oman, head of energy procurement for Google’s data centres in Europe. We also expect more than 100 attendees so there will be networking opportunities aplenty.

You can find the full list of speakers here as well as details of how to book your ticket. But that is enough of the sales pitch!

This conference will also give us a great chance to tackle the most important issues for wind investors in the next year, including the sluggish economic growth in established markets in Europe; the role of blue-chip firms in supporting wind with power purchase deals as governments seek to rein in subsidies; and the challenges and opportunities for investors of growing in emerging markets.

These three trends demonstrate how wind investors in Europe are grappling with a period of transition.

Of course, it is true to say that markets never stand still and so are always in a period of transition, but at the moment we are seeing a big shift in how governments give support to wind. We can see this in the way that governments such as Germany are moving away from centrally-set feed-in tariffs and towards competitive auctions.

The reason for this change is simple. Governments say the wind sector does not need as much support as it has had historically because it is an established technology. That ignores the huge subsidies still paid to sectors including coal, oil, gas and nuclear.

However, in our view, the real reason for this shift is that political leaders are worried about the thing they fear most: being voted out.

If feed-in tariff payments keep growing then governments worry
that they look weak and that green energy companies are taking advantage. They are also concerned about the scaremongering stories that over-reliance on wind will lead to the lights going out which, even if untrue, worry voters.

Both of these situations are highly undesirable for political leaders, and so they bring in competitive tendering instead of fixed feed-in tariffs. This introduces more competition into wind, which is a good thing for improving the quality of developers and their schemes.

But there’s a catch. Because it also means fewer projects are financially viable, and so fewer get built. We saw last month how EWEA has scaled back its 2030 forecasts in the light of this trend.

Despite this, the move to competitive auctions should be good for wind investors. On one hand, it means fewer schemes get built, and so investors have fewer projects to put money into. This risks driving the price of wind farms to unsustainably high levels.

And yet this risk is already a reality. As a result of low interest rates, wind farms look more attractive than other types of investments, such as government bonds. We see high prices being paid for even average projects and, in some cases, investors are over-paying.

There will almost certainly be a hit to wind farm prices when interest rates rise and make deals for rival asset classes look more attractive. Investors must be aware of this.

On the other hand, competitive auctions should force developers to improve returns from their projects; and only build those that make most financial sense. Even if the quantity of projects reduces with auctions, we should also see the quality of projects improve.

And that must be in wind’s long-term interests. Interest rates will have to rise sometime, but there will always be investors who want to buy reliable assets at the right price.