Banking on a cleaner future

KfW Bankengruppe's lending – almost a third of which went to climate and environment projects last year – highlights the key role of development banks in the clean energy sector.

Who is the most important player in the world clean energy sector? Vestas Wind Systems, the world’s largest wind turbine maker perhaps, or Suntech Power Holdings, the biggest PV module maker, or Iberdrola, the world’s leading developer and operator of wind farms?

Well, maybe. But a good case could also be made that there are no more vital actors in renewable power worldwide than the organisations supplying money for projects – some of them commercial banks or private sector investors, but some of them state-owned lenders. The latter tend to feature in many of the biggest-ticket deals in the sector.

Last month, the US Federal Financing Bank scooped top position in Bloomberg New Energy Finance’s league table for lead arrangers in asset finance in 2011, thanks to its provision of loan guarantees to huge projects such as the BrightSource 392MW Ivanpah solar thermal portfolio and the 290MW Agua Caliente PV plant.

The activity of the Federal Financing Bank last year temporarily put into the shade the role of a group of state-owned lenders that have been indispensable supporters of the low-carbon energy transition for many years – the world’s development banks.

Last week, Germany’s KfW Bankengruppe revealed that it committed €22.8bn ($US30bn) to climate and environment projects last year, almost a third of its entire lending. It broke this down further, to show €9.4bn lent for renewable energy, €10.1bn for energy efficiency, and €3.3bn for other areas such as waste control.

KfW’s lending to renewable energy in 2011 included funding for a 125MW PV park in India, and for the 288MW Meerwind offshore wind project in the German part of the North Sea. There were also loans from the commercial banking arm, KfW IPEX, such as for a 272MW wind farm in Canada supplied by turbine maker Enercon, and for a 34MW wind farm in Croatia.

The Frankfurt-based development bank has become a particularly vital participant in offshore wind, via a EUR 5bn project loan programme introduced by the German government in June 2011. This approach will enable KfW to participate in bank syndicates up to a maximum of €400m per project, or by combining that with a loan to a commercial bank to be “on-lent” to the project. There is also the option of offering an additional loan to cover contingent costs. The only conditions for this programme are that a commercial bank acts as lead arranger, and that equity makes up one third of total capital costs.

KfW’s loans for renewable power are difficult to compare in size with those of other active development banks such as the European Investment Bank and Brazil’s BNDES – because KfW backs a lot of small-scale installations, as well as utility-scale ones, and also refinances commercial bank loans to projects in Germany.

The European Investment Bank is expected to report in coming weeks that its lending to renewable energy in 2011 was somewhat lower than the €6.2bn figure achieved in 2010. If that is correct, the setback will represent not a change in EIB priorities, but the fact that many projects were delayed by policy uncertainty or market turmoil during the year, and so did not reach financial close.

KfW’s loans to climate and environmental protection in 2011 were down on the previous year – almost 10 per cent lower than 2010’s €25.3bn. However the bank said in its statement last week that lending to this area made up 32 per cent of overall promotional business volume, and that share “is to increase this year”.

Meanwhile, the Madrid city and region is selling almost 30 per cent of water company Canal de Isabel for €1.1bn, with ACS, Acciona and Agbar reportedly showing interest, according to El Confidencial. Volkswagen, Europe’s largest carmaker, will build the $US92m, 25.5MW Monjolinho hydro-electric plant in Brazil by 2014, Bloomberg News reported. Austria’s Andritz won a contract to supply equipment for the 300MW Reventazón hydropower plant, Costa Rica’s largest, the company said. France’s Alstom won a contract worth over €20m to supply equipment for Sinohydro’s 120MW Itezhi-Tezhi hydro dam in Zambia, the company said.

Mozambique won $US39m from the African Development Bank to fix the Massingir dam to minimise flooding, according to state-controlled Radio Mocambique. Meanwhile, more water financing was announced for South Asia last week. West Bengal will receive $US200m for a water supply project from the Indian rural development ministry, and as much as $US 600m more in soft loans from the World Bank and Japan International Cooperation Agency, the Calcutta Telegraph said, while the Times of India reported that the French Development Agency will loan $US126m for a water supply project in Jodhpur. The World Bank will also provide $US250m for the Punjab Irrigated Agricultural Productivity Improvement Programme in Pakistan, the country’s Business Recorder said.

Elsewhere, the lifetime of nuclear reactors featured prominently last week, as Japan looked to limit them following the Fukushima disaster and France conceded it had little option but to extend them. Japan approved curtailing the operational life of nuclear reactors at 40 years, with only limited chances for extension, the Washington Post said. In France, however, a report by a government agency said France has little choice but to extend the lives of its reactors beyond their 40-year certification, the New York Times reported.

Policy also featured in the UK, as GDF said it would not start building its new nuclear plant until it receives assurances that the UK’s forthcoming carbon price floor will not wipe out profits, Bloomberg News reported. Meanwhile, China is expected to start approving nuclear plants again, ending a post-Fukushima moratorium, but at a slower rate of three or four plants per year than the 14 approved in 2008, China Daily said. China Guangdong Nuclear Power Corporation moved closer to gaining control of the world’s fourth largest uranium deposit, Extract’s Husab project in Namibia, after Rio Tinto agreed to sell its 11 per cent stake in Kalahari Minerals, Bloomberg News reported. Alstom received a $US500m order for turbines for a nuclear plant at Kalininigrad, part of a joint contract with Rosatom’s Atomenergomash unit worth $US1.2bn, the Moscow Times said.

Reproduced with the permission of Bloomberg New Energy Finance. For further information, see www.newenergyfinance.com