The US government’s loan guarantee scheme has come under scrutiny in recent days after the collapse of the JV between Constellation and EDF for a new nuclear plant. But it appears the similar scheme for the solar energy industry is also coming under fire.
A fascinating Reuters report today spells out some of the problems US solar sector has had securing financing on the back of such guarantees. The authors write:
Applicants to the loan guarantee program have complained the process is too lengthy and murky, leading to just a handful of projects winning approval.
They quote Scott Frier, COO of Abengoa Solar, which has two big US plants under development, as saying:
Because the debt market is so thin right now, it is very difficult to find lenders who are able to lend long-term.
But the problem appears to be largely a US one. Industry sources tell me that they find European banks more willing to take on such projects, in part because they are not as risk averse as their American counterparts have become in the wake of the banking crisis.
Fraser McLachlan, CEO of GCube, which provides insurance exclusively for renewables companies in Europe and the US, told me this morning:
I notice the problem much more in North America. There is more appetite to look at smaller projects in Europe than than on some of the larger projects in the US.
In Europe, it is largely the big banks who finance such activity, but a proliferation of smaller funds have become involved too. This is from an email I received last week:
Foresight Group has launched a dedicated £40 million fund in the UK to capitalise on the government’s recently introduced feed in tariffs.
But notice the wording of that sentence. One of the reasons European lenders have been keen to invest in this area is the perceived benign attitude of regional governments. If the UK government decides to retreat from feed-in tariffs in the spending review on Wednesday, you might find lenders start to become more risk-averse.
As for financing through the equity markets, we are about to get an important glimpse into investor appetite with the planned IPO of Italy’s Enel Green Power for a possible $4.7bn. As our Lex team comments:
Governments and power companies talk a good game of renewable energy. But the stocks are a tough sell. The sector’s reliance on public subsidies subjects it to political and regulatory risk.
Enel will hope European investors don’t take fright in the way that US banks have apparently done.