Green project finance cost to stay high: banker

LONDON (Reuters) - The high cost of financing renewable energy projects, a key drag on growth, will stay at present levels this year, a senior executive at Netherlands-based Rabobank told Reuters.

A view of power generating wind turbines and solar panels near Mainz, March 10, 2010. REUTERS/Thomas Bohlen

Project finance costs are significantly above 2007 levels, after a financial crisis wrecked banks’ balance sheets, drying up credit and stoking the cost of borrowing.

“We see a little increase in the number of banks that are getting back in business (but) we don’t see too much pressure on that (cost) margin,” said Rabobank’s head of renewable energy and infrastructure finance, Marcel Gerritsen.

Some countries less hit by the financial crisis were seeing more active banks. “I think there may be some margin pressure in those countries but that’s a minority,” he said, citing France. In most countries, project finance costs would remain at present levels through 2010.

However the volume of renewable energy project finance was expected to rise slightly this year.

“There are some big offshore (wind) projects coming to market this year and given their size they require significant amounts of debt.”

Global investment in clean energy fell 6.5 percent last year, the first such drop in at least six years, largely as a result of frozen credit markets.

Offshore wind borrowing costs are even higher than many other renewable energy projects, because of concerns about bottlenecks and technical challenges in an emerging sector which several countries are depending on to meet European targets.

Gerritsen said he had some doubts about whether banks could supply sufficient debt to meet that ambition.

“Our view is that there are gaps between demand and supply,” he said. “That may hinder the growth trajectory that governments in particular are expecting or planning for.”

Britain aims to install 32 gigawatts (GW) of offshore wind by 2020 compared with about 1 GW installed now.

It was “difficult to assess” whether that was achievable, said Gerritsen, depending on whether new banks stepped up, utilities financed some projects using their balance sheet, and equity investors were happy with 10-15 percent returns seen now.

The cost of renewable energy project finance debt in Europe was in general 250 to 325 basis points above the cost of lending, compared with 100-125 basis points in 2007, said Gerritsen. The United States was seeing similar levels.

“We started a team in North America mid last year, pricing there is still very much above 300 basis points and we don’t see (downward) pressure there.”

The costs of offshore wind are higher still, at 300-350 basis points in the case of one European project which Rabobank financed mid last year. “Offshore is a little bit new in the market so spreads are a bit wider there.”