UK: September 16, 2008


LONDON - The renewable energy sector will see a 21 billion euro (US$29.43 billion) shortfall in debt finance by 2020, following the credit crisis and a brake on lending, a senior banker said on Monday.


Investors at a renewable energy finance conference in London tried to digest the implications of a banking hiatus following Lehman Brothers' filing for bankruptcy and Bank of America's acquisition of Merrill Lynch.

The European Union has set a target of getting one-fifth of its energy from renewable sources, including wind, sun and biomass, by 2020.

European wind and solar power projects drew 18 billion euros investment in 2007 and needed about 85 billion euros annually by 2020 to meet the EU's target, said Tanja Cuppen, a renewable investing executive at Rabobank.

However, the pace in growth of the sector, coupled with less appetite for long-term lending, would contribute to a 21 billion euros debt finance shortfall, she told conference delegates.

"The credit crunch will have a major impact on the renewable energy sector," Cuppen said. "I think we haven't had the worst yet."

The sector, which provides low carbon alternatives to fossil fuels and is supported by government subsidies, has become more competitive recently due to high oil, gas and power prices.

However, energy infrastructure projects are hurting because the banks, faced with the threat of more loan defaults, are limiting lending.

"Debt markets are much tighter than 12 months ago and are set to get tighter," said Ian Simm, chief executive of Impax Asset Management, which invests in clean energy, water and waste.

The result has been "the worst liquidity crisis in recent memory", said Andrew Marsden, managing director for Europe at GE Capital, which has a US$4 billion portfolio of renewable energy assets.

However, Marsden added: "Money is still there for renewables, (especially) private equity."


GAP

The sector will need to attract new sources of debt -- such as from pension funds, or re-allocated capital from other areas of bank finance, Rabobank's Cuppen said.

The offshore wind energy sector was showing "sub-prime" symptoms, said Kevin McCullough, chief operating officer of RWE's renewable energy business, comparing current prices of offshore wind projects to the high-risk US real estate sector before the recent blow-out.

Investors have been paying too much for undeveloped offshore sites that only have planning permission, failing to take into account the soaring cost of wind turbines and cables, he said.

"I think that very many of the projects being developed now will be hugely out of the money," said McCullough.

Britain is preparing a strategy to meet the EU renewables target. One scenario targets 15,000 megawatts (MW) of offshore wind by 2020 compared to 600 MW currently installed, said Simon Virley, head of renewable energy at Britain's Department for Business, Enterprise and Regulatory Reform.

Such government drives are a double-edged sword, both underpinning growth in the renewable energy sector and raising costs by creating a rush to fill that new demand.

However, falling oil prices may signal a broader turn in the commodity pricing cycle, which could ease such costs, said Michael Liebreich, chief executive of research firm New Energy Finance. (Reporting by Gerard Wynn, Editing by Karen Foster)


Story by Gerard Wynn


REUTERS NEWS SERVICE