Austria: How to De-Risk Renewable Investments in Industry
Wed, 9 August 2017
Two-thirds of the 71 companies listed on the World Map of Solar Process Heat Specialists 2017 agreed that achieving bankability for solar process heat projects required huge efforts to be made. They said that key barriers to implementation were a lack of technical expertise in risk assessment at financial institutions and the relatively small investment amounts in individual projects. To rectify this situation, EU project TrustEE is aiming to combine several of industry’s energy efficiency and renewable energy (EE+RE) investment projects into one package to be offered to pension funds and assurance companies. Important financial terms can be found in the glossary at the bottom of this article.
“We are developing a standardised risk assessment process for efficiency and renewable energy measures in industry to comply with global project finance standards such as the Securitisation Law in Luxembourg,” explained Dr Edgar Rosenmayr from Austrian financial services provider Reenag Holding, one of TrustEE’s partners. The standardised requirements for assessing and evaluating projects cover three major aspects:
Financial: determining KPIs such as IRR or NPV (see glossary)
Risk: assessing the probability of default and integrating risk insurance measures
Technical: evaluating a technology for meeting expected CO2 saving or energy yield targets
Rosenmayr believes that investment packages above EUR 5 million will be an interesting financing option for the TrustEE fund platform.
Together with Austrian-based AEE INTEC and German-based Fraunhofer ISE, TrustEE has been focusing on RE+EE projects implemented at SMEs in industry. SMEs are particularly vulnerable to market forces because of high transaction costs associated with their risk assessment checks (also called due diligence checks) and insufficient performance and credit guarantees. TrustEE has called on project developers and turnkey solar thermal suppliers to suggest proposals for consideration by the EU project.
But TrustEE also looks at the industry’s stock market-listed businesses. Regarding this target group, the approach is to isolate EE+RE investments from the usual system costs to achieve a balance sheet-neutral outcome. This is where energy service companies (ESCOs) come in. Letting an ESCO run EE+RE measures over time means they can be distinguished from the production plant investment. The chart above shows that 79 % of the turnkey SHIP suppliers on the world map believe in heat supply contracts being an important model to increase the number of solar heat projects in industry.
Rosenmayr is planning an assessment of the first RE+EE projects by the end of September and will present its outcomes at the Alpbacher Finanzsymposium (4 to 6 October 2017) in Austria during a 1.5-hour session dedicated to strategies for de-risking and financing EE+RE projects in industry.
Websites of organisations and projects mentioned in this article:
A key performance indicator (KPI) is a measurable value to demonstrate the financial attractiveness of an investment.
The net present value (NPV) is used to analyse the profitability of an investment. The NPV shows the difference between the present value of positive cash flows (earnings) and negative ones (financial and O&M costs) during the operating lifetime of an energy-saving measure.
The internal rate of return (IRR) is a method to measure the profitability of investing. The IRR sets the NPV of all investment cash flows (positive and negative) to zero.
Risk assessment is the determination of risks related to investing. Regarding EE+RE measures in industries, risks are linked to whether
an EE+RE technology produces the expected yields;
energy demand by the end user remains constant during the investment period;
the solvency of the turnkey supplier or ESCO is guaranteed throughout the operating lifetime.
Due diligence is an investigation by a private investor or financial institution before signing a purchase agreement or loan contract. A check list for due diligence in project financing includes the
experience and solvency of project implementers;
implications of political, geographic or topological features of the site;
technical maturity and default probability of EE+RE measures;
integrated risk insurance.
Securitization Law of Luxembourg
The Securitisation Law offers globally accepted financial guidance on evaluating and reducing risks in financial transactions or debt financing.
Bärbel Epp is Founder and Director of the German communication and market research agency solrico and editor-in-chief of solarthermalworld.org