Monday, October 04, 2010

Financing a Green Revolution in Europe

Euractiv: Europe's "Green Revolution" Off to a Patchy Start

EBRD: EBRD Co-Finances the Largest Wind Farm in Poland

EIB: Spain: EUR 200 Million EIB Loan to BBK for Financing Project of Companies and Local Authorities

The Economist: Wild Is the Wind

The current political and economic priority across Europe is job creation. A key part of the European Economic Recovery Plan is increasing the number of “green jobs.” Green jobs are jobs in clean energy, such as building and installing wind turbines or solar panels. Europe is using its development banks to help transition its economy from one powered by coal to one powered by clean energy.

The European Investment Bank (“EIB”) and the European Bank for Reconstruction and Development (“EBRD”) are both providing funds to green energy projects to continue their funding in a frugal budgetary environment. The EIB has given a 200 million loan to small and mid sized companies and local governments through Bilbao Bizkaia Kutxa (“BBK”), a savings bank. Additionally, BBK matched the EIB’s loan with 200 million of its own, meaning 400 million will be available for investment projects of smaller and midsized companies and to increase the companies’ use of clean energy.

Also, it will give credit to many small businesses that have struggled to secure loans during the recession. Small companies are generally perceived as less stable than large ones. Small businesses borrowing costs greatly increased during the recession and are still fairly high, although the costs have declined.

The EBRD is providing a 45 million loan to Poland, which the EIB has matched, to co-finance the construction and maintenance of the Margonine wind farm, the largest in Poland. The loan by EBRD represents one in a series of investments in Polish renewable energy. The EBRD has also invested in Eastern Europe and even Mongolia, with investments totaling over 350 million.

Despite significant investment from the EIB and EBRD, the wind power market is sluggish. Governments are trimming budgets after extensive spending on stimulus packages to combat the recession, and subsidies are a prime target for budget cuts. Demand for windmills is expected to fall by 14-15% in Europe this year, according to HSBC bank.

Also, 40% of windmills in Europe are financed by debt. Wind farmers are finding it hard to borrow because continued government support is uncertain, raising risk to potential investors in wind energy. The cost of borrowing for wind farms has tripled since 2009. Credit limitations and budgetary concerns pose a serious threat to wind energy’s development. For Europe to transition to a green economy in a harsh economic climate, investment from the EIB, EBRD, and similar institutions will be necessary.

1. Are Europe and its development banks efficiently spending their money by placing it in green energy?
2. Is Europe’s development of clean energy motivated more by fear of dependence upon Russian oil, or by actual desire to prevent climate change?
3. Why would the EBRD invest in Mongolian wind farms?

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