European banks are financing more renewable energy projects: Moody’s

topic26jul19

Banks in Europe have syndicated more than 100 billion Euros of loans for renewable energy projects since 2013, says Moody’s in their report, Going green: Renewable energy projects are a growing asset class for European banks. These loans are being issued by a wide variety of banks, which fall into three broad categories:

  1. Large European banks, including BNP Paribas, ING Bank NV, Rabobank and UniCredit SpA.
  2. Large International banks, including Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial Group, both from Japan, as well as US banks Goldman Sachs Group and Citigroup.
  3. Smaller regional banks, including KfW IPEX, Norddeutsche Landesbank GZ (NORD/LB) and Hamburg Commercial Bank, all from Germany.

For some of these smaller banks, renewable energy is an important asset class – their willingness to invest in this suggests long-term assurances for the future of renewable energy. For KfW IPEX and NORD/LB, renewable energy accounts for 1.7 times their Common Equity Tier 1 (CET1) capital, or six billion Euros and 10 billion Euros respectively. In contrast, BNP Paribas has an exposure of 12.3 billion Euros, or 16.5 per cent of their CET1 capital. 

There are three main reasons for banks’ increased confidence in renewable energy:

  1. Technological progress has made renewable energy cost competitive. In the EU, despite governments providing little to no subsidies, there has been a decline in equipment costs and an increase in economies of scale in renewable energy production. This has led to a decrease in cost, allowing renewable energy producers to bid competitively against each other at auctions to put renewable energy-based electricity on the national grid.
  2. Big tech companies are procuring renewable energy. Large corporations including Microsoft and Google’s parent Alphabet are switching to renewable energy to meet their sustainability goals. Through Corporate Power Purchase Agreements (CPPA), these companies offer renewable energy projects a long-term demand commitment.For more information about the risk profiles of banks with exposure to renewable energy projects, please read Going green: Renewable energy projects are a growing asset class for European banks.
  3. Renewable energy will remain at the top of the EU’s agenda. As part of the EU’s commitment to align with the Paris climate accord, the share of energy from renewable sources needs to increase to 32 per cent by 2030. Projected additional investments are estimated at 180 billion Euros a year.For more information about the risk profiles of banks with exposure to renewable energy projects, please read Going green: Renewable energy projects are a growing asset class for European banks.

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