Financial Innovation


October 10, 2013

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More innovative financing will be essential in years to come if the wind industry is to meet key investment targets, stressed senior industry figures speaking at our annual members conference, earlier this week.

In other words, the money is there. It’s ready to be put to work and invested.

However, the real challenge lies in developing better financial models through which risk can be better managed and through which capital can be more easily deployed.

It’s a contentious view that will undoubtedly ruffle some feathers.

It’ll also put a spanner in the works amongst the veritable flotilla of European finance ministers, too.

Especially since without tackling this potential market lethargy, there is a growing danger that this will only serve to increase the prospect of a market hiatus. It’s a situation that would subsequently leave EU member states well short of meeting their 2020 clean energy targets.

The thing is though, this really needn’t spell doom and gloom.

Since the North American market – while admittedly still struggling with moving out what feels like a perpetual twelve-month short-term cycle of tax credit renewal – has already evolved its financial modelling and structures quite considerably.

That’s facilitated a wider range of renewable energy investment opportunities and has brought about further sector growth.

Indeed, the area where the US has historically outshone the Europe is in the commoditisation of investment in the form of bonds and securitisation.

As such, if credit ratings agencies can be brought on board to assess (risky) offshore wind energy, then the issuance of listed, rated bonds alongside an increase in the number of initial public offerings can go some way to change the way investment in the sector is perceived.

Time then, for the European markets to begin to follow suit. And in doing so, to develop more innovative financial structures to access alternative sources of debt.

This combined with smaller equity ticket sizes and the careful management of remote risk for yield investors, can help bring together several smaller financiers, minimising and spreading future threats.

Irrespective, there’s little argument that if Europe is to meet its ambitious wind energy investment targets, institutional investors, both at home and abroad, must take a more proactive stance both in future project development and more specifically, in financial services innovation.

Moreover, while political and regulatory certainty is a must, so too is the development of more innovative financial structures that will turn offshore wind into a non-alternative asset class in its own right.

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