Beyond the borders

February 2018 – For coal, gas and oil, the once-ridiculed alternative energy suppliers of electricity and wind have become serious challengers. But with the establishment of renewables in Germany, their growth momentum is also beginning to weaken. In the future, the greatest economic opportunities are to be found outside of the German domestic market.

Norrbotten in Sweden is not a place for the faint-hearted. Despite being located on the Baltic coast, the northern Swedish province has a harsh continental climate. The temperature differences between summer, with a mean July temperature of 15 degrees Celsius and winter, with up to minus 14 degrees Celsius on average, are large. Accordingly, the wind blows year in, year out – an ideal location for a new wind turbine. Norrbotten’s new ‘North Pole’ onshore wind farm isn’t going to be just another wind energy supplier, but Europe's largest connected wind farm. Construction began in the summer of 2017. The ‘North Pole’ is expected to reach its full power output of 650 megawatts in 2019. The park will ultimately comprise 179 powerful wind turbines, which will generate a planned 2.1 terawatt hours of electricity per year. That's enough to supply more than 500,000 households with green electricity for a year.


Strong partners, minimized risks

The project is sponsored by General Electric (GE) and the Macquarie Group. But the money for the mega-project mainly comes from project funding in the amount of half a billion euros. It’s a huge ecological and economic project, which is however protected against all conceivable political and economic risks by Euler Hermes.

HSH Nordbank is a member of the banking consortium, supported by Nord LB, KfW IPEX and the European Investment Bank. The financial institution ranks among the top five European financiers of renewable energy projects, both in volume and in transactions. HSH Nordbank currently has over 240 projects in the energy and utilities segment as well as existing loans totalling billions of euros on its books. Corporate loans are included in this amount. With more than 50 transactions, HSH Nordbank financed more renewable business than ever before last year – including the funding of around 40 projects and corporate financing for ten manufacturers, project developers, public utility companies and suppliers.

Market readiness and more market economy

As foreign countries are increasingly playing to the tune of renewable energy, Lars Quandel, Head of Energy & Infrastructure at HSH Nord­bank, is setting his sights beyond Germany's borders. This is hardly surprising, as the domestic energy transition has long since prevailed, despite all prophecies of doom. Around one third of German electricity comes from renewable sources such as solar or wind power. At the same time, the establishment of renewables in the country slowed their growth dynamics – a typical and completely natural phenomenon in any mature market. The conditions have also fundamentally changed: the time of feed-in tariffs, fixed for decades, is coming to an end. Alternative energy suppliers and project developers now have to face bidding competition when tendering, which puts pressure on prices and margins. This does not signal the end of the green power trend, however, as Quandel explains: “The sharp decline in auctions for new wind energy projects and an increasing number of implemented projects without legal support show that the industry is becoming more efficient and already fully competitive at good locations.”

Shares of renewable energies in the electricity, heat and transport sectors in Germany

Development of the shares of renewable energies 2012-2016

Shares of renewable energies in the electricity, heat and transport sectors in Germany

Sources: Umweltbundesamt (Federal Environmental Agency)/AGEE Stat

... but on home turf, the momentum is fading, ...

Development of installed wind power in Germany (onshore and offshore) since 1998

Development of installed wind power in Germany (onshore and offshore) since 1998

Source: Fraunhofer IEE

However, the speed of expansion in this country is unquestionably slowing. This is also down to the fact that the windiest onshore sites for energy windmills on coasts and mountain tops have long been developed. Outside Germany, the picture looks quite different; many countries are only beginning to follow the energy transition example set by the Federal Republic. China and the USA, for example, score significantly higher growth rates for new wind turbines compared to Europe. More than 40 percent of the wind power installed worldwide already comes from Asia; the tendency is that this will continue to rise.

“German expertise is in high demand abroad.”

Lars Quandel, Head of Energy & Infrastructure at HSH Nordbank

Go West

But there is still a lot happening in Europe as well. The mega-wind farm in Norrbotten, Sweden is a prime example of this. HSH Nordbank hopes that the ‘North Pole’ project in particular will function as a kind of door opener for further financing in the Scandinavian region. Ireland is also one of the bank's major foreign growth markets in the energy & utilities sector. There are also the newly developed markets of Portugal and the Netherlands; HSH Nordbank completed transactions there for the first time in 2017 and provided loans for the refinancing and financing of solar parks. The financial institution also plans to implement renewable pioneering projects in Canada and the US this year. The ongoing coverage of Donald Trump's policies and the supposed renaissance of fossil fuels in the US are currently somewhat obscuring the major market opportunities offered to German energy companies in North America. Even in the USA, too, there is no escaping sun, wind and the rest as clean energy suppliers in the long term.

... while energy transition is becoming an export hit

Worldwide installed nominal output of wind turbines in megawatt in 2016 by region

Worldwide installed nominal output of wind turbines in megawatt in 2016 by region

Source: Fraunhofer IEE/Global Wind Energy Council 2016

“German expertise is in high demand abroad,” notes Quandel again and again during his many travels and encounters. He went on to say, “Assisting German customers abroad is the key to further growth for us.” Experience, confidence and the right weatherproof clothing help against the sometimes rough market winds in Norrbotten and other such places.

“Assisting German customers abroad is the key to further growth for us.”

Lars Quandel, Head of Energy & Infrastructure at HSH Nordbank