• A scarcity of pre-construction financing is likely to drive
  consolidation among independent project
  developers  
  
  
  
  



• Governments need to make a long-term commitment to the sector:
  stable, long-term government policies and support frameworks are
  essential to underpinning sector confidence and investment
  
  
  
  



• Technology-mature and capital efficient sub-sectors like solar,
  onshore wind, energy efficiency and energy storage, are attracting
  the majority of equity and debt finance
  
  
  
  



• Less advanced subsectors such as biofuels, marine and green
  transportation are proving harder to finance

Cleantech & renewable energy - European funding gap
survey



href=”http://www.taylorwessing.com/recent-news/details/futureenergy/default.html”
target=”_blank”
title=”Bridging the Funding Gap: The financing challenge for European cleantech and renewable energy”>
Bridging the Funding Gap: The financing challenge for
European cleantech and renewable energy was
compiled in conjunction with specialist data and research provider
Clean Energy pipeline (owned by VB/Research) and is based on a
survey of over 200 senior executives active in the sector. The
report looks behind the figures and examines the important issues
for market participants. The following represents a summary of the
key findings.



Industry growth hampered by acute “early-stage” funding
gap



The survey highlights an acute early-stage funding gap for European
corporates. This has been created by a funding drought that has
seen average quarterly early-stage venture capital investment since
4Q08 drop 40% below total quarterly investment levels registered in
3Q08.



More significantly, this situation is now being compounded by many
non-specialist venture capital investors targeting later-stage,
less risky investments. Private equity investors who had previously
invested at an early-stage to gain exposure to the sector have also
fled the early stage arena. This lack of funding and a weak
economic environment has hampered the growth of many corporates in
the sector.

The majority of surveyed corporates indicated that raising
equity over the past twelve months has been harder than a year ago.
Companies needing significant capital to commercialise new
technologies (such as wave) struggle to raise funding. The venture
capital and grant funding made available to develop the technology
is only a small part of the finance required to bring it to
market.

Increasing consolidation predicted among independent
project developers



Life has not been much easier for project developers, particularly
at the “early” pre-construction stage of a project. The two issues
that are deterring investors most frequently are: uncertainties
over planning and consenting processes; and uncertainties over
securing a satisfactory off-take / power purchase agreement
(PPA).

Investors also remain very concerned about a project’s ability
to secure the requisite construction funding post the permitting
stage. These “concerns” have made securing external equity for
pre-construction stage projects (including land acquisition,
front-end engineering design works and the permitting process)
particularly difficult. This is putting significant pressure on
independent developers.

Only well-capitalised developers are able to maintain control of
their projects at the pre-construction stage, essentially by
injecting much more of their own equity. Developers without
sufficient capital are likely to pursue co-development
opportunities with joint venture partners, even if they would
prefer to remain independent. In the short to medium term this is
likely to lead to consolidation within the industry.



Governments need to make a long-term commitment to the
sector



For companies and investors the most important driver for future
investment is the removal of uncertainties related to national
regulatory policy and support frameworks.



During the next 18 months, surveyed debt providers are specifically
targeting countries that have long-term financial incentives in
place, such as feed-in tariffs - more than two thirds expect to
provide debt financing in France, Germany, Ireland, Italy, Spain
and the UK. In contrast they are waiting on the sidelines in
Eastern Europe (specifically not investing in Hungary, Romania and
Bulgaria).

Corporates and project developers are similarly influenced by
government initiatives - over 70% of surveyed corporates and
project developers indicated that regulatory stability and
availability of public funding, grants and incentives are vital
factors in choosing where they operate.



Debt financing remains demanding particularly in capital
intensive sectors



On-balance sheet debt remains highly elusive for most corporates in
the sector, with uncertainties over their ability to raise equity
funding to support future growth one of the most significant
obstacles. The reality is that few corporates in the sector have
developed cash generative businesses that can be leveraged.

From the project financing perspective the debt funding gap is
less acute. Project developers themselves are divided as to whether
financing conditions have improved or deteriorated during the past
year. However, it is generally agreed that if the project is good
enough there is no debt funding gap. That certainly is not the case
for corporates.



European Investors have a clear preference for the wind and solar
sectors, and energy efficiency and energy storage sub-sectors. In
contrast the more capital intensive sub-sectors, and in particular
the marine sub-sector, are likely to continue to be sidelined by
the financial community.



In terms of financing cleantech assets or renewable energy
projects, confidence in technologies produced or deployed is
paramount. Projects that depend on technologies mature enough to
generate stable cash flows (such as solar and onshore wind) will
continue to attract debt and equity during the next 18 months.

On the flip side, developing projects or assets in the biofuels,
marine and green transportation sub-sectors that rely on
technologies under development are expected to prove much harder to
finance.

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