Germany's $143 billion wind farms jeopardized by tight funding

As much as 100 billion euros ($143 billion) in planned investments in German offshore wind farms are at risk as developers struggle to get funding, jeopardizing the deepest emissions cuts in the European Union.

Bochum's municipal utility expects its first wind park to be delayed by up to two years, Managing Director Bernd Wilmert said. HEAG Suedhessische Energie AG, a regional energy supplier known as HSE, had to go to twice as many banks as it would have needed last year to finance a 1.3 billion-euro North Sea wind farm, Chief Executive Officer Albert Filbert said.

Germany wants to add up to 25 gigawatts of wind energy by 2030, according to the Environment Ministry, enough to power about 25 million homes a year, at a cost of as much as 4 million euros per megawatt of installed capacity. Banks are only lending about half the 100 million euros they handed out in 2008. That will make it harder for the country to curb carbon-dioxide emissions by 40 percent in real terms by 2020 compared with 1990 levels, as nuclear plants are phased out.

"The appetite per project has fallen," said Thomas Rueschen, who arranges funding for wind farms and solar power plants as global head of Asset and Finance Leasing at Deutsche Bank AG in Frankfurt. "Finding creditors for the financing has become a bigger challenge."

Germany was overtaken by the U.S. as the world's leading wind power generator last year, according to the Washington- based researcher WorldWatch Institute. It had 23.903 gigawatts of wind power capacity in 2008, less than the U.S. which had 25.170 gigawatts.

Bank Dependence

Germany's regional and municipal utilities have taken stakes in some of the 76 offshore wind farms in the pipeline. Lower cash reserves than their larger rivals, such as E.ON AG and RWE AG, and limited access to bond markets means they're dependent on bank loans.

HSE, which is 40 percent-owned by E.ON's Thuega AG unit, is continuing talks with banks and expects to secure funding for the Global Tech 1 wind park in the German North Sea in the third quarter, Filbert said. HSE and its four partners will contribute "a bit more than 300 million euros" toward the overall cost, he said.

Together with a group of local utilities collectively known as Trianel GmbH, Bochum aims to get financing for its 1.2 billion-euro farm in a year. With a combined capacity of 800 megawatts, both wind parks will provide enough wind power to supply more than 800,000 households a year.

Funding Requirement

Small wind park planners now have to fund as much as 40 percent of a project on their own, compared with as little as 20 percent before lending conditions tightened, said Hans Buenting, chief financial officer of RWE AG's alternative energy unit.

The government's proposed addition of 25 gigawatts of wind power capacity by 2030 depends on construction starting this year and next. That may generate up to 85 terawatt-hours of electricity a year, or 14 percent of the power utilities produced in 2008.

An average delay of four years in building new wind farms because of financing difficulties means the country may miss that target, according to Stefan Kohler, who heads up Germany's energy agency.

Developers may stick to building smaller wind farms on land, where construction doesn't depend on favorable weather conditions and turbines cost less, he said in an interview from Berlin.

The lending squeeze may be eased by the 100 billion euros Germany has made available to companies with funding difficulties. HSE expects to get a "significant" amount of help for its wind park from the program, Filbert said, without being more specific.

Customers Switch

Utilities are also betting that building offshore wind farms will pay off as customers switch to more environmentally- friendly sources of energy. One in four who changed providers in 2008 chose electricity from renewable energy sources, according to the Verivox.de Web site which allows consumers to compare tariffs.

E.ON, RWE, Energie Baden-Wuerttemberg AG and Vattenfall AB, the four biggest utilities in Germany, already offer customers the option of buying electricity from renewable sources, mainly hydropower. They will also be building about half of the 19 German offshore wind parks in the North Sea that have received planning approval.

Generous government subsidies, offering developers up to 15 cents per kilowatt-hour of power they feed into the electricity grid from an offshore wind farm, are also helping. That's more than the tariff for electricity from coal- or natural-gas-fired plants and doesn't require the purchase of carbon dioxide emissions permits.

"The underlying projects haven't become less attractive, the guaranteed feed-in tariffs are the same, said Deutsche Bank's Rueschen. "Governments are keeping their commitments."