A large number of banks and investors are often involved in the financing of major infrastructure projects. Depending on the size and supra-regional significance of the project, several development banks may even be involved. The relevance of networking in infrastructure financing is illustrated here using the example of wind farm financing.
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Banks, savings banks, insurance companies, private equity, development banks and investors play a key role in financing future technologies and investments in infrastructure. These must be networked with each other for the financing of major projects. On the one hand, because the large loan restrictions in banking regulation require syndicated lending. Secondly, because banks and investors can use their respective expertise in complex financing as a specialization advantage for the corresponding sub-areas of financing. Complex financing therefore requires cooperation and the use of synergies.
Large infrastructure projects and investments in the energy transition can often only be realized with the help of this networking. Networking in financing is therefore a highly relevant topic, especially for the digital and climate-neutral transformation in NRW. This is particularly relevant if EU funding is to be used regionally. The system of development banks consists of several levels that need to work together. At European level, there is the European Investment Bank (EIB), the European Investment Fund (EIF) and the European Bank for Reconstruction and Development (EBRD); at national level in Germany, there is the KfW Bankengruppe (Kreditanstalt für Wiederaufbau) and development banks at state level, e.g. NRW.BANK in North Rhine-Westphalia. The European Union is promoting the digital and climate-neutral transformation, for example through the European Fund for Strategic Investments (EFSI) and its successor InvestEU. Both funds offer guarantees from the EU budget for first loss protection of the EIB Group in order to mobilize private capital. These instruments can be used to provide funding for projects that are associated with higher risks. As a rule, these are investments in the future competitiveness of the EU. There is no quota by sector or country. The criterion for the use of these funding instruments is that the projects are eligible for funding, i.e. that they contribute to the EU becoming digital and climate-neutral.
The European funds are provided by the EIB. The EIB's instruments serve to mobilize capital from investors, national development banks and commercial banks. This is illustrated below using the example of wind farm financing, which generally involves a larger consortium of financiers and investors. One reason for the networking of the individual debt and equity providers is the distribution of risks that may arise. The guarantee instruments of EFSI and InvestEU therefore play an important role, as they can improve the risk distribution for private investors and thus make the financing of infrastructure projects more attractive for them. This is because private capital can often only be mobilized if more risk-averse investors also make their capital available for financing.
NRW.BANK is the second-largest development bank in Germany after KfW. In addition to traditional loan promotion programs and risk hedging, the Equity Investments unit plays an important role as an anchor investor in private equity and venture capital investments, especially in innovative and technology-oriented start-ups, but also in debt and equity-financed infrastructure projects that can enable and accelerate transformation.
Financing of wind farms in Germany
EIB loans amounting to almost 2.2 billion euros were used to finance six wind farms in Germany. This enabled the mobilization of further private and public capital. However, in order to ensure the necessary cooperation, a large number of players in the financial sector had to be networked in advance. For the Trianel Borkum West II wind project in the German North Sea, for example, loans were provided by the EIB and NRW.BANK, while KfW Ipex Bank, a subsidiary of KfW, supported the project as an insurance and technical bank and as a pre-financier for VAT. In addition, the Belgian bank Dexia provided guarantees to secure the loan. This shows that several development banks can also be involved in such projects and that the banks and investors use synergies by contributing their respective expertise and specialization advantages to the financing. Nine shareholders were involved in the Global Tech I offshore wind farm as equity providers, while 16 commercial banks provided debt capital in addition to the EIB and KfW. Cooperation between development banks, namely the EIB and KfW together with Bremer Landesbank, can also be found in the financing of the Butendiek wind farm. These examples show that there are synergies between the individual financiers that should be utilized for the financing of complex large-scale projects. In order to improve financing, particularly for financing the digital and climate-neutral transformation, it should therefore make sense to further expand these collaborations.
In Germany, the volume of European funds used to finance wind farms is not even average compared to the rest of Europe in terms of economic output. While the EIB finances wind farms in the EU with a volume of 0.07 percent of the EU's gross domestic product, its financing contributions in Germany only amount to 0.06 percent of the German gross domestic product. This may be partly due to the fact that other countries have more favorable conditions for steady wind compared to Germany. However, it may also mean that Germany could make greater use of the potential offered by EFSI and InvestEU.
Leader in the use of European funding
Belgium is the European leader in the use of European funding for the digital and climate-neutral transformation in the wind energy sector. EIB funds amounting to 0.3 percent of Belgium's gross domestic product were called up for wind farms here. The total amount of funding there amounts to 1.5 billion euros. EFSI guarantees amounting to 250 million euros were used for the two wind farms Mermaid and Seastar. EFSI guarantees were also able to mobilize private capital for Northwester II. The high ambitions in Belgium for the expansion of wind power may also be due to the planned nuclear phase-out and the goal of completely abandoning fossil fuels by 2050. In any case, the figures illustrate how important European guarantees are for mobilizing private capital and thus for financing the energy transition.
The wind farm on Mount Orites near Paphos in Cyprus is rather small in comparison to other wind farms and the funding of 65 million euros from the EIB is also rather low by European standards. However, measured in terms of the size of the Cypriot economy, this funding, with a volume of 0.28 percent of Cyprus' GDP, ranks second in the EU.
Austria is in third place when it comes to the use of European subsidies, with used subsidies amounting to 0.2% of Austria's gross domestic product. EFSI guarantees were also used to mobilize private capital for Austria's largest wind farm. Together with the EIB, this was financed by UniCredit Bank Austria. EFSI guarantees were also used to finance the Prinzendorf III, Powi I, Bruckneudorf and Höflein West wind farms. Compared to countries with access to the sea, the expansion of wind energy in Austria is well advanced. The strong demand for EFSI funds can therefore be attributed to Austria's ambitious climate targets.
Other countries make little use of subsidies
France, for example, is one of the countries that only use below-average volumes of the EIB's guarantee and loan instruments for the expansion of wind energy, despite its access to the sea and therefore to constant wind. The volume of loans used is only 0.04 percent of French gross domestic product. Three floating wind farms were financed in France. This makes it possible to install the turbines in deeper waters where the wind blows stronger and more consistently. One possible reason for the below-average use of European subsidies may be that the focus of energy generation in France tends to be on the use of nuclear power.
In Italy, the funds for the expansion of wind power are also only used to a below-average extent despite the long coastline. Here too, the funding volumes used amount to just 0.04 percent of Italy's gross domestic product. Two projects with a total volume of 750 million euros were funded.
Complex financing requires networking
The financing of energy transition projects in particular, but also for projects to complete the digital and climate-neutral transformation in general, is complex not only because of the volumes required, but also because of the unpredictable default risks. As many of these financings have a higher risk structure, guarantors help to mobilize private funds. The EFSI and InvestEU provide the necessary guarantee instruments to mobilize private capital for the climate-neutral transformation.
However, the fact that the EIB funds are used differently in the individual European countries is not only due to the different wind conditions in the individual regions, which are an important condition for the installation of wind turbines. For example, countries with access to the sea can naturally expect more investment in wind power than countries without access to the sea. Not to be neglected are the different political efforts towards an energy transition, which are significantly more ambitious in Belgium and Austria, for example, than in France, which is also reflected in the different numbers of wind power projects and thus the different levels of involvement of development banks.
These examples illustrate how important networking and cooperation in financing - especially with the European level for large projects - are for the implementation of the energy transition and the transformation of NRW's economy. Fin.Connect.NRW is striving for stronger networking between banks, development banks, insurance companies and investment funds. The examples show the relevance of this networking. However, the expansion of synergies is not only relevant for the financing of wind farms, but can also be transferred to the financing of infrastructure for the use of hydrogen or the use of carbon capture and storage and is therefore highly relevant overall for the financing of the digital and climate-neutral transformation.
