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ECEM: Banking group's woes set nerves jangling among windpower developers

24 May 2013 14:20:07 | ecem

A series of negative announcements from one of the UK's largest lenders to renewable energy projects has worried the clean-power market, ICIS understands, with "nervous" developers keeping a watchful eye on the situation as it unfolds.

The financial institution at the centre of the market's concern, the Co-operative Bank, told ICIS that some aspects of its situation "specifically do not alter the position of the business", but it conceded that its own cost of borrowing is certain to rise. This could mean it is forced to pass on these costs.

The bank is one of the country's most prolific lenders to small- to medium-sized renewable power generation projects, with a particular focus on wind power. But a steady flow of gloomy financial news emanating from the bank has caused nerves to jangle among renewables developers.

"The Co-operative Bank is one of the biggest providers of funding for wind projects. Now people are nervous about doing anything that involves the bank financing projects," one participant active in windpower finance told ICIS this month.

The bank's recent troubles have been well-documented. Renewable power developers' concerns first came to the fore in April when the Co-operative Group pulled out of a high-profile bid to take over the Lloyds Banking Group's Verde portfolio, which includes 632 branches of the company.

The chief executive of the Co-operative Group, Peter Marks, cited "the worsened outlook for economic growth and the increasing regulatory requirements on the financial services sector in general" as being behind the exit.

But despite the macroeconomic reasoning, the situation deteriorated. On 9 May, credit ratings agency Moody's slashed the bank's status to "junk", saying it faced the risk of "further substantial losses in its non-core portfolio".

In response, the bank said it was "disappointed" and that it had "a strong funding profile and high levels of liquidity". This followed the release of the bank's 2012 results, which revealed sharp losses in non-core banking.

The day after the Moody's downgrade, then-chief executive of the banking group Barry Tootell resigned. The firm said it was a direct result of the Verde deal collapse.

According to most recent available figures, in the first half of 2012, the bank lent £232m (€271.0m) to 17 renewable energy projects, a figure that it expected to match in the second half of the year, totalling £464m annually.

In the first half of 2011, it lent £79m to the sector, meaning its 2012 lending almost tripled year on year. It cited "increased demand from developers and community groups keen to invest in alternative energy sources".

The question now on developers' lips is: will it be able to meet demand for lending in 2013? According to a spokesman for the company, it does not yet have a published lending target for 2013, despite being almost halfway through the year.

He did add: "The Moody's downgrade specifically does not alter the position of the business. It impacts on our future ability to borrow from the wholesale markets, [in that] it makes it more expensive.

"We are largely customer-funded, using deposits from customers to fund lending, so we don't use these markets as often as some of our peers do."

According to figures provided by a commodities trading firm, 1MW of installed wind power capacity costs between £0.5m-1m to fund in the case of small- to medium-sized wind projects. Therefore, the £464m lending figure seen last year would equate to 232-464MW of capacity. Jamie Stewart

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