Eurozone crisis batters clean energy project finance

A new study shows project financing for clean energy declining, with a particularly marked decrease in activity in Europe. In response to the Eurozone’s fiscal woes, banks are reining in new lending – but emerging markets offer a glimmer of hope.

Total project finance activity in the clean energy sector globally totalled $34.4 billion in the first quarter of this year according to research from London-based VB/Research. This was the lowest quarterly figure since the third quarter of 2010. While similar to the total recorded in the fourth quarter of 2011, it was 10 percent below the corresponding period of last year.

The study concluded that the declining numbers were a result of banks cutting back on new lending in response to the European sovereign debt crisis. In the last two quarters, project finance for clean energy has totalled $69 billion, down 29 percent on the $97.8 billion recorded in the previous two quarters.

Europe has suffered worst from what the report describes as “a damaging cocktail of deteriorating project debt financing conditions and subsidy cuts”. It identifies Germany as a “prime example”, with clean energy project financing falling more than 50 percent to $622 million in the first quarter of this year compared with the fourth quarter of last year.

North America has also been hit by the Eurozone issues, registering a 20 percent decline compared with the previous quarter to $7.4 billion.

However, emerging markets provide some light at the end of the tunnel. This is particularly true of South America, which saw $3.2 billion of activity in Q1 2012 – double the quarterly average of $1.6 billion it experienced last year. More than half of the first-quarter figure – $1.8 billion – was accounted for by wind energy financing in Brazil.

“Emerging markets started to come alive during the first quarter of the year,” commented Douglas Lloyd, chief executive of Clean Energy pipeline, a data service provided by VB/Research. “Above all it suggests a broader comfort level with the sector among the international banking community.”