Project Finance: the outlet for the internationalization of the renewable energy sector in Spain.

22th May of 2015

The Spanish renewable energy industry is focused on internationalization in order to maintain its activity. That is the conclusion of the report on the sector carried out by Axesor, the first Spanish rating agency, under the title: 'Project Finance: the exit for the internationalization of the renewable energy sector in Spain'. Domestically, the sector is going through a bad situation. The excess installed capacity, the result of inadequate regulation that failed to control investments in the sector, adds to the sharp decline in demand and international legal conflicts arising from the abolition of renewable premiums. Between 2011 and 2014, the sector's creditor competitions have gone from being virtually non-existent to growing by 440%; Last year alone, formal insolvency processes grew by 200% in the renewables sector, to account for 76% of creditor competitions in the energy sector. In terms of the number of companies created, the renewable energy sector experienced growth of 13.2% in 2014 to 505. The data pales, however, compared to the 11,133 constitutions that took place in 2007. Similarly, the sector is characterized by the stagnation of credit to the financing of productive activities, aggravated by regulatory uncertainty, and the decline in employment. As a result, the industry's average probability of default continues to grow, contrary to the widespread trend in the rest of Spain's industrial fabric. Thus, if the average probability of default in March 2013 was 6.6% for the renewables sector; a year later it had risen to 8.67% and in March this year it stood at 10.26%; i.e. the probability of default in the renewable energy sector has grown by 18.3% in the last 12 months, while in the national fabric as a whole it has fallen by 15.4% in the same time frame. Against this background, Axesor believes that the solution for the sector is through the internationalization of an activity that is experiencing a high boom internationally. Thus, global investment in renewable energy recorded growth of 17% in 2014, after two consecutive years of decline, to $270 billion. It is developing countries, especially China, that are leading the momentum of investment in renewables. In fact, China is a world leader, with a volume of investment that last year reached 83 billion euros. The sectors that are experiencing the most growth internationally are those of solar energy (33%) wind (11%). This growth requires financing and the fact is that the high capital demands set by the Basel III regulatory framework make the provision of long-term bank loans, which is leading to a boom in green bond issuances, or green bonds, project bonds associated with renewable energy. The global aggregate amount of green bond issuances tripled in 2014 to $39 billion and the corporate sector is expected to reach $30 billion for the first time in its history this year (the year 19 billion), which would mean growth of 57.8%. Axesor believes that issuances of project bonds is the best way to ensure the financing of the necessary international expansion of companies, while providing an investment opportunity for institutional investors, investment funds and pensions, in the face of the low return currently offered by the highest quality sovereign debt.