German institutional investment in the €100bn 2020 Energiewende push

RI looks at who’s investing in Germany’s renewables revolution.

As much of Germany’s Energiewende is still in the greenfield phase – such as plans to add 15GW of offshore wind capacity by 2030 – there hasn’t been a huge amount of investment so far from German pension funds and insurers. That’s because these investors do not see themselves as venture capitalists/developers. Instead, they prefer to wait until a project is developed and has a track record of earning cash from the energy provided. Project developers in Germany, including energy companies, have therefore relied on bank loans for finance and/or sold shares and bonds. Regarding bank finance of the greenfield phase, state-owned development KfW has played a particularly big role (see below).
Yet German pension funds and insurers are far from absent from the Energiewende. Under pressure to find pockets of return amid low bond yields, German renewables are an ideal alternative for them, especially because of the fixed feed-in tariffs guaranteed by Germany’s renewable energy law (EEG). So, either via direct investment or close funds offered by investment firms like KGAL, Aquila Capital and CHORUS, German pension funds and insurers have participated. Some pension schemes, like the €60bn giant Bayerische Versorgungskammer, have also provided debt finance for solar or wind parks.
No official records are kept, but the best guess is that the volume of investment in the Energiewende from this group has not exceeded €10bn.That’s a lot less than what is needed, says Armin Sandhövel, Chief Investment Officer for renewables at Allianz Global Investors (AGI), which also sells a fund to institutional investors. Sandhövel last year co-wrote a paper suggesting that the Energiewende will require €100bn in investment by 2020. Certainly, Sandhövel’s employer, insurance giant Allianz, as well as re-insurer Munich Re, are active in the sector, having directly invested a respective €2.5bn and €1.5bn to date. Only a portion of those volumes have gone to the Energiewende, as the insurers look for attractive deals around Europe and further afield; Allianz recently made its first investment in the US wind power industry, teaming up with Bank of America to acquire two wind parks in New Mexico.
But there is an uptick in home deals. Last month, RI reported that Allianz & Munich Re had bid for their first German offshore wind park in tandem with Canadian pension fund OMERS and Australian investment bank Macquarie: Link
Institutional investment in that area to date has come from Danish pension funds. Four of them own one half of a 252MW wind park (Gode Wind 2) to be built this year, and PKA, the most active of the bunch, also has a sizeable stake in another 288MW facility (Butendiek). As more offshore wind parks get built, German pension schemes will likely closely watch their Danish peers’ experience with such an investment.
One of the hindrances in the past to more renewable

engagement from not just German, but European, insurers has been Solvency II, the regulatory regime that came with a steep capital charge for such investments. Sandhövel says, however, that the regime now affords more flexibility in that regard.
Gott sei Dank für die KFW
“Gott sei Dank für die Kreditanstalt für Wiederaufbau (KfW)” (Thank God for the KfW). That’s certainly something that would have been said in the Berlin office of Chancellor Angela Merkel since she announced the Energiewende in June 2011. If it hadn’t been for the state-owned development bank, Germany would have lacked a key source of finance for the project. Under it, the government wants renewables to power than one-third of the economy in 2020 and 80% of it in 2050.
This of course has required billions of euros in investment, particularly in the on- and offshore wind parks that Germany needs to meet its renewable goals. But since Germany, unlike the US, lacks a significant venture capital industry and mainstream institutional investors like pensionfunds are reluctant to fund greenfield projects like offshore parks, the KfW has had to step in.
It’s done so in a big way. According to a recent study on the KfW’s impact on the Energiewende, the bank provided €11.4bn worth of loans for renewables in 2013 and 2014 alone. Three-fourths of the sum went to finance new on- and offshore wind parks. Loans for solar installations accounted for the second-biggest share, or 11% of the volume.
The KfW loans also sparked another €23bn in renewable investment. As a result, projects originally financed by the KfW accounted for 44% of the new renewable capacity installed in 2013 and 2014, the study said. Once the KfW-financed projects come on stream, it is estimated that they will save 9.5m tonnes of carbon dioxide (CO2) each year. To raise the money for such loans, the KfW in July 2014 began issuing green bonds independently certified as such. To date, the Frankfurt-based bank says it has raised close to €6bn with its green bonds and aims to issue another €4bn of green debt this year.