November 2024
With the European Green Deal launched in 2019, the European Commission has made combating climate change a top priority. However, this ambition comes at a cost: €1 trillion over 10 years, a portion of which will need to be borne by the private sector. Among the financing tools under consideration, securitisation holds a prominent place, as highlighted in the Draghi Report¹ published in September.
Yet in this area, Europe has fallen significantly behind the United States, and even China.
Europe is Lagging Behind
Across the Atlantic, the agency Fannie Mae is the world’s largest issuer of green Mortgage-Backed Securities. Securitisation is also widely used by photovoltaic panel installers², who leverage their operational leasing contracts or the future cash flows from Power Purchase Agreements³. More recently, it has extended to loans granted to individuals to finance their installations⁴. Overall, green securitisation accounted for 32% of green issuances in the United States in 2022.
In China, this percentage reaches 8%. The first green ABS were issued as early as 2016, and since then, a wide range of asset classes have been exploited, including wind farm revenues, energy equipment leasing, and “green” trade receivables.
In Europe, securitisation represents only 2% of green issuances. Although the volume of securitised assets is increasing—it doubled in 2023 compared to 2022, reaching €2.4 billion—it remains far below excpectations, which AFME⁵ estimates at nearly €300 billion annually to finance green construction, energy-efficient housing renovations, and the transition to electric vehicles.
A Growing Market
Among green securitisation transactions in Europe, the majority involve bank issuers using this technique to support energy transition projects. For instance, Landesbank Baden-Württemberg recently raised €350 million to finance solar power plants and wind farms with the support of the European Investment Bank.
Non-bank issuers are rarer, but transactions are becoming more common:
- In 2022, Perfecta Energia (a Spanish solar panel installer) launched a securitisation fund of €133 million to facilitate the development of residential solar energy.
- In 2023, Enpal GmbH (a German installer) set up a €365 million warehousing program to finance 12,500 installations.
- In January 2024, Powen Group securitised a diversified portfolio of Spanish solar assets (loans, leases, PPAs, both residential and industrial) for €120 million.
- In November 2024, Enpal launched the first-ever European public securitisation of solar assets for €240 million. The spread is Euribor 1m + 40 bps on the “AAA” tranche and Euribor 1m + 85 bps on the “AA-” tranche.
Many energy companies finance projects individually through special-purpose vehicles, injecting capital into each, and face challenges in securing funding at the holding level. Securitisation could (re)finance certain projects by pooling them—at least for assets in the production phase.
The green securitisation market can and must prosper. The European Commission is working on regulatory easing, which should facilitate transactions.
It is worth noting that securitisation of energy production-related assets raises specific challenges compared to other forms of securitisation, particularly:
- Assessing the risk of default and early repayment by consumers is challenging due to the lack of historical data and, at times, the small size of asset portfolios.
- Certain non-financial risks must also be studied, such as the risk of contract renegotiation, technological performance risk, inadequate maintenance of installations, or climate risk.
Accola has extensive experience in securitisation consulting, including several operational leasing transactions. We are convinced that securitisation has a key role to play in achieving the ambitious goals of the Green Deal, whether the collateral consists of loans, leasing cash flows, or offtake contracts.
Solar energy leasing contract securitisation model:
¹ September 2024, The Future of European Competitiveness – A Competitiveness Strategy for Europe
² For a concrete example, the company Sunrun has installed 5 gigawatts of solar panels since its creation in 2007; 41% of these installations were financed through securitisation.
³ Power Purchase Agreement: an offtake contract between the electricity producer and the consumer.
⁴ PACE Program (Property Assessed Clean Energy)
⁵ December 2022, AFME, European Green Securitisation Regulatory State of Play