Annual report 2022 - Report - Page 10
New bargaining dynamics
in the financing market
for renewable energy
10 Annual Report 2022
More and more investment has
flowed towards renewable
energy projects in recent years.
But following Russia’s invasion of
Ukraine and the ensuing supply
crisis, the desire to invest has
accelerated greatly. Not only are
the projects growing in size and
number, the conditions
surrounding the investments and
their financing are also changing.
most advantageous and flexible
financing. The recipient companies are
primarily interested in flexibility, a
reasonable debt/equity ratio, the interest
rate level and repayment profile,
minimum interference in the business by
the lender and limited requirements for
resource-intensive reporting back to the
lender.”
developers have become much more
experienced, and renewable energy has
become significantly more profitable,”
says Lars Lüneborg.
Lower risk financing
“In Denmark, in particular, we have been
working with renewable energy for so
many years that companies have reached
a stage of maturity whereby they can
point to quite a history of similar projects.
In other words, they can better
demonstrate that they have succeeded
before, and have empirical data to back
this up. This makes the issue of risk and
due diligence less complex – and
negotiations more precise and efficient.
Lenders have also reached a stage of
maturity where they are clear on what is
central to them in contract negotiations,
and what questions they need to ask to
get the right information and identify the
key case risks.”
Lars Lüneborg is a partner in Horten, and
has many years of experience with the
conditions in the financing market. He
notes that the key issue is who has the
upper hand at present in the negotiations
on how the investments will be financed.
The primary reasons that renewable
energy projects have become a good
business case are the fact that oil and gas
prices soared as a result of the war in
Ukraine, and the great determination
throughout Europe to become
independent of Russian energy supplies.
“It has typically been lenders, in the form
of banks, pension funds and large debt
funds, who have had the best conditions
for negotiating financing, such that their
requirements are met. But renewable
energy companies and their projects
have become such good business that
the bargaining dynamics are now very
different. There are many more sources
of finance ready to provide capital, and
this gives companies better opportunities
to find the lender that will offer them the
“While the background is not a happy
one, it has boosted demand for
investment and financing, and an
unprecedented array of potential lenders.
The largest banks and pension funds are
now coming forward and are willing to
lend large sums to developers of
renewable energy projects. But this is not
necessarily because lenders have
suddenly become risk-tolerant enough to
enter this particular market. Rather, the
risk has decreased considerably as
The renewable energy
investment market appears
to be moving in only one
direction, and more and
more money will be invested
in ever larger projects over
the next few years.
The trend towards renewable energy
being a good business may have
accelerated during 2022, but it has been
underway for some time.
International complexity
The maturity stage of the Danish
companies is evident by the fact that the
they have become very good at doing
business in a field that has been far from
straightforward for many years.
”They have been enterprising and have
accumulated expertise that makes them
well equipped to build a good investment
case around the projects. The fact that
part of the loan proceeds often are to be
used outside Denmark makes it more
complex to negotiate, but also further
broadens the horizon for us, as we adapt
to the new reality in the financing market
for renewable energy,” says Lars
Lüneborg. Before joining Horten, Lars
worked with finance law at London law
firms.