EIB delivers its bit of the Wind Power Package with counter-guarantees for wind energy manufacturing

Europe wants 420 GW of wind energy by 2030, up from 205 GW today. To deliver that Europe needs to expand and strengthen its wind supply chain.

The EU is currently installing 16 GW of new wind farms a year. But it needs to build 28 GW a year to reach its 2030 climate and energy security targets. That means many things, such as getting more permits and grid connections. But it also means making it easier for wind turbine manufacturers to accept orders for new turbines. Accepting orders involves taking out guarantees with commercial banks. With growing volumes commercial banks are finding it harder to provide all the guarantees that are needed without counter-guarantees.

In October the European Commission presented its Wind Power Package to strengthen the competitiveness of Europe’s wind energy industry. A key element of this is improving access to finance and providing de-risking tools and guarantees through the EIB.

Yesterday the EIB Board of Directors announced a new €5bn counter-guarantee scheme for wind energy manufacturing. The scheme will provide counter-guarantees to commercial banks to support the risk they are taking by providing their own guarantees to wind energy projects. The EIB expect the counter-guarantee scheme to support up to €80 billion in new wind energy investment.

“It’s great the EIB is already delivering its actions from the Wind Power Package. The new counter-guarantees are crucial to our industry. They will improve access to finance and unlock investments in new wind farms and then factories”, says WindEurope CEO Giles Dickson.

How do counter-guarantees help?

Commercial banks typically provide a guarantee to cover the downpayments wind farm developers make to their equipment manufacturers when they place orders for new kit. The developer is then entitled to payment if the manufacturer fails to meet its contractual obligations.

With the growing demand for new wind turbines commercial banks are being asked to increase the volume of the guarantee lines they provide. But they’re getting to the limit of what they can offer without counter-guarantees. Without counter-guarantees, the industry risks having to refuse what would otherwise be commercially viable orders for turbines that Europe needs.

This is where the EIB comes in. The new €5bn counter-guarantee scheme ensures that the risk for the issuing commercial bank does not lie with the manufacturer, but instead with a third party, which in this case will be the EIB. This will allow the commercial banks to provide the increased volume of guarantees that are now required. This approach is nothing new. State guarantees, for example export credit guarantees, are common practice.

The counter-guarantees are not direct financial support to the wind industry, and the risk for the EIB is extremely limited. Guarantees are very rarely called in: study for the period 2016 to 2020, an International Chamber of Commerce study for 2016-20 found that only 0.2% of the total guarantees issued are actually called in.