Renewables investors are seeking tailored financing services as they add BESS, adapt to risks

Market conditions have become challenging for renewables in the CEE region, alongside uncertainties in the regulatory sphere, which calls for advanced and tailored financing solutions, according to participants in UniCredit Serbia’s workshop on navigating capital flows in the segment, including mergers and acquisitions (M&A). Investors, UniCredit’s clients, highlighted the growing importance of battery energy storage systems – and especially adding co-located storage to photovoltaics.

The renewable energy market is evolving in Central and Eastern Europe, as large players join the game and developers emerge as producers. With its surge in photovoltaic capacity and the revival in the construction of wind power plants, Romania has become a frontrunner. In neighboring Bulgaria, the first power purchase agreements (PPAs) are indicating a strong perspective, while Serbia might become more relevant soon, investors agreed at an event that UniCredit Bank Serbia organized in Belgrade.

M&A and financing trends in the region were the central topics. The idea was to have an open discussion with industry players active in the region about their investment strategies and the bank support, said the Head of Specialized Lending in UniCredit Serbia Svetlana Cerović, who moderated a panel within the conference.

A stable top line and a legal framework is the key driver for investments, with a particular emphasis on grid connections

Cerović pointed out that volatility has been on the rise for the last couple of years, after a huge wave of investments that followed the Paris Agreement and the European Green Deal. Sound and predictable regulatory framework along with stable revenues is key. To assure market flexibility and grid stability, new investments in western Europe and in the region are supported with the government programs including investments in battery energy storage systems (BESS). Thus, one of the prerequisites for the execution of future projects in local market will be certainty regarding the third auction timeline and availability of the longer term PPAs.

The participants at the workshop on navigating capital flows in renewables said a stable legal framework is the key driver for investments – grid connections especially, and permitting as a whole. On that note, developers will lean on the slowly maturing PPA market, though support from banks is necessary in the equation. Battery energy storage systems are a game changer, particularly colocated with solar parks for the optimization of the project returns.

UniCredit is strongest player in renewables financing in Serbia

UniCredit has a wide set of tailor-made project finance loans as well as a full range of services from advisory to various financing solutions, Head of Project and Structured Finance in Serbia Jelena Nestorović said.

The Italy-based bank has financed a string of major wind power and photovoltaic projects in the region, including facilities with colocated BESS, like Sunterra RE’s Galabovo in Bulgaria.

As for Serbia, it is the strongest player in the renewable energy segment. UniCredit financed six wind parks in the country, of 430 MW in total, and of which three as the sole lender. Notably, Čibuk 1 and 2 are the largest in Serbia.

UniCredit Bank Serbia is financing the country’s biggest wind power plants – Čibuk 1 and 2

Some of the participants and winners at the first two domestic auctions for contracts for difference (CfDs) are among the bank’s clients as well. Nestorović stressed that Bank is financing in total 30MW of smaller scale solar power plants .

She pointed to one of the largest industrial rooftop solar power plants in the region. UniCredit provided EUR 3.1 million facility and acts as a hedging and account bank for CWP Europe and Resalta’s project company. It built a PV system of 6 MW on a rooftop of Henkel Serbia facility in Kruševac, under an ESCO (energy service company) model.

Since 2019, the bank has participated in the financing of first waste-to-energy cogeneration plant,  located just outside of Belgrade. UniCredit is financing energy efficiency projects in the country, too.

Priority in Europe shifted from energy transition to energy security

Maria Vastola, Managing Director of UniCredit’s Energy Advisory Team covering Power & Utilities across the Group’s core countries, said valuations for renewable energy stocks on public markets are strongly down compared to 2021-2022 period and below the 3Y historical average. Independent power producers (IPPs) are factoring in a great uncertainty related to the permitting process, the regulatory framework in certain countries and the macroeconomic environment, she explained.

The bottom line is the shift in the European paradigm from the energy transition to energy security, due to geopolitical tensions, Vastola underscored. On the other hand, M&A still has good valuations, she said at the panel discussion.

Investors are focusing on operational quality, meaning high-quality assets, returns and value creation, as opposed to growing at any cost, Vastola added.

“There are more investors ready to put capital in projects and in the region. Private capital flow is a good bridge and a complementary tool for banks’ balance sheets,” she asserted and placed an emphasis on large corporations, private equity and M&A.

Scale creates efficiency, and efficiency and flexibility create value in a challenging market, Vastola stressed, highlighting investments in hybrid power plants that include battery storage. Over the past few years, corporates, traders and utilities are flocking into the renewables realm in “a big shift from big oil to big energy,” she said.

Actis to invest in infrastructure projects across region

Vice President for Energy Charles Lachapelle from Actis agreed with the other panelists about the significance of hybrid power plants and underscored that the sustainable infrastructure investment firm is mostly doing very large projects as they are much more competitive.

“Definitely, for solar, I think having a BESS is a must,” he said and added that “it goes without saying at this point.” As for batteries with wind parks, they enable flexibility for offtake, Lachapelle noted.

Actis is a growth market investor in the infrastructure and energy space, best known in the region for Rezolv Energy. In Romania, the company obtained a financing package for the first phase of its giant Vifor wind farm via PPAs with companies in the commercial and industrial (C&I) sector. The second part was secured thanks to the CfD from a renewable energy auction.

The next chapter for Actis could involve more than a billion euros

Among other investments in Romania, Rezolv has the Dama Solar project for 1.2 GW in peak capacity. It would currently be one of the biggest in Europe. The company is also active in Bulgaria.

Actis is looking at a pipeline of projects across the region, including in Serbia, Lachapelle revealed. Asked about the next auction that the country is planning, he said a wind power project in the 200 MW range would be suitable.

Lachapelle specified that the next chapter may involve over EUR 1 billion and that Actis would require support in financing.

On the subject of power purchase agreements, he said the optimal tenure is longer than ten years, with more than 70% of output contracted. “However, we’ve done cross-border PPAs. We’ve looked at solutions, in the past, combining wind, solar and BESS. We can be creative on that front,” Lachapelle stated.

Regulatory stability is essential for investor-friendly countries

While the PPAs of 70% and at least 10 years are necessary for non-EU countries, banks in the EU are more risk-hungry, according to CWP Europe’s General Counsel Jovana Rubežić.

One of the most important factors is how investor-friendly a country is, she added. “When I say investor-friendly, I mean the regulatory framework… The next thing we look at is whether we can connect our project and can the power markets absorb the power,” Rubežić said.

The rules have basically stayed the same in all of CWP Europe’s key markets, except with respect to grid connection, as transmission system operators are becoming stricter, she underscored. The company is transitioning from project development to the IPP sector, Rubežić said. She pointed to the need for support in regulatory matters, especially in sleeved PPAs, both from the government and government-owned utilities such as Elektroprivreda Srbije (EPS) in Serbia.

Structured portfolio transactions are facilitating growth for companies with multiple projects

Bankers generally seem to prefer co-located batteries to standalone ones, UniCredit’s Head of Infrastructure and Export Financing Lazar Nikolić said.

The main reason is the more diversified revenue stack, as a combination of BESS and a renewable electricity plant is effectively a single asset. With global battery storage capacity on a steep growth trajectory, banks and investors will need to look for bankable solutions to enable that.

Firstcomers in the standalone battery segment may have an extremely short payoff period ahead, but the bank needs a revenue stack

Nikolić stressed that developers need advanced capital solutions such as structured portfolio transactions, saying that they pave the way for renewables platforms to grow. Namely, firstcomers in the standalone battery segment may have an extremely short payoff period ahead, however a solid revenue stack remains key for the bank to take on risk. Countries with strong state support schemes will enable standalone BESS faster, he added.

In structured portfolio financing, the client company has different BESS, power plants and projects grouped.

“The assets can be different in terms of technology, they can be different in terms of location, they can be different in terms of offtake, in terms of also the cycle of the assets. We pack them together, bundle assets and structure debt solution on top of them, significantly enhancing portfolio diversification,” Nikolić said.

Battery storage is natural hedge for green power production

Enery, headquartered in Austria, decided at one point to add battery storage across its power plants as well as both mature and greenfield projects in Romania, Vice President for Financing Sebastian Staicu said. BESS is “a natural hedge” and it has become very cheap, he noted.

UniCredit acted as the lead bank for the company’s 230 MW portfolio of wind, photovoltaics and battery storage in the country. “That’s a smart structure where, instead of having to negotiate financing for each project, you have this wholesale facility and you just bring in new projects, which contribute to the diversification element,” Staicu said.