Large European banks such as BNP Paribas SA and small specialized German banks including Norddeutsche Landesbank Girozentrale are playing an increasing role in lending to renewable-energy projects, as policymakers map out strategies to encourage energy efficiency, according to a new report by Moody's.
European lenders have financed more than €100 billion in renewable energy loans since 2013, with major European lenders BNP Paribas and UniCredit SpA lending between €8 billion and €12 billion, representing more than 16% of their common equity Tier 1 ratio, the report said.
Moody's predicted that renewable project financing was likely to continue especially under the EU's sustainable action plan, which aims to unlock €180 billion annually for renewable energies, low-carbon transport and energy-efficient buildings. The EU wants to increase the share of energy from renewable sources such as solar and wind to at least 32% by 2030 from 17.5% in 2017.
The financial sector is expected to play a major role in transforming the European economy to be less dependent on fossil fuels and other traditional forms of energy.
In Germany, the government's energy transition has led some German lender to increase their involvement in financing smaller-scale domestic renewable projects, the report said.
Renewable energy now accounts for between 1.1 times and 1.7 times the CET1 ratios of KfW IPEX-Bank GmbH, NORD/LB and Hamburg Commercial Bank and 3.5 times for banks DKB and SaarLB-Bankenbeteiligungsgesellschaft mbH.
Moody's also said advances in technology mean that renewable energy is as cost competitive as fossil fuels in many countries.
"Recent developments bode well for renewable energy projects, with technological advances and declining capital equipment costs," said Mathias Kuelpmann, senior vice president at Moody’s.
"Other encouraging developments include big tech companies seeking to procure up to 100% renewable energy; higher prices for electricity; and access to new, cheaper sources of funding."
The report also said it expected solar and wind energy generation to continue to grow rapidly in Europe over the next five to six years. Europe accounted for 29% of the global solar power market capacity in 2017, with Germany and the U.K. contributing more than 40%.