The New Multi-Billion Aid to Wind Power – Taxpayers Take Part of the Risk

Wind power is often described as a market-driven energy source that can manage without subsidies. At the same time, the EU continues to inject public money and guarantees into the industry. Now the European wind power industry is receiving another huge financial support package – this time through the European Investment Bank, EIB.

At the beginning of September, the EIB announced that the bank is providing a guarantee of 250 million euros, equivalent to about 2.8 billion SEK, to Danske Bank. This guarantee allows the Danish bank to issue guarantees of up to 500 million euros to the wind power industry.

This is not a direct cash grant to a wind power company. Instead, the structure means that the EIB shares the risk with Danske Bank. The guarantees are intended, among other things, to help manufacturers of wind power equipment finance advance payments and fulfillments in connection with new orders.

In other words: when private actors are set to expand wind power, the public sector steps in to reduce the financial risk. EIB itself describes the aim as enabling Danske Bank to issue more guarantees, thereby mobilizing private investments.

Wind Power without Subsidies?

This is where the image of wind power as a wholly market-based energy source becomes more complicated. Christian Sandström of Affärsvärlden points out that the wind power industry has repeatedly claimed that its expansion occurs on market terms and without subsidies. At the same time, a long line of public actors are involved in financing wind power.

Previously, Affärsvärlden has identified EIB, the Nordic Investment Bank, Swedish Export Credit Corporation (SEK), the Swedish Energy Agency, government pension funds, and various state and municipal companies as public financiers.

This therefore does not necessarily mean that the government writes a check to every wind farm. Instead, the support may come in the form of loan guarantees, risk-sharing, and favorable financing solutions. The effect is that a portion of the risk that would otherwise fall on private investors is transferred to public institutions.

This model also makes it possible to mobilize significantly greater sums than the actual amount guaranteed. For example, EIB’s guarantee of 250 million euros can back up to 500 million euros in bank guarantees.

European Investment Bank in Luxembourg. Photo: Palauenc05, CC BY-SA 3.0

Multi-Billion Package to Build 32 Gigawatts

The Danske Bank deal is also just a part of a larger EU program. The EIB has set aside a total of 6.5 billion euros as part of its European wind power package. The bank estimates that this initiative could help develop about 32 gigawatts of new wind power capacity.

The EU’s goal is to increase the share of renewable energy to 45 percent by 2030. According to the EIB, another 117 gigawatts of wind power are needed to reach that goal.

For the EU, this is therefore not just a matter of energy production. Wind power has become an industrial policy initiative, with the union seeking to keep European manufacturers on the market while simultaneously expanding renewable energy.

But this also raises a more fundamental question: How commercially viable is an industry that needs public guarantees to kick-start investments?

Private Profits – Public Risk?

Affärsvärlden’s Sandström has pointed out that several major wind power projects have already received financing from public actors. Among the examples are Holmen and SCA, while SR Energy was partially financed through 700 million SEK from Swedish Export Credit Corporation.

At the same time, the financial performance of the wind power sector has repeatedly been the subject of criticism. This creates a strange equation: private companies and investors may share in the profits when projects go well, while public institutions can step in and share the risk when financing becomes more difficult.

This does not mean that the new EIB guarantee is in itself a 250 million euro cost for taxpayers. A guarantee is not the same as a payout, and it may ultimately result in little or no actual loss for the EIB.

But it does mean that the public sector takes on an economic risk in order to raise further capital for wind power. And it is precisely this part of the calculation that often falls into the background when the expansion is presented as the result of free market forces.

Thus, the European wind power industry receives yet another supporting leg from the public sector—not in the form of a traditional grant, but by having the EU’s financial arm take on part of the risk. The question, therefore, is not only how much wind power Europe should build, but also how much of the risk of this expansion taxpayers should ultimately bear.