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School of Business | Department of Finance | Finance | 2015
Thesis number: 14553
Financing the growth of wind power with project finance: Challenges and opportunities in the Finnish market
Author: Antikainen, Harri
Title: Financing the growth of wind power with project finance: Challenges and opportunities in the Finnish market
Year: 2015  Language: eng
Department: Department of Finance
Academic subject: Finance
Index terms: rahoitus; financing; yritykset; companies; energiatalous; energy economy; projektit; projects; tuulienergia; wind energy
Pages: 63
Key terms: wind power, project finance, infrastructure and energy projects, bank regulation, Basel III

The accelerating construction of new wind energy capacity in Finland has created a strong demand for project finance in the country. This thesis has two main goals. Firstly, this thesis aims to discover the main risks in financing Finnish wind energy projects from banks' point of view. Secondly this thesis examines whether increasing bank regulation is expected to have an impact on the availability or pricing of project finance loans in the coming years.


The data of this study is based on interviews. Representatives of four banks that provide project finance were interviewed for this study. In total five project finance professionals were interviewed. From the interviewees four represent Nordic banks and one represents a German bank. The interviews were conducted as theme interviews and the topics and questions are based on prior literature on project finance and renewable energy as well as the author's own experience in the wind energy sector.


According to the interviewees Finnish wind energy projects are generally low risk investments, but the cold Finnish climate still poses additional challenges. Wind energy know-how in Finland has increased rapidly over the past few years, as a result risks related to project sponsors and project planning have decreased. The interviewees were unanimous that it is unlikely that the current subsidy system for wind energy would be cut, but unscheduled cuts of wind energy subsidies would have crippling effect on the investment environment. The interviewees believe that the implementation of Basel III does bring new challenges for project finance and may lower the profitability of long-term project lending, but so far the impact has been very limited. At least to date Basel III has not affected the pricing of project loans, however it has caused some polarization on how banks perceive project finance's business potential. The way Basel III affects an individual bank's project lending is up to its desired business mix, funding base and strategic choices. Based on the interviews it is clear that project finance will have a major role in financing the growth of the Finnish wind power industry in the following years. Even though the amount of banks actively providing project finance loans to wind energy projects may decrease in the following years, a financing gap is unlikely to occur. The current feed-in tariff system in Finland has made the market an attractive wind power market in Europe and the availability of project loans from foreign project financiers has increased especially during 2014.
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