31 July 2024
EIB activates first tranche of counter-guarantee facility
The European Investment Bank (EIB) has announced it will provide a €500mn counter-guarantee to Deutsche Bank aimed at boosting Europe’s wind turbine manufacturing industry. This announcement marks the first tranche activated under the EIB’s €5bn counter-guarantee scheme which constitutes the EIB’s key contribution under the EU Wind Power Package. The counter-guarantees will improve access to finance for wind turbine manufacturers, providing them with the support they need to help boost Europe’s energy security and competitiveness.
In October 2023 the European Commission presented its Wind Power Action Plan which outlined 15 immediate actions to strengthen the competitiveness of Europe’s wind industry. 4 of those 15 action points were aimed at improving the wind industry’s access to finance. As a key measure, the European Investment Bank (EIB) has set up a €5bn counter guarantee facility to support supply chain investments. Today the EIB announced the first application of this scheme.
The EIB has reached a €500 million counter-guarantee deal with Germany’s Deutsche Bank to boost Europe’s wind turbine manufacturing industry. The agreement to support the supply chain forms part of a portfolio of up to €1bn of counter-guarantees for the supply chain and investments in wind farms that Deutsche Bank will use to support the wind industry. The EIB estimates that this will trigger additional private investments of up to €8bn.
“Today’s announcement is warmly welcomed. It is an important step in delivering the EU Wind Power Package. There is rapidly growing demand for wind turbines that are “made in Europe”. Improved access to finance and de-risking instruments are central to ensuring Europe’s wind turbine manufacturers can keep up with this demand and ramp up their manufacturing output in line with the EU’s 2030 targets”, says Phil Cole, Director of Industrial Affairs at WindEurope.
“We thank the EIB for their fast and efficient implementation of the new counter-guarantee facility and look forward to seeing more deals like the one agreed with Deutsche Bank today in the near future. The EIB’s support will continue to strengthen Europe’s wind energy manufacturing industry and ensure that we can deliver the wind energy volumes that Europe needs”, Phil Cole added.
How do counter-guarantees work?
Commercial banks typically provide a guarantee to cover the downpayments wind farm developers make to their suppliers when they place orders for new equipment. 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 their guarantee lines. But they’re getting to the limit of their prudential limits in terms of what they can offer. 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 counter-guarantees ensure that the risk for the issuing commercial bank does not lie with the manufacturer, but instead with a third party. 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 upon: an International Chamber of Commerce study for 2016-20 found that only 0.2% of the total guarantees issued are actually called in.
What does this mean in practice?
It’s good for private banks: Deutsche Bank will use the EIB’s counter-guarantees to provide more banking guarantees to wind-energy manufacturers. The counter-guarantees serve to de-risk those banking guarantees provided by Deutsche Bank.
It’s good for the wind industry: Wind turbine manufacturers will receive banking guarantees and will be able to pay their suppliers in advance. It will also enable wind turbine manufacturers to provide performance guarantees when taking on new wind projects. This will help ensure the timely financing of wind energy projects and accelerate the much-needed expansion of wind energy in Europe. It’s an important step towards strengthening Europe’s energy security and ensuring its industrial competitiveness.
