As European funds enter the market, project co-financiers, including banks, will increase their exposure to the energy sector. At the same time, bankers estimate that there will be a period in which the National Bank will operate cuts of the key interest rate, a fact that will also be transmitted to the market, increasing the appetite of clients for corporate lending. BCR is ready to face these new market challenges, Manuela Trisnevschi, Head of Energy and Utilities Department, Corporate Banking Department, Banca Comercială Română, tells Energynomics.
How has the banks’ exposure to energy customers evolved over the past year and what are the short- and medium-term prospects, especially for suppliers who have credited the capping and clearing system?
The last year was, like the previous one, full of challenges and changes in the energy market. But if we look to 2023, it brought us a number of structurally innovative transactions in which BCR played an active role. Moreover, our desire in recent years has been to get out of the position of creditor and be a long-term partner, leading the transition to the green economy. This means that we have a full dialogue with each of our clients, based on the future perspective, where we transfer from our knowledge of sustainability and energy transition, the impact of global events and the evolution of the international energy market.
In terms of exposure, we strengthened the relationship with existing BCR clients and increased the business developed with them. We have also contributed to the realization of the most relevant new transactions in the sector. And in terms of short- and medium-term objectives, we will continue to be with all our partners in the energy area and support them through different financing structures, appropriate to their needs. Here we also refer to the suppliers who went through a few atypical years, through the lens of the overlapping crises we faced – from the pandemic to various geopolitical events with a direct impact on the energy and natural gas market.
How do European financing instruments help us, what beneficial effects will we see and from when?
In the context of the transition to a green economy, Romania benefits at least until 2030 from significant amounts from European funds dedicated to the modernization and development of the national energy system. Also, an extremely important point for us as a country concerns the increase of energy security. We need to invest in the diversification of energy sources and in infrastructure, because this is the only way we can reduce the dependence on imports and strengthen the resilience of our energy system in the face of external disturbances.
The good news is that there are large financial allocations and the main sources of public funding are indeed the Modernization Fund and the NRRP, including the RePowerEU chapter. These sources amount to approximately 10-12 billion euros.
The main focus of European energy financing is on the development of new renewable energy production capacities. Only during the year 2022 were opened, either from the NRRP or from the classic European funds related to the period 2014-2020, calls for projects through which it was possible to request non-reimbursable financing for renewable energy production facilities of any size: from small and very small, below the prosumer threshold (400 kW), up to very large projects, tens of MW, with funding from the call launched from NRRP (projects that must be completed and PIF by the end of June 2024, according to the calendar).
Thus, the allocation of European funds, initially through NRRP, the Energy Component, now proposed for financing in the RePowerEU chapter, amounts to 460 million euros, with the possibility of overcontracting up to approx. 600 million euros. In addition to these calls, grant funding from the Modernization Fund is also available, which is also a consistent component.
Our objective, to increase the energy and financial resilience of the country, should be related to the implementation of mechanisms through which European money is multiplied and thus used in the most efficient way. In this context, we at BCR want the widest possible development of financial instruments, with support from the Modernization Fund, for the implementation of vital projects for the sustainability and durability of the National Energy System. BCR financial instruments will contribute to a better use of European funding, helping to accelerate the use of available funds from the previously mentioned sources.
How has financing evolved in the case of energy projects recently?
For us at BCR, the financing of energy projects has been and continues to be a strategic priority. We analyze very carefully all types of structures and, in principle, the projects that are financed at the moment are also based on secured long-term income. Regarding the trends, I have noticed that there are a lot of solar energy projects, which have the advantage of a shorter construction period, with a technology that is evolving very quickly.
But overall, in the market, there are many projects and there is diversity. We see projects in various stages of development, of various sizes, with many Romanian and foreign investors, existing or new to the market, who want to develop new production capacities. There is also increased interest in innovative projects such as micro-grids and energy storage technologies. At the same time, we also notice that few projects reach the final phase for financing, and the reasons are multiple, a trend that we hope will be reversed in 2024 and 2025.
What has been the trajectory of interest rates for corporate loans, especially financing for investments but also working capital?
The interest level results from a mix of elements: a component with aspects specific to the client and the transaction, namely risk profile, financing structure and collateral, financed period, to which is added a general component, influenced by market conditions. These are the premises from which we start in the discussion about financing costs.
For the future periods, the expectation is that the National Bank of Romania will start the cycle of reducing the monetary policy interest rate, somewhere in the middle of 2024, in gradual steps, depending on the downward evolution of the inflation rate. These key interest rate cuts will be transmitted almost simultaneously in the proportional reduction in the quotations of the ROBOR interbank benchmarks.
The decrease in the indices will most likely be transmitted to the interest rates for new corporate loans quite quickly, with a gap of one or two quarters. The transmission lag will likely be several quarters in interest rates for the existing stock of corporate loans as loans mature and/or refinance.
Also, the transmission of interest rates will be faster for working capital loans that have shorter maturities than for interest on investment loans.
How do we stand in terms of concluded PPAs and when will we see a higher volume of such contracts in the market?
After the year 2021, when the price of energy reached historical highs, the market entered a period of contraction, in the sense of a state of expectation on the part of all the actors involved: from producers to commercial agents, large consumers, suppliers, etc. We have not seen a favorable development, although there have been some pioneers who have successfully entered into PPAs (“power purchase agreements”). However, we see a greater focus on the Corporate PPAs side, where there is increased interest. Here our expectation is that this direction will have a faster rate of growth and development, so that more and more players will turn to these tools to make their energy consumption and implicitly costs more predictable.
This interview first appeared in the printed edition of Energynomics Magazine, issued in December 2023.
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