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On a side note, he expressed disbelief when a speaker vouched for IRR "in the single digits". According to him, "financial engineering allows for returns up to 25% in France."

There have been occasional projects with high returns, but single digits is indeed the rule for RE projects (especially in countries with stable frameworks, which is not the case of France...)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Nov 18th, 2009 at 06:11:55 PM EST
Jerome a Paris:
not the case of France...

??

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 19th, 2009 at 01:37:13 AM EST
[ Parent ]
The regulatory framework for wind projects in France has been changed several times over the past decade, creating a lot of confusion and headaches, and the occasional windfall for some lucky investors.

Things had stabilized in recent years, but préfets have sensed Sarkozy's lack of enthusiasm for the industry and has started making the permitting process a pain again.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Nov 19th, 2009 at 05:34:55 AM EST
[ Parent ]
We should make a distinction between project IRR, which is often in the 6-8% range, and investor IRR, which doubles that.

I will shoot him an email to see if he's interested in hearing a bit more about this. I find it a bit problematic that the regulatory agency doesn't know how much money it allows investors to make. That, and the confusions between project and investor IRR is worrisome, while called project "financial engineering" is plain nonsense.

Also, I don't know if it's clear to them how exactly project finance changes returns: passing interest payment as costs to reduce taxes, leverage, shareholder loans, payments pushed to later in the project's life, etc.


Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine

by UnEstranAvecVueSurMer (holopherne ahem gmail) on Thu Nov 19th, 2009 at 05:01:44 AM EST
[ Parent ]
investment in the wind sector in feed-in tariff countries has been providing single digit returns for investors - the industry is considered low risk and providing stable cash flows, so the prices of esting assets have increased to reflect that reality (and the prices of turbines and other supplies have also increased to capture some of this).

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Nov 19th, 2009 at 05:38:49 AM EST
[ Parent ]
This reduced risk perception certainly hasn't happened in banks, whose spreads are still relatively high. Commission fees, who probably had a reason to exist as long as they tracked project complexity, are now overshooting.

As for the rest, I'm still curious to see who in the value chain captures most of the subsidies.

Rien n'est gratuit en ce bas monde. Tout s'expie, le bien comme le mal, se paie tot ou tard. Le bien c'est beaucoup plus cher, forcement. Celine

by UnEstranAvecVueSurMer (holopherne ahem gmail) on Thu Nov 19th, 2009 at 07:34:35 AM EST
[ Parent ]
margins and fees had fallen very low in 2007, but have shot up since the financial crisis, for a simple reason: long term liquidity has become rarer and a lot more expensive for banks and thus for their clients. But the overall cost of debt (margin + cost of funding) has thankfully not increased as much as the underlying money rates (EURIBOR et al) have gone down.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Nov 19th, 2009 at 02:27:22 PM EST
[ Parent ]

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