With the launch of the Green Deal in 2019, the European Commission has placed the fight against climate change at the forefront of its agenda. One major challenge will be funding the EU’s energy transition strategy; in his 2024 report on European competitiveness, Mario Draghi has identified securitisation as a particularly suitable financing tool. However, Europe lags behind the United States—and even China—when it comes to green securitisation.
Europe Lags Behind
Across the Atlantic, Fannie Mae stands as the world’s largest issuer of green Mortgage-Backed Securities. Energy transition securitisation is also widely utilised by photovoltaic panel installers (a), who securitise their operating leases or the future cash flows from Power Purchase Agreements (PPAs) (b). More recently, securitisation has encompassed loans provided to individuals to finance their solar installations (c). In 2022, green securitisation accounted for 32% of all green bond issuance in the United States.
In China, green securitisation accounts for 8% of green bond issuance. Since the first green ABS were issued in 2016, a diverse range of asset classes has been utilised, including wind turbine revenues, energy equipment leasing, and ‘green’ trade receivables.
In Europe, securitisation represents just 2% of green bond issuance. While the volume is growing, it remains far from sufficient. In 2023, securitisation volumes doubled compared to 2022, reaching €2.4 billion, but this figure is still well below the annual €300 billion estimated by AFME (d) as necessary to fund green construction, energy-efficient home renovations, and the transition to electric vehicles.
A Growing Market
In Europe, green securitisation transactions have mainly been initiated by bank issuers. For instance, Landesbank Baden-Württemberg recently raised €350 million to fund solar power plants and wind farms, with support from the European Investment Bank (EIB).
Non-bank issuers, though less common, are becoming increasingly active:
- In 2022, Perfecta Energia, a Spanish solar panel installer, launched a €133 million securitisation fund to support the development of residential solar energy.
- In 2023, Enpal GmbH, a German solar installer, established a €365 million warehousing programme to finance 12,500 installations.
- In January 2024, Powen Group securitised a diversified portfolio of Spanish solar assets—encompassing loans, leases, and PPAs for both residential and industrial projects—raising €120 million.
- In November 2024, Enpal executed the first-ever public securitisation of solar assets, raising €240 million. The ‘AAA’ tranche was priced at 40 basis points above the 1-month Euribor, while the ‘AA-’ tranche was priced at 85 basis points.
Many energy companies rely on project financing through ad hoc entities, injecting capital into each venture individually. This fragmented approach often makes it difficult to secure funding at the holding company level. Securitisation offers a potential solution by pooling multiple projects—particularly those in the production stage—into a single refinancing structure.
The green securitisation market has significant potential for growth. The European Commission is currently working to relax regulations, which should help facilitate such transactions. (For further details, see our previous article: “Securitisation: A Necessary Revival of the European Market.”)
However, securitising assets tied to energy production presents unique challenges compared to other forms of securitisation, notably:
- Default and early repayment risk: Assessing these risks is complicated by the limited availability of historical data and, in some cases, the small size of asset portfolios.
- Non-financial risks: These include the risk of contract renegotiation, technological underperformance, inadequate facility maintenance, and climate-related vulnerabilities.
Redbridge, together with its partner Accola, brings extensive expertise in securitisation, including operational leasing transactions. We firmly believe that securitisation has a pivotal role to play in achieving the ambitious goals of the Green Deal, whether the underlying collateral consists of loans, lease streams, or offtake contracts.
Securitisation Scheme for Solar Energy Leasing Contracts
Notes
a/ Sunrun, a leading solar company, has installed 5 gigawatts of solar panels since its founding in 2007. Remarkably, 41% of these installations have been financed through securitisation.
b/ Power Purchase Agreements (PPA) are a common mechanism, acting as offtake contracts between electricity producers and consumers.
c/ The PACE programme (Property Assessed Clean Energy) provides another innovative financing option, enabling property owners to finance energy-efficient upgrades through property tax assessments.
d/ For more insights, refer to AFME’s December 2022 report: European Green Securitisation Regulatory State of Play.