INTERVIEW – UniCredit Leasing Bullish on Solar Power in Bulgaria, Romania, Turkey

SOFIA (Bulgaria), April 14 (SeeNews) – UniCredit Leasing believes Bulgaria, Romania and Turkey are offering the biggest potential for the development of solar power in Southeast Europe as the region is set to steal some attention away from overinvested markets like the Czech Republic and Italy.

“The markets in Southeast Europe [SEE] are very promising overall but still immature. In the solar sector, our hopes are highest for Bulgaria, which currently has an attractive feed-in tariff of 699 levs [$515.98/357.4 euro] per megawatthour [MWh],” Martin Mayr, head of the UniCredit Leasing Renewable Energy Competence Centre, told SeeNews in an emailed interview.

“The tariff, however, can be decreased during the lifetime of the plants. This old scheme only allows for selective financing, but we expect a new legislation in the near future with a fixed feed-in tariff. That should then lead to some major investments.”

Across SEE, UniCredit Leasing (, part of Italy’s UniCredit Group, has operations in Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Serbia, Slovenia and Turkey.

Mayr pointed to Romania as another attractive market in SEE but noted that conditions there will depend on expected changes to secondary legislation and on the long-term pricing of the so-called Tradable Green Certificates which will be awarded to photovoltaic (PV) projects. “Our calculations show that an average price of 41 euro [$59.2] per MWh – if guaranteed long-term – would be sufficient for PV developments.”

Then there is Turkey where UniCredit Leasing expects further developments based on tariff additions granted for locally-produced PV modules. “Slovenia is a small but interesting market, and another niche market in SEE is Croatia, where we expect a few developments on an overall limited market.”

Mayr anticipates that in key markets like Bulgaria and Romania the actual number of PV installations will remain very low until the final legislative decisions have been made. “We do, however, see many investors from our traditional markets like Germany, Austria and Italy showing increasing interest in the region during the past months.”

Next to tariff gaps, legal insecurities both in terms of project development and in terms of grid access are the biggest challenges for the development of the PV market in the region, Mayr said. “How much will really be invested in the region is hard to predict at present, since we are still waiting for government decisions in the major markets.”

On the risk side, SEE doesn’t differ that much from other regions, Mayr said, singling out price risks in Romania and currency risks in Croatia and Bulgaria.

In the past, there was no market for solar financing in SEE and the region is just beginning to evolve in that direction, he said, adding that in backing solar power projects, UniCredit Leasing follows a set of structuring principles that are standard for all markets where it operates. “If the debt service coverage ratios are sufficient, we will be happy to go 80% debt and 20% equity for SEE projects as well.”

UniCredit Leasing, which does not provide seed financing but only cash-flow based backing for fully-developed projects, has witnessed a slight change in the profile of potential PV industry investors in the aftermath of the financial crisis.

“On the local scene we see a maturing of the developers, who have realised that it is not always quick and easy to develop bankable projects. There has been some shake-out both due to commercial reasons and also due to better government control of the licensing process. Still, in Romania for example, the developer shake-out is yet to come as the market really gets going,” Mayr said.

Following the negative example of the Czech Republic, where the rapid build-up in solar capacity has prompted a reduction in its feed-in tariff payments, Mayr expects that the SEE region will be more prudent in terms of tempering potential PV booms, which can be caused by excessively high feed-in tariffs.

“Overall the region is very dependent on investor confidence and on foreign investment, so it is reasonable to expect that the incentives in place will be respected at least for all already connected plants. We do not expect scenarios like in Spain or in the Czech Republic in the SEE region.”

According to data of the Solar Energy Industries Association, the Czech Republic emerged as one of the top markets for PV in 2009 with annual installations jumping to 411 MW. The country installed more new PV per capita than any country except Germany in 2009. The massive growth - from just over 50 MW in 2008 - was due do the country’s generous $0.63 (0.44 euro) per kWh solar incentives.

Responding to runaway PV capacity growth, the Czech Republic adopted a measure under which PV plants that were guaranteed to receive a fixed feed-in-tariff for a period of 20 years will have to pay a tax on the revenues generated while Spain, which has absorbed over 20 billion euro in PV investment since 2002, implemented retroactive tariff cuts.

In the SEE region, grid parity - the point at which alternative means of generating electricity is at least as cheap as grid power, is further away than in other markets, Mayr said.

“Bulgaria, for example, has the lowest wholesale electricity price in the EU. So the PV projects are quite dependent on the incentives provided. Nevertheless, the attractive irradiation alongside higher prices for imported fuels as well as declining PV module prices are all factors which contribute towards reaching grid parity.

Currently the market price is most relevant in Romania, where it actually is part of the incentive scheme. In Bulgaria the old tariff, which had a market price component, will soon be replaced by a fixed system.”

UniCredit Leasing, which estimates 1.0 gigawatt of PV installations for both Romania and Bulgaria over the next three years would correspond to 2.0 billion euro of financing in each of these two markets, has so far realised five wind projects in SEE but no solar project yet.

“Among the UniCredit Group banks, [Bulgaria’s] Bulbank is now realising the first transactions. The volumes are not substantial yet, neither at UniCredit nor at any other bank in the region. Overall, we are preparing for major activities, but without final and bankable legislation, we are not really able to do much despite our activities in the wind segment.”

Mayr said wind has been easier to finance due to the fact that it is less dependent on incentives. “For wind we can already rely to some extent on market prices. Our presence means, however, that we will be prepared for structuring financing easily once we have the tariff decisions in Bulgaria and Romania on the table.”

(1 euro=1.95583 Bulgarian levs)

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