Insurer Going Green Allianz Blows Big Bucks on Wind

Allianz, Europe's largest insurer, wants to pour an additional €1 billion into renewable energy to tap into the European green power boom.
They can't turn fast enough.

Munich-based insurer Allianz is expanding its business in renewable energy in a big way. If David Jones of Allianz Capital Partners gets his way, the insurance company's investment will "reach the €3 billion mark in three years." That is €1 billion ($1.24 billion) more than Allianz has invested so far.

Allianz is already the biggest European financial investor in green energy. The company, Europe's largest insurer by sales, began investing in eco-electricity plants in 2005. Last year alone, it invested about €400 million.

ACP, Allianz’s investment manager for alternative investment forms, has invested €300 million in solar plants and about €1.7 billion in wind farms, most of them onshore. "The return on investment of solar power plants in Germany and France is too low," Mr. Jones said.

In Germany, electricity from renewable energy sources, such as wind and solar power, is given priority over electricity from traditional energy sources as part of the country's push to phase out nuclear energy by 2022. Some government subsidies have promoted development of renewable power plants.

A similar trend, although less pronounced than in Germany, is visible elsewhere in Europe. The Netherlands is increasing its share of renewable energy production, while France, traditionally a strong proponent of nuclear power, last month agreed to generate more energy from renewable sources.

In their search for alternative investment opportunities, an increasing number of funds and banks are discovering onshore wind power plants, which is pushing up prices, according to Mr. Jones.

We are currently looking at the possibility of investing outside the European Union too, for example in the United States. David Jones, Allianz Capital Partners

Between 2010 and 2012, banks’ share of newly installed plants increased from 11.4 to 16.3 percent, according to Trend Research, an independent, Cologne-based market research company.

“Because of low interest rates, there are currently few attractive alternatives for long-term investment," said Dirk Briese, the managing director of Trend Research. "Good single-digit returns can be achieved with favorable wind farm locations."

Up until recently, many financial investors had shied away from investing in German offshore wind power plants, which were regarded as risky since they cost billions and are far out at sea where the winds are harsh and the water deep.

While returns on solar plants in Italy and Spain are higher, the regulatory risk in crisis-hit countries is correspondingly greater. Both countries have been known to make radical and surprising changes to subsidies for solar power, completely unnerving investors in the process.

Mr. Jones does not rule out the possibility of Allianz investing again in solar plants and said he is looking at projects in France.

“Our investors are European Allianz insurance underwriters. They want the security of the euro zone," he said, "but we are currently looking at the possibility of investing outside the European Union too, for example in the United States.”

Due to the levels of investment required and the risks involved, we will only invest in offshore wind power plants in tandem with partners. David Jones, Allianz Capital Partners

Interest in wind farms as a business model is growing. The U.S. investor Blackstone, for example, has invested in the German offshore power plant Meerwind Südost. "We want to invest more in German offshore wind plants," said Sean Klimczak, managing director of energy investments at Blackstone.

Many energy companies enlist partners to help with the billions needed for investments in difficult times. Essen-based RWE, Germany’s second-biggest utilities company, is looking to implement its project North Sea One, Two and Three with a Canadian partner, after the project had been put on the backburner.

The Danish energy company Dong has attracted Kirkbi, the parent company of Lego, a toy manufacturer, for its project Borkum Riffgrund.

Trine Borum Bojsen, managing director of  Dong Energy in Germany, sees this as a positive sign. "It shows there is interest in investing in the German offshore wind power market, even by companies from other industries and other countries," she said.

Allianz is keeping out of such projects – for the time being anyway. "I can well imagine our first investment in an offshore wind power plant being in France," Mr. Jones said. France, “with its long-term tariffs for offshore wind plants comes closest to our investment ideas." But this market is only in the start-up phase.

“Due to the levels of investment required and the risks involved, we will only invest in offshore wind power plants in tandem with partners," Mr. Jones said. He can envisage partnering with an energy company that has experience in such projects, one that could shoulder “a substantial share of the investment risk.”

 

Georg Weishaupt reports for Handelsblatt on the solar and wind energy sectors. To contact the author: [email protected]