Is this a long-term trend? Governments might intervene to control energy prices. But in the meantime, equity-holders can generate significant returns.
As creditors, we are careful because when equity investors gen- erate target returns more quickly, they might consider selling their investments to other equity-holders that we might be less comfortable with. But we can document protections to mitigate the associated risk. Ebner: In Germany, we are seeing high power prices, but the outlook forecasts a heavy price decrease in the years to come. We will return to lower levels, maybe not to pre-crisis levels, but we have locked-in high interest rates. Some of our portfolio assets are benefiting from the current scenario, but it’s a short window of opportunity. We can lock-in assets now at a relatively low cost for a short period of time with these higher power prices, but our forecasts are based on low power prices.
An educated guess for the next 20 years is that we will see power prices in the area of €50 (£43) to €60 per megawatt hours, which is roughly 30% of the current spot price. There is a definite price decrease, which does not affect the asset if your business plans are sound and long-term oriented.
12 December – January 2023 portfolio institutional roundtable: Infrastructure
Dusch: That is almost twice the level at which we contemplated sizing the debt for many assets we have financed in the past few years. Ebner: I would assume that those assets have hope for higher power prices in the years to come. Foucoin: This speaks to the challenges of investing in renewa- ble energy, especially for institutional lenders like UK insurers. We are Solvency II-regulated, matching-adjustment investors, which means our focus is on the investment-grade segment of the infrastructure market. Volatility in power prices poses a challenge in terms of what structures work for investment-grade debt investors. We have invested in several wind and solar transactions over the years, whose cashflows were either regulated or fully contracted until the debt matures. Nowadays, however, we see a lot of projects which are partially exposed to fluctuating power prices, especially towards the end of the debt’s maturity. The goal for us is to find structures which achieve an investment-grade status, and deliver the sta- ble, predictable cashflows needed to match the pension pay- ments we have on the other side of our balance sheet. Taj: In terms of investing in renewables, some wind farms were
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