Wind Turbines Prepared at Harland and Wolff Shipyard

Siemens’ financing arm is seeing a shift in project finance from a focus on renewables to a more even mix of renewable and fossil fuel generation, according to US chief executive Kirk Edelman.

“What we’re seeing now is a little bit of a shift away from a lot of focus on renewables to a more balanced approach between renewables, fossil generation and LNG,” Edelman told Breaking Energy.

Siemens Financial Services has a bit of a niche role in helping new energy projects raise financing. SFS is a “captive” – a financial services organizations that is part of an industrial conglomerate with its own interest in an investment. Other “captives” include GE Capital, which like SFS, offers the full range of financing services, while other financing arms of large equipment suppliers might cater solely to financing the purchase of their parent companies’  equipment.

There are both upsides and downsides to employing the services of captives in energy project finance. “It’s a double-edge sword at times,” said Edelman.

On one hand, a captive that is linked to the equipment supplier for a project will have better knowledge of the technology involved than a third-party investor typically would, Edelman said. “If we’re financing a big Siemens wind project, we as financiers will be more comfortable and knowledgeable about the equipment, because it’s ours.” On the other hand, being a lender and being tied to the equipment supplier poses some questions about potential conflicts of interest.

But raising financing via captives can give an energy project a big advantage. Large energy projects require capital from a commensurately large pool of investors, who may have more confidence in the underlying technology if the firm supplying that technology is also putting up capital. “A lot of financiers, they want to see the technology supplier have skin in the game,” Edelman said. “It becomes increasingly important when the technology is cutting edge.”

“When we roll out, say, a brand-new wind turbine design, chances are the customer is really going to want us to have capital in the deal to show that market that we stand behind this newer technology,” Edelman said.

SFS is increasingly playing that role in the financing of fossil-fuel projects – specifically natural gas-fired power generation and construction of LNG export plants. “For years, a lot of our attention has been focused on renewable energy projects. We’ve spent a lot of time and invested a lot of money in wind, solar and geothermal and it’s been a very active business for us,” Edelman said.

“But with the advent of cheaper shale gas and natural gas liquids, that is changing things on a global scale, because renewable energy projects are getting harder and harder to justify from a pure economic perspective, versus very cheap gas-fired generation,” Edelman said. “The pendulum is starting to shift away a little bit from the industry’s previous focus on renewables.”

“We’re not going to solve most of society’s generation issues strictly with renewables projects. You need a balanced approach between renewable projects, which are less base load-oriented, and quick-start natural gas-fired machines that allow you to fill in the gap when renewables output is waning.”

Edelman said that the industry is seeing an increase in large gas-fired projects, as well as a lot of very large LNG projects, which are attractive to Siemens. There is significant financing activity supporting the development of several ongoing LNG projects in places like the US Gulf Coast and Australia.

“These projects, along with the associated infrastructure required to support them – pipelines, terminals, regasification facilities, LNG tankers, etc. – will continue to attract significant capital investment in the near future,” said Edelman.  “SFS will continue to play a key role in providing the necessary capital to successfully develop these exciting projects.”