The US is entering a second age of solar ABS, where big name issuers join the fintech pioneers. Meanwhile, in Europe, there has been not a single public deal and there are only a handful of warehouses. That makes a mockery of the EU's stated ambition to “support Europe’s economy and green transition through sound securitizations”.
According to market sources, the first solar securitization in Europe is highly likely to come this year. Some also said it was very likely last year. Market participants mentioned it at Global ABS in 2022. In fact, they have been talking about it for years, with very little to show for it.
Given how advanced the environmental, social and governance cause is in the rest of Europe's capital markets, this is an odd situation.
Slight progress
The moment will eventually come. A German company called Enpal now looks among the most likely to bring it about, after signing €1.1bn of solar and heat pump warehouse agreements with Barclays, Bank of America, Crédit Agricole and CPP Investments in late March.
But even when its first deal does turn up, Europe will still be miles behind. Remember, the first US transaction was in 2013.
It’s not for lack of trying by issuers. Powen Group, owned by Brookfield Asset Management, agreed a €120m private securitization in January, funded by Barclays, of Spanish residential solar loans and commercial solar leases and power purchase agreements. It was the first time a deal has included both asset types.
They were important and impressive deals, but on the continental scale, what is a couple of warehouses to a couple of eras worth of deals in the US?
Fragmented market
There are a multitude of reasons for the differing speeds of the two markets. The blame cannot all be laid on Europe’s regulators.
European governments have also mostly failed to match US subsidies to get consumers to install solar panels. As a result, there is less collateral to securitize.
In addition, European regulations are organised nationally. Investors will always prefer a deal with assets governed by one jurisdiction.
Around €300m of collateral is needed to make a public ABS deal worthwhile, so it was always going to take longer to hit that threshold in Europe.
Securitization regulation has played a part too. The clampdown on the market after the 2008 crisis has limited the investor base and reduced the possibilities for innovation and creativity.
Deliberate restrictions on securitization are therefore partly responsible for how long it has taken for a public solar deal to emerge. All the way through the process regulations bite, not just at the final hurdle of a public deal.
Not fast enough
The rules are being reformed, but too slowly. The European Union's electoral cycle means there is likely to be no new primary legislation until 2025. The only changes that can be made are to guidance and interpretation of the rules.
As the European Commission acknowledges, this matters. Securitization can, as it has stated, support Europe’s economy and green transition. But time is running out to tackle the climate crisis. The EU is simply taking too long to develop the power of its capital markets to finance the green transition.
A first public European solar ABS might look like a drop in the ocean, but it needs to be the first drop of a torrential downpour.