'Would I finance a Chinese wind turbine? Probably not,' says leading banker

A leading banker has set out why she would probably not finance Chinese wind turbines, while also explaining where – price aside – they could hold a key advantage over European models and hailing a “genius” new Siemens-Mingyang partnership.

Lisa McDermott, managing director of project and infrastructure finance at Dutch bank ABN Amro, told the BloombergNEF summit in London on Tuesday that many developers have asked her whether she would finance Chinese turbines since the UK’s 2022 renewables auction.

“I’ll be honest, I said ‘rather not,’” she said. “If you asked me today, would you finance [them] today. I’d probably say no.”

Would she finance them in a year's time or in the future? “It depends.”

The main hesitation is a “lack of familiarity with Chinese manufacturers,” she said.

If asked now by a developer, McDermott said her first question would be: “Why have you chosen a Chinese manufacturer over, let's say, a European one that's already gained that familiarity and confidence in the market.”

“If the answer is cost reduction, I would say: ‘Fine. Are you going to share some of that benefit with the financing parties?’ Financing parties have been really squeezed on wind financing.”

Then she would ask to see the technical advisory report, “because I'm not familiar with the track record of these parties. I want to see which turbine is being ordered. Has it been certified?”

Other concerns include the turbine’s operational track record, production capacity and manufacturing standards, she said.

‘Belt and braces’ guarantee for Chinese turbines would be persuasive

There is a “willingness” from banks not to reject Chinese turbines out of hand but rather to say, “we're not familiar. Educate us. Tell us why you're ordering it, tell us why it’s better, and show us the data”.

“So it's not like it's a glowing report there.”

McDermott said that where Chinese manufacturers could fill a “gap” in the market is through their willingness to provide long term service agreements for wind turbines.

Such agreements had previously been common, she said, before “suddenly they disappeared.”

There has she said been a “trend” from asset owners to say “we’ll take over, we’ve learned the lessons, we know how to operate these things” after the warranty period for turbines has expired – typically two years for onshore machines and five years offshore.

But these are “hugely complex machines,” said McDermott, and banks are therefore “losing the benefit” of long-term performance guarantees.

So if choosing a certain turbine supplier “means that we can actually get solid guarantees back on the table, supported by good balance sheets, that's a very persuasive argument.”

A “belt and braces” guarantee package like this could go a long way to reduce the cost of financing for turbines, she said. “It’s all about risk and reward.”

European banks ‘could be sidelined’ by Chinese

McDermott said there are probably three scenarios to sketch out when it comes to the future financing landscape of Chinese wind turbine tech in Europe.

“A good scenario would be that we take all the technology benefits, the innovation benefits that we've seen in China. They've really had a strong learning curve there. And the cost benefits, and we'll bring to Europe, and then, as a result, we're able to deliver payback periods, which are actually shorter for both debt and equity, as a result of lower upfront costs.”

“That would really please the entire market.”

A second scenario is that European financial institutions might be “completely pushed out of the picture” by Chinese banks and export credit agencies that come in with “very cheap finance” to support Chinese technology.

That scenario is “probably unlikely,” she added, as “you like to see some local banks financing.”

The third scenario would be a “joint venture approach,” not just on financing but also development. “It doesn't have to be them and us.”

McDermott hailed a recent “genius move” from Siemens to enter a strategic partnership with Mingyang.

The Chinese turbine maker announced the partnership last month, saying the deal would see it harness Siemens' technologies in digitalisation and low-carbon development, although specific details remain unclear.

“That's a way to both get acceptance of a name in the European market and then you can co-finance with both parties.”