Gone With the Wind: Weak Returns Cripple German Renewables
Investments in renewable energy were supposed to be a sure thing, with wind park operators promising annual returns of up to 20 percent. More often than not, however, such pledges have been illusory — and many investors have lost their principal to boot.
Three broadcasting vans. Ten camera teams. Some 50 journalists. There certainly wasn’t any lack of attention being paid to Carsten Rodbertus last Thursday as he stepped up to the podium in an assembly hall in northern Germany belonging to the renewable energy firm Prokon. And the company founder, with his gray ponytail, didn’t disappoint. The press conference quickly became a spectacle.
Several hundred employees welcomed Rodbertus with applause and shouts of “bravo” — and that despite the fact that he had brought an insolvency trustee along with him. Still, Robertus insisted that the company was essentially healthy. Recently, he noted, workers had labored “12 days in a row for 12 hours a day” in an attempt to ward off bankruptcy.The fact that they weren’t successful is, according to Rodbertus, the fault of the company’s investors, who backed the firm to the tune of €1.4 billion ($1.9 billion). Currently, many of them are demanding the returns that they were once promised: at least 6 percent interest per year or a refund of their principle if they wished to back out. Last week, the mounting claims led Prokon to declare bankruptcy — 75,000 stakeholders could be left out in the cold.
Thus far, it is the highest profile failure of a business model that both politicians and investors praised for being doubly beneficial. Not only would investors boost their own accounts, but they would also help the environment at the same time. And because the state guaranteed high feed-in rates for 20 years, the promises made by financial advisors — secure returns with a good conscience — seemed plausible.
Indications are mounting, however, that green capitalism will not be able to meet all expectations. In courts around the country, complaints are mounting from wind park investors who haven’t received a dividend disbursement in years or whose parks went belly up. Consumer protection activists are complaining that many projects are poorly structured and lack transparency. In the renewables sector, fear is spreading that the Prokon bankruptcy — combined with plans for a reduction in the guaranteed feed-in tariff recently released by new German Economy Minister Sigmar Gabriel — could scare away investors.
Much of the concern is focused on the large number of projects that are financed by the investment model known as closed-end funds. As a rule, they run for a 20-year period and are open to a limited number of investors. They promise annual dividend payments.
But newly released numbers, collected and analyzed over a several-year period, show what disappointed investors have long surmised: Around half of these commercial wind park enterprises are doing so poorly that investors can count themselves lucky if they even get their initial investment back after the 20 year duration.