European Banks Must Provide Stronger Guarantees to Boost Investment in Cleantech
Europe’s push toward a low-carbon economy is gaining momentum, but financial leaders warn that private investors will only commit to high-risk clean technologies if banks and institutions offer more robust, flexible financial guarantees.
Groundbreaking, innovative projects can struggle to attract private capital because of the potential technological risks and untested business models, explains Jean-Christophe Laloux, Director General of the European Investment Bank (EIB). Even transformative start-ups that progress and succeed early on can face growth challenges due to limited access to working capital. Guarantees are critical to unlocking affordable financing.
Laloux spoke at an event hosted by InnoEnergy—part of the European Institute of Innovation and Technology—held in Brussels on June 3. Antonio Bandrés, Head of International Corporate Finance at Instituto de Crédito Oficial, emphasised that such guarantees are more critical than ever, as clean technologies become increasingly capital-intensive with the integration of artificial intelligence and robotics.
However, Bandrés also noted that banks are limited in their ability to take on risk due to strict capital regulations. Bandrés explains that the rules governing capital consumption and pricing restrict banks from being flexible, proactive, or building a high-risk appetite.
To support the growth of strategic sectors, like cleantech, the European Commission has proposed a Scaleup Europe Fund, which would make direct equity investments. It also aims to create a voluntary European Innovation Investment Pact with the EIB, which has committed to providing €70 billion in start-up funding by 2027.
Yet financial experts agree that more flexibility is needed in existing instruments to meet the evolving needs of scale-up businesses.
The Role of Long-Term Guarantees
Anne Mieke van der Werf of Invest-NL, the Dutch national investment agency, shared that her organisation has been able to mobilise €315 million in direct equity investments through the support of InvestEU guarantees. Mieke explains that these guarantees allow us to take on more risk and offer larger investments.
This funding enabled Invest-NL to invest in Thorizon, a spin-off from the Dutch nuclear research institute NRG, which is developing a small nuclear reactor that uses long-lived radioactive waste as fuel.
Still, van der Werf pointed out that the InvestEU Fund, which aims to trigger more than €372 billion in investment using €26.2 billion in EU budget guarantees, could be improved. Currently, the European Commission requires a share of investment returns in exchange for guarantees, but does not provide liquidity, covering only funding and compliance costs.
A further challenge, Van Der Werf noted, lies in securing long-term power purchase agreements (PPAs), which are essential for new energy generation technologies. These contracts lock in electricity prices over extended periods but often require the involvement of creditworthy industrial clients, many of whom, in the Netherlands, lack the necessary credit profile.
Van Der Werf believes that to make PPAs viable, we need guarantee structures that secure the off-taker’s obligations and allow banks to back the agreements. Laloux said the EIB is working on a solution and expects to present it this summer.
Alternative Guarantee Instruments and Market Certainty
Beyond the InvestEU framework, other financial guarantees could help de-risk investments. According to Bandrés, these might include standby letters of credit or performance bonds, both of which can safeguard parties in a contract against default.
Antoine Troesch, Managing Partner at the European investment group Demeter, emphasised the importance of long-term market visibility. Troesch explains that investors need clarity on market conditions, pricing, and costs. Without that, there’s no viable investment model.
Laloux concluded that a “clear policy direction” is essential for investor confidence. Laloux highlights that we’ve seen this year in the U.S. what happens when policy support is rolled back. It results in investment momentum stalling, he warned.