In November, Glasgow will host the 2021 edition of COP 26, the intergovernmental conference on climate change, an annual event that brings together decision-makers from around the world to find a common strategy to address climate change. Preparatory work for the event will begin in Milan at the end of September. In the Lombard capital, the leaders involved will informally discuss drafts that will then be converted into institutional positions during the conference in Scotland.

Italy at the centre of the fight against climate change

“The EU plan for Sustainable Development sets ambitious targets for Italy: at least 30% of energy consumption covered by renewable sources by 2030, phase-out of coal plants by 2025, 43% reduction in electricity consumption, 40% reduction of CO2 emissions,” says Elena Maspoli, Head of Special Situations Energy at illimity.

It is an urgent necessity, though getting there will not be easy.

What it takes to redevelop decommissioned plants

Behind every energy production plant there is an industrial project: from large energy multinationals to small entrepreneurs who have believed in the development opportunities offered by the green sector by investing, for example, in photovoltaic parks.

There is a wide range of situations. The size of small and medium-sized companies, for example, has not always made it possible to mitigate the adverse effects of the economic situation by spreading them over several geographical areas. But that’s not all.

The rules for energy incentives are a complex matter. The bureaucratic and administrative component requires the use of highly specialized and competent personnel to handle the paperwork, personnel that small enterprises cannot always afford, leading to paralysis, or worse, the risk of penalties.

In such a framework, there are a certain number of situations of impasse, and all those involved, entrepreneurs, the community, and obviously any creditors, lose out.

Energy credit restructuring

If the government can provide a favourable regulatory framework for the development of the sector, to unblock the situation from a practical point of view, the initiative can only be private, with an approach centred on the individual local reality.

In this scenario, the private sector must come to the rescue of the public sector. This is the context in which energy credit restructuring comes into play. We will try to explain it with the help of illimity. “There are electric power plants that may face difficult periods for a number of reasons,” continues Maspoli. “Nevertheless, they represent a brick on the road that leads a company to the conversion to clean energy; it makes no sense to divest them without at least making an attempt to recover them.”

Italy ranks seventh in the world for sustained investments in the renewable energy sector, with over 70 billion spent by Italian and foreign investors in the last 10-12 years. “We estimate that outstanding bank loans may amount to 25-30 billion and that distressed loans represent a share of at least 5 billion of them. With illimity and neprix, we focus precisely on this type, relying on strong industrial expertise to manage the plants in question and return them to the market in good health.”

Banks often do not have the know-how to intervene effectively in the energy credit restructuring process, from both an engineering and regulatory point of view. “In a sector such as that of impaired credit, in which the focus is on collecting large volumes in a generalist manner, we have tried a different path, seeking the so-called ‘blue ocean’: specializing from the outset in energy, combining the skills of many different professionals. For example, with the VEI Green fund, which has been operating in the sector for ten years. And we made this choice because it was immediately clear to us that the sensitivity of the public and the decision-makers was shifting towards green.”

The sector is young and not yet fully mapped out. “We expect that in the next few years at least another 25-30 billion in investments will be coming in. The energy sector is one that works on the basis of credit, with financial levers of over 50%: based on this reasoning, with a market that is tending to grow, debt will also increase. For the most part it is good debt, of course, but it will naturally carry a distressed component. This component must be helped to stay afloat, certainly for purely financial reasons, but also for reasons linked to the responsibility we have towards the community. We can no longer afford abandoned skeletons when the expertise exists to put the plants back in operation.”

The two paths

“Credit in the energy sector is a niche area that already has a certain history behind it, but even more is ahead of it,” Maspoli resumes.

“We propose two paths. If the problem is strictly financial, we replace the bank and become the company’s counterpart, helping it to restructure its debt. Otherwise, if the problem is of a managerial nature, we activate the equity path, that is, the conversion of our credit into capital. In this way, with the entrepreneur remaining a partner, we can intervene more quickly to recover the asset and therefore restore the plant to full productivity. Now the asset can be sold on the market and re-enter the clean energy system, with a regeneration in terms of both production capacity and environmental sustainability. The value differential is our return.”

How long does the process of valorizing and placing the asset on the market last? “On average, between twelve and eighteen months, at the end of which the entrepreneur can choose whether to sell his shares or buy back the plant. But with illimity and neprix we also offer an active management service, to be understood as a support before getting into trouble. It is a sort of highly specialized property management to deal with the engineering and bureaucratic part, which in these cases can be complex.”

“We often unblock situations that are a big problem for the entrepreneurs. We usually work on plants from one to ten megawatts, which is the typical experience of entrepreneurs who are not energy experts and who have unfortunately stumbled into technical-operational or documentation problems, for example at the level of authorizations. We don’t solve everything, and we don’t perform miracles,” Maspoli remarks. “But with us it is possible to find an option that allows you to quickly monetize what is left in the hands of those who have invested. With our staff, we try as far as possible to avoid legal action, and this aspect is usually appreciated.”

Is energy a bubble? we ask. “We have to face reality. Once upon a time and in certain regions an incentive was given to anyone, as long as they had a field or a roof for installing a plant. Managing it is a different matter. But when a situation is created in which the rules incentivize small initiatives managed by non-specialized operators, the result is a situation in which luck plays a role. Not to mention that people of all profiles have climbed on the bandwagon, from adventurers to people armed with good intentions. And the former have not always fared worse.”

What matters is that the entrepreneurial adventure continues on new and more solid paths. Or ends by recovering at least part of the investment. What kind of plants are you interested in? we ask in conclusion. “neprix and illimity address the sector of difficult credits with particular attention to those whose main asset is a plant for the production of energy from renewable sources, or for which there are real estate guarantees associated with interesting prospects of development in terms of energy. An example? Polluted land for which remediation is difficult or poorly located hotels for which, together with the municipal administration, a plan for a different future use is shared. Also in this case we might think of a power plant, converting the hospitality facility.”