German public banks are proposing a novel financing model designed to bolster the financial stability of municipal utilities, particularly as they navigate the significant investment needs spurred by the energy transition. Iris Bethge-Krauß, CEO of the Association of Public Banks (VÖB), which represents state and promotional banks, highlighted the proposal in comments to the Handelsblatt.
Municipal utilities across Germany face mounting pressure to invest in infrastructure and modernization to adapt to the evolving energy landscape. However, Bethge-Krauß warned that some utilities are currently finding it challenging to secure additional bank loans due to already elevated debt levels.
The VÖB’s proposal, detailed in a recently released position paper, centers on what it terms “credit-financed strengthening of the equity of investing municipal utilities”. The core of the suggestion involves granting municipalities the authority to issue municipal loans, designated for specific purposes, which would then be directly used to increase the equity stake of the utilities they oversee. Notably, this process would allow for loan uptake irrespective of the municipality’s overall creditworthiness.
According to Bethge-Krauß, the initiative would significantly expand the borrowing capacity of these municipal utilities, opening up additional credit lines and providing crucial financial support during a period of substantial investment demands. The proposed framework aims to ensure the long-term viability and operational capacity of vital local energy providers.