More and more municipal utilities are offering citizen participation through subordinated loans to finance their energy transition projects. The reason lies in a lack of equity capital: many local providers cannot manage the expansion of solar fields, wind farms, and power grids on their own. Banks are acting cautiously, and international markets remain closed – therefore, citizens are being asked to step in as lenders. This form of investment seems attractive at first glance: stable interest rates, local engagement, and a contribution to the energy transition. However, the supposed return on investment can quickly turn into a losing proposition.
Subordinated Loans: An Underestimated Risk
A subordinated loan differs fundamentally from traditional investment options. Investors accept a subordinate position in the event of insolvency. Banks, suppliers, and other creditors receive their money first – private investors may receive nothing. This structure makes the loan a speculative capital investment that operates without deposit insurance or collateral. Even a so-called subordinated loan doesn’t change this: the risk remains entirely with the investor.
Furthermore, investors have no control rights. They don’t know whether their investment is being used efficiently or whether projects are overly optimistic in their calculations. The idealism of many involved doesn’t protect them from losses.
Return Forecasts and Volatile Electricity Markets
A growing risk lies in the unrealistic return forecasts of many energy projects. Operators often calculate revenues based on ideal weather conditions and high market prices. But reality is different: More and more plants are feeding electricity into the grid simultaneously. When overproduction occurs, wind turbines and solar fields have to be temporarily shut down. This reduces energy yield and jeopardizes the entire financing of the energy transition.
For investors, this form of capital investment is therefore fragile and heavily dependent on unpredictable markets. Even technically functioning plants can incur losses if the electricity isn’t purchased or is only sold at dumping prices. The hoped-for return can quickly evaporate.
Citizen Participation or Just Marketing?
Many municipal utilities market their offerings as citizen participation – promising regional responsibility. In reality, however, it is purely a financial construct. Investors have neither a say in the company’s operations nor any right to repayment as long as the company is insolvent. For the utilities, this capital provides balance sheet flexibility; for the citizens, it represents a significant risk.
Such models appear to be community participation, but are legally subordinated loans without any safeguards. The emotional connection to local projects should not obscure the fact that, in a crisis, citizens are the last to be paid.
Uncertain Returns and Political Dependence
Even seemingly fixed interest rates of 3 or 4 percent offer no security. If the company runs into difficulties, interest payments can be suspended. Any changes to subsidies, CO₂ pricing, or grid fees directly impact profitability. The increasing feed-in of renewable energies is leading to grid overloads – and thus to shutdowns – with increasing frequency.
This development highlights the weakness of many transformation financing schemes: the more successful the expansion of renewable energies, the more uncertain the returns become. The green image masks the actual instability.
Conclusion: High Risks Despite a Sustainable Appearance
A subordinated loan may seem like an investment in the energy transition, but it remains a speculative financial product. Those who participate bear the full economic risk – without collateral, without control, and with uncertain returns. The increasing overproduction of electricity and the growing number of power outages make this form of energy transition financing even riskier.
Citizens should be aware: A supposedly green investment can ultimately prove costly. Municipal utilities benefit from additional equity capital, while investors bear the entrepreneurial risk. Sustainability is no substitute for security. (KOB)