Foreign exchange rate issues
As mentioned in chapter 2.4 and outlined in the GET FiT Annual Report for 2014, the ability of GET FiT to provide financial support has been reduced compared to what was planned. This is due to:
- depreciation of the Euro (in which GET FiT funding is available) versus the US dollar (in which developers receive their premium payments).
- depreciation of the Norwegian Krone (in which funding from Norway is received) versus the Euro
Overall, exchange rate fluctuations have reduced the initial budget (in US dollars) available for GET FiT premiums by approximately 13 percent. This has resulted in a similar reduction in the generation capacity (planned MW and GWh) of the GET FiT portfolio.
Most importantly, the EUR/USD rate has depreciated by around 20 percent over the last two years. Effectively, since the developers are paid in USD, the Euro-based GET FiT budget can now support fewer projects than what was originally estimated. Furthermore, the NOK/EUR rate has depreciated in a similar manner, reducing the value of Norwegian contributions to the budget. This effect is limited to the Norwegian funds and thus less critical, but nonetheless significant.
Figure 10 - Illustrated depreciation of the Euro relative to the US dollar since original budgeting. Source: XE.com
To eliminate the risk of further depreciation of the Euro versus the US dollar and strengthen the programs ability to reach its targets, the GET FiT Investment Committee fixed the EUR/USD exchange rate for all remaining projects that had not yet signed DFAs in mid-2015.
On the other hand, GBP (in which UK funding to GET FiT is received) has appreciated versus the Euro within the same period, thus increasing the value of UK funds relative to initial budgets. Moreover, efforts by the UK and Norwegian partners to exchange currency earlier than planned has contributed to reducing the uncertainty related to future fluctuations. This also resulted in a funding gain for the Program, compared to original estimates for these funds.
Some level of uncertainty remains due to undisbursed donor commitments and pending decisions on additional funding. Nonetheless, overall budget uncertainty is significantly reduced as a result of efforts and progress made throughout 2015.