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European Commission granted MuniFin license to finance municipal energy companies 

On 7 October 2022, the European Commission approved the notification submitted by the Municipal Guarantee Board in cooperation with MuniFin and the Ministry of Economic Affairs and Employment, granting MuniFin license to finance Finnish energy companies owned by municipalities. The arrangement will ensure the continuity of municipal energy companies’ operations and strengthen Finland’s security of supply. This type of financing can only be used towards the collateral requirements in the electricity market. The Commission’s decision will be effective until 31 December 2022.

MuniFin can finance municipal energy companies in relation to collateral requirements only if they have a 100% municipal guarantee, similarly to other companies under municipal control. This requires the municipal council’s decision. 

The Commission’s decision also allows municipalities to finance their energy companies out of their own budget under exceptional terms and conditions. This means that municipalities can now apply for a loan from MuniFin and then loan the funds on to a company, applying the same terms as specified in the Commission’s decision for loans granted directly to energy companies by MuniFin. 

Financing needs are hard to predict 

Anticipating financing needs arising from the collateral requirements in the electricity market is very difficult at the moment. 

“It’s possible that energy companies won’t have much need for MuniFin’s financing after all. But because we don’t know how the electricity market will react when energy consumption soars in the winter months, we encourage municipalities and their energy companies to prepare for possible financing needs in advance”, says Aku Dunderfelt, Head of Customer Finance at MuniFin. 

According to the scheme approved by the European Commission, the maximum loan amount cannot exceed either (i) 15% of the beneficiary’s average total annual turnover over the last three closed accounting periods; or (ii) the liquidity needs derived from the additional collateral requirements for the coming 12 months. The loan has a maximum maturity of three years. 

Under the recently approved scheme, energy companies can use loans granted by MuniFin or the municipality only towards the liquidity needs arising from the increased collateral requirements in the electricity derivatives market. In other words, the financing cannot be directed towards investments in renewable energy or any other purposes. 

See also: 

MuniFin looks to finance municipal energy companies to strengthen the security of supply