Heat Pump Securitisation: A Path Towards Sustainable Energy Adoption

In this commentary, we discuss recent advances in the European heat pump market and the state of the European heat pump securitisation market, the unique traits of heat pump contracts, alongside their probable influence on credit and analytical considerations.

Key highlights include the following:
-- Heat pumps, powered by low-emission electricity, are an efficient, sustainable, and increasingly affordable heating solution that can help Europe reach its climate and energy goals.
-- Securitisation is a potential route to resolving financial challenges related to heat pump adoption.
-- Heat pump financing resembles other forms of asset-backed lending in various aspects; however, it has unique contractual characteristics.

"As homeowners, the borrowers under heat pump financings are often the same as those under residential mortgage-backed securities; hence, the default risk for residential mortgage loans can be a good proxy for the default risk of residential heat pump contracts", said Mudasar Chaudhry, Senior Vice President, Lead, European Structured Finance Research. "Moreover, as the technology improves and the market matures from its current nascent stage, we could see mixed residential solar and heat pump asset-backed securities transactions."