Member Article

The financial crisis of 2008 and the subsequent recession have taken their toll on the funding of all infrastructure projects and the renewable energy sector has not been immune to its effects.  Banks and public finance institutions were increasingly reluctant to advance loans for projects, as preserving capital resources became critically important to help ensure their survival in the financial and economic maelstrom.  When loans were made available, the margins and fees payable had increased substantially.

However, there are a number of signs that the slow recovery that is now underway is resulting in debt funding becoming more widely available again for renewable energy projects.

In early November 2009, the UK utility Centrica (parent company of British Gas) saw the closure of its £340 million refinancing of its 220 MW Boreas Wind Portfolio.  The portfolio consists of an onshore windfarm near Huntly in Scotland, Glens of Foudland, as well as two offshore windfarms, Lynn and Inner Dowsing, located 8km off the coast of Lincolnshire.  The US-based asset manager TCW became an equity partner in the portfolio as part of the deal.  The significance of the refinancing was that it was the first major project financing of offshore wind assets in the UK and was achieved with a club of 14 banks, notwithstanding the difficulties in funding in the market at the time.

In mid-November 2009, it was announced that £1.4 billion would be made available to three banks (Royal Bank of Scotland, BNP Paribas Fortis and Lloyds Banking Group) to start offering new loans to UK onshore windfarms.  The scheme is supported by HM Treasury and the Department of Energy and Climate Change.  Half of the funding (£700 million) is provided by the European Investment Bank (EIB) with the remainder being provided by the three banks involved.  The loans are for onshore wind projects with a total project cost of between £20 million and £100 million.  Partly as a consequence of the availability of the EIB funding, the first half of 2010 has seen completion of debt funding by the banks involved on a number of medium-sized wind farm projects in both England and Scotland.

In April 2010, the Dutch-based Rabobank, one of Europe's principal lenders to renewables projects, announced the creation of a €1.5 billion fund targeting large-scale European renewable energy projects.  Rabobank is seeking to tap institutional investors to provide up to 70% of any future investments with Rabobank's infrastructure and renewables division covering the other 30%.  No single investment is to be larger than €150 million.  Part of the aim is to enable pensions and insurance companies to take on renewable investments, leveraging off Rabobank's acknowledged industry expertise.  The fund is to target offshore wind, as Rabobank believes there will be a shortage of funding for these types of projects, but it will also consider onshore wind, photovoltaic, rooftop solar and solar thermal generation.

Further afield, in continental Europe, the European Bank for Reconstruction and Development is to aid onshore wind projects in Romania, having recently agreed with the Spanish group Iberdrola Renewables, to supply about €100 million of funding.

Importantly, as well as the signs of increased availability of funding, the cost of debt is becoming a little more competitive, so that this should also help fuel an increase in deals in the second half of 2010 and into 2011, throughout the UK and Europe.