Chapter 2: Wind energy financing
2.1 Commercial banks Criteria and financing structure Commercial banks are the first port of call for wind energy project and corporate finance. The most active in the region’s wind sector finance are subsidiaries of the Austrian banks Erste Group and Raiffeisen Bank International, the Italian bank Unicredit and the French bank Société Generale. The commercial banks consider Romania, Poland and Turkey the most promising countries for the development of wind energy. Croatia is seen as having a good project pipeline and several projects are under construction. The main criteria for obtaining financing from banks are: • Location. The project has to be in a region with significant wind potential: one year of wind measurements are a minimum requirement. • Country. The project should be located in a country with a robust regulatory regime: permitting, grid connection and dispatch. • Project developer. The developer should have an established track record, local experience and a presence in the market. Corporate governance of all parties involved remains a risk for commercial banks and this needs to be addressed in applications. • Planning. Due diligence, a detailed outline of the construction budget and a programme including a financial model for the project are required. • Equity. Minimum equity requirements are 20% to 30% of project volume, but this could increase with a rising cost of debt. A reputable investor is a plus.
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• Permits. Applications for all necessary permits and licenses should have been filed. • Technology. State of the art technology by established manufacturers must be used and technical and legal due diligence must be carried out by a reputable party. Conditions of the contract with the technology supplier — including the unit price, payment schedule, the warranty period and scope of warranty service —should be submitted. • Power Purchase Agreement (PPA). Ideally the project company should already have had a PPA for four to six years. A signed PPA significantly increases chances of obtaining finance. If a project fulfils banks’ requirements, the chances of obtaining finance from major commercial banks are good. Commercial banks will provide non-recourse or limited recourse financing through senior loans and other instruments such as leasing contracts. Currently8, most banks do not provide junior loans9 or mezzanine10 capital, because equity requirements are considered manageable11. Large projects are mostly backed by investment funds, eliminating the need for mezzanine capital12. Financing is preferred in euros, with an average maturity of around twelve years. Since the maturity depends on the project and its developer, it will be individually tailored. Gearing13 is based on the financial model provided by the project company and is set at a maximum of 70% to 80%. Factors such as the wind site and price assumptions influence the gearing.
As of July 2012 A loan that is subordinate to another issued by the same party. Junior debt is more risky for an investor to own, but it pays a higher rate of interest than debt with greater security. Mezzanine capital is a financial instrument that usually carries interest and is senior to common shares and subordinated to senior loans. It generally takes the form of subordinated shareholder loans. The key reason for using mezzanine/shareholder loans is relative tax efficiency over simple equity injections, in most of the jurisdictions Of the interviewed bankers only one specified that they would provide mezzanine capital as well, if the risk or return profile is adequate. The same bank offers debt covered by export credit agencies Expert interviews, 26.07.2012 Gearing is the ratio of senior debt to the sum of senior debt, junior debt/mezzanine and equity. In project finance, gearing usually means the share of investment costs financed by senior loans Eastern winds - Emerging European wind power markets
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