The first wind financing and only the second project financing in Cyprus to date, the Eu170 million ($243.2 million) 82MW Orites wind farm project reached financial close with an exceptionally long tenor – 18 years – given that bank appetite for long-term debt is only just beginning to come back since the start of the liquidity crunch.

The deal also required significant contractual development to meet EU standards for licensing, the granting of land and the power purchase agreement with state-owned Electricity Authority of Cyprus (EAC) – in short the project has done the groundwork for further project financing in the wind and power sector on the island.

The wind farm is located on the Orites Mountain, in the south-west of Cyprus, 30km from Pathos, and will consist of 41 Vestas V90 2MW machines spread over a 16km2 site. Vestas is also putting up an availability guarantee for the turbines. Construction is underway with operations scheduled to start at the end of 2010.

The business case for the project is that demand for electricity in Cyprus has begun to significantly outstrip the existing 1,100MW maximum capacity of the EAC, which continues to be sole power provider despite market liberalisation. The EAC plants are also relatively outdated and oil-fired which presents the Cypriot government with the dual requirement of encouraging further power development and meeting EU emissions and renewable energy targets.

Non-renewable but cleaner energy projects also face significant hurdles. Most recently Cyprus has licensed Power Energy Cyprus Ltd to build and operate a 230MW gas-fired station in the Vasiliko area. But the Eu300 million project will be reliant on feedstock from the fledgling government-owned Public Natural Gas Company (DEFA), which is more of an idea than an entity for the moment.
Consequently, more potential wind projects are already underway in Cyprus. Orites itself will have an initial output of 82MW but is licensed to go to 140MW and is building connection capacity for the larger output – Orites Phase 2 is likely to hit the debt market in two to three years.

Nevertheless, a significant increase in wind projects is unlikely. Estimates of total exploitable wind potential across the island are between 150-250MW in areas where the best mean wind velocities – 5-6 m/sec and 6.5-7m/sec – are still relatively low. And when operational, Orites will account for 8% of Cypriot power generation, more than half-way to the EU target for the island of 13% renewable energy by 2020. But for those projects that do go ahead, Orites will be the template to follow.

The project is sponsored by DK Windsupply – a development company founded by local entrepreneur Akis Ellinas and majority owned by UK private equity advisor Platina Partners – and benefits from a new 20-year fixed rate feed-in tariff of Eu166/MWh recently approved by the Cyprus government and the EU.

Lead arranged by ING Bank, NordLB and Commerzbank – the same bank line-up that financed Havsnas, the first true project financing of a merchant wind farm in Scandinavia in 2008 – the long-term debt totals Eu128 million, with the EIB providing Eu64 million of low-cost debt and the joint leads the remaining Eu64 million commercial debt split equally between them and priced at Eu250-300bp over Euribor.

The long tenor – 18 years post construction – was achieved for a variety of reasons. First, the deal benefits from the 20-year fixed rate feed-in tariff. Second, the RFP for the project landed on bank desks in April 2008, before the liquidity crunch. And third, the debt tenor affects the viability of the project: Because of the low mean wind velocities in Cyprus, wind project investment costs take a lot longer to recoup than would be the norm in other European climates.

In addition to the hurdles normally associated with doing the first deal in any market, Orites was hit by the liquidity crunch in October 2008. Platina Partners, which arranged the financing itself, had initially approached a number of banks with a purely commercial debt financing. The onset of the crunch, and hence increased price of commercial debt, forced Platina to call on the EIB. The entry of the EIB prompted a new set of negotiations and extended the initial schedule to financial close, although the deal has still closed quickly given the dynamics of the debt market and the increase in demand for EIB funding.

The crunch upped the initial debt pricing estimates because banks own cost of funds increased over time. The preferred rate debt from the EIB offset some of that overall margin increase bringing the deal's economics nearer to the initial model.

DK Windsupply
Status: Financial close 31 July 2009
Description: First wind farm project financing in Cyprus
Sponsors: Platina Partners; Akis Ellinas
Lead arrangers: ING Bank; Commerzbank; NordlB
Multilateral debt: EIB
Lender counsel: Norton Rose (international); Ioannides Demetriou (local) Sponsor counsel: Hunton & Williams (international); Triantafyllides (local)
Turbine supply: Vestas