First Reserve and SunEdison’s Rovigo solar project is Europe’s largest single solar project financing. Despite its 70MW size the accom­panying financing was relatively straightforward to trans­act – a reflection on both the strength of the sponsors and the liquidity among Italian and international banks for photovoltaic (PV) assets.

The Italian PV market remains a hot­bed for developers and investors, al­though com­petitive project financing terms are generally reserved for top-tier sponsors with robust equipment war­ranties, that have overcome the regional permitting issues and progressed with a federal-level authorisation autorizzazione unica (AU).

“I rate Italy as the number one market among all the markets we operate, and Italy is easily the number one in Europe,” says Pancho Pérez, general manager for EMEA at SunEdison. “Permitting is more complicated, but it varies region by region. One of the reasons Rovigo went ahead was because the relevant authorities dealt with all permitting questions in a very professional way.”

SunEdison sold its equity in the project to a First Reserve-led joint venture in late September. SunEdison re­tains a stake in the project through a minority shareholding in the JV.

The sponsors reached financial close on a Eu276 million ($378 million) debt financing in late October. The total project cost is Eu300 million, financed on a debt to equity split of 80/20. The Eu276 million debt financing splits into a Eu240 million fully amortising 18-year term loan priced at 265bp stepping up in equal six-year intervals to 315bp, and Eu36 million in ancillary facilities. The sum total of all debt, equity, VAT and ancillary facilities is around Eu320 million. The other debt facilities comprise a 5-year VAT facility, and ancillary facilities shared among a working capital facility and VAT, municipality and commissioning bonds. The average debt service reserve cover ratio is a healthy 1.3x and bank fees were in excess of 200bp.

The deal was led by coordinating banks Santander and Unicredit, which were joined by Credit Agricole, Dexia Crediop, Natixis and Société Générale. Credit Agricole was the technical bank and Dexia was the insurance bank. Santander and Unicredit provided the bonds and took the largest tickets.

Only nine months passed from commencement of construction to full completion and interconnection, including construction of a new 240 MVA high-voltage distribution station. SunEdison put the order in for all the equipment, including 280,000 modules in spring 2010 at a time of tight supply for modules, inverters and transformers. The modules were shipped from China and manu­factured by Solarfun, Trina Solar, Canadian Solar and Chint.

SunEdison put together the financing whilst negotiating the equity sale, all within a tight timeframe to be eligible for the 2010 tariff. In spring 2010 there was uncertainty as to what the 2011 feed-in tariffs would be. The Italian government eventually put in place a tariff that gradually steps down in four-monthly intervals during 2011.

“The way they are structuring the feed in tariff for 2011 is very logical,” adds Pérez. “Everyone in the market accepts that the cost of materials is coming down and that renewable energy should rely less and less on subsidies. Italy has one of the best solar resources in Europe and a well-thought-through, well-structured tariff regime to match. It is more progressive than Spain.”

Despite its size – the Rovigo plant is the largest operating PV plant in Europe – the deal was relatively simple to trans­act because drawdown occurred only after final completion, interconnection and extensive testing so the banks are not exposed to construction, late connection and tariff risks. SunEdison is operating the plant. It has provided an extensive availability based two-year warranty for the plant.

An innovative aspect of the deal is the absence of a warranty bond for the EPC contractor SunEdison. Rather SunEdison’s parent company, MEMC Electronic Mat­erials, put up a guarantee to secure warranty obligations, which will suffice as long as a strong cash position of MEMC is main­tained. The deal therefore demonstrates that a warranty bond is no longer the sole means of securing EPC warranty obligations.

The First Reserve Energy and SunEdison JV could provide for the acquisition of up to $1.5 billion in current and future SunEdison PV projects with First Reserve and SunEdison committing $167 million equity initially over a phased period. The JV does not, however, have an exclusive right to SunEdison projects.

SunEdison and First Reserve also reached financial close in late January 2011 on a 20MW plant in Campania in Southern Italy with slightly more attractive borrower terms than Rovigo, reflecting the increasing competition among Italian banks for high quality PV deals. This deal, like Rovigo, followed the same template whereby the construction and connection risks are taken out of banks’ hands and the deal moving quickly to close. Following a similar template is a 50MW portfolio deal with PV assets in Sicily, Calabria and Puglia which is likely to close in the second quarter of 2011.

“Over the next 12 to 14 months we will continue in the same way using bank debt on a project-by-project basis, although we are looking very carefully at the bond solution,” says Pérez. 

Rovigo Solar Plant
Status: Financial close late October 2010, fully drawn in 2010
Size: Eu320 million
Location: Rovigo, north-eastern Italy
Description: Eu276 million debt financing for a 70MW solar project at Rovigo, Northeastern Italy
Sponsors: First Reserve Energy, SunEdison
Mandated lead arrangers: Santander, UniCredit, Credit Agricole, Dexia Crediop, Natixis and Société Générale.
Legal counsel for SunEdison: Studio Carnelutti
Legal counsel for First Reserve: Ashurst
Legal counsel for the lenders: Gianni, Origoni, Grippo & Partners
Technical adviser: Fichtner
Insurance: AON
EPC contractor: SunEdison