Jaeren Energi is a project company owned by Eurus Energy, Norsk VindEnegri, Norsk VindPro and EWZ. Japanese trading company Toyota Tsusho and the electric utility TEPCO own Eurus, which led the development of the project. Eurus planned to develop a wind farm at the site as early as 2000, but only signed agreements in connection with the project in 2005. It brought in Schjodt as its legal counsel in the same year.

As an independent power producer pur­suing long-term non-recourse debt, Eurus faced a challenge, as Norway has no tradition of project financed wind farms. Norway already produces around 90% of its energy from renewable sources, due to the prevalence of hydroelectric power. Large state and municipal-owned companies financed the majority of the country’s hydro plants through corporate financing, and this set the pattern for investment in the rest of the renewables sector. As a result, wind farms have only ever been financed on developers’ balance sheets.

Quayle Munro became Eurus’ financial adviser in 2009 and brought in Watson Farley Williams as an international legal adviser to complement Schjodt’s local knowledge.

Gaining the support of Enova, the Norwegian state energy fund, was crucial for successfully financing the project. Al­though Enova had no experience in project fin­anced wind power, after meeting with the sponsor’s advisers it indicated that it was receptive to a direct agreement with commercial banks. This allowed interested banks to receive a memorandum detailing the support they could expect from Enova.

Bank interest was strong, mainly because a long-term power purchase agreement was in place with EGL Nordic, but the sponsors wanted the local knowledge Norwegian banks could bring to the process. Nordea and DnB NOR, the two regional lenders with the most experience in project finance, both pushed hard for involvement, a contest ultimately won by Nordea. ING’s role in HgCapital’s 95.4MW Havsnäs wind farm in Sweden led to its selection as the complementary European bank.

The banks still had reservations about the Enova grant, however. The grant usually carries minimum MWh production requirements, which are unsuitable for an intermittent power source such as wind. The banks were also worried that Enova would claw back funding if the project ran into difficulties. Although Enova was unwilling to provide official documentation to the banks, the state fund gave the lenders some comfort through a series of e-mails explaining that its only aim was to ensure that the farm was built. Enova also indicated that the subsidy would only be revoked as a last resort in instances such as material default.

The debt is split equally between ING and Nordea, and is chiefly comprised of a Eu45 million term loan, with a post-construction tenor of 15 years. Danish export credit agency EKF guaranteed Nordea’s half of this debt, giving the Norwegian bank comfort for its first foray into wind power. EKF offered this guarantee because turbine supplier Siemens Wind Power is based in Denmark.

The long-term debt is accompanied by two three-year revolvers; a Eu12 million VAT facility and a Eu20 million facility repaid from the Enova grant. Enova will make payments as construction is completed, and the grant will ultimately cover 49.5% of eligible project costs. Ineligible costs mainly relate to financing costs, and there is a monetary cap of Eu50 million on the subsidy to ensure the project comes in on budget. The margin on the long-term debt starts at around 250bp over Euribor, with post-construction step-ups.

Jaeren Energi is investing Eu19.25 million in equity, with Eurus holding a majority stake. This puts the debt to equity ratio at 80:20. The average debt service coverage ratio is 1.35x at P90 wind production forecasts.

The debt package’s final form was agreed in May, but it took another seven months for the deal to close. Completing legal documentation for land usage took time, due to both the unfamiliarity of the Norwegian Land Registry with project fin­ancing and there being 17 different land­owners holding several titles. The delay, however, was mainly because the Enova subsidy needed approval from the European Free Trade Association Surveillance Authority. It wasn’t until Dec­ember that the authority gave the necessary approval.

The Hog-Jaeren wind farm will consist of 26 Siemens 2.3MW Turbines, giving it a 59.8MW capacity. A multi-contracting structure is in place, as is the norm for wind farms, and the lenders provided short-term letters of credit to major contractors. EGL Nordic will buy 100% of the farm’s output, and if this PPA falls through, the merchant Nordpool market is in place as a fallback. EWZ also has a contract to purchase all green certificates generated by the wind farm.

Construction began in July 2010, and also includes building a sub-station and transmission and interconnection facilities. Commercial operation is expected to begin in June 2011.

A second phase of Hog-Jaeren could also be in the pipeline. The sponsors originally planned for 32 turbines, but reduc­ed this to 26 after opposition from a local landowner. Eurus is looking to develop the remaining six turbines, and ING has indicated that it would be interested in financing this expansion. Limited grid capacity in the region, however, may restrict any further expansion of the project.

Although Hog-Jaeren has set a project template for Norwegian wind, the Enova fund will not exist for much longer as a source of grant financing. The Norwegian government has decided to enter into a joint renewables certificate scheme with Sweden. Implementation of this new re­gime is expected in 2012, at which point Enova will be super­seded. The fund will still support any existing commitments, however, meaning that Hog-Jaeren will be unaffected by the change. 

Jaeren Energi
Status: Closed 22 December 2010.
Size: Eu96.25 million.
Location: Time and Ha Municipalities, Norway.
Description: 59.8MW onshore wind farm.
Sponsors: Eurus Energy, Norsk Vind Energi, Norsk VindPro and EWZ
Lenders: ING and Bank Nordea.
Non-bank debt participants: EKF and Enova.
Lender legal: Norton Rose and Thommessen.
Sponsor legal: Watson Farley & Williams and Schjodt.
Sponsor financial adviser: Quayle Munro.