Challenger Life closed the A$242 million ($258.2 million) financing for the 63MW Oaklands Hill wind farm on 27 June 2011. The deal is notable for its use of a cap and collar wind risk sharing mechanism that AGL Energy, the project's developer and offtaker, employed to attract Challenger's equity investment.

Oaklands Hill is located on a 2,323-hectare site about 3km south of Glenthompson in western Victoria state, and will use 32 2.1MW Suzlon turbines. AGL developed the plant and sold it at financial close to Challenger, and an AGL subsidiary, AGL Hydro, will buy power from the project under a 25-year power purchase agreement. AGL in turn will sell the power on to Aquasures Victoria desalination project, a deal of the year winner from 2009.

The financing splits into a A$206 million term club loan, a A$2 million working capital facility and A$36 million in equity. The five-year debt has a six-month grace period during construction followed by interest-only payments for two years and a balloon at maturity. Bank of Tokyo Mitsubishi UFJ (BTMU), National Bank of Australia (NAB) and Westpac were lead arrangers.

The cap and collar risk sharing mechanism significantly reduced Challenger's exposure to extreme downside wind risk. The new owner remains exposed to variations in wind speed that could affect electricity generation within a certain range, while AGL bears the risk outside of that range, under the terms of the agreement. In addition, the utility has provided parent guarantees for the construction, offtake and other key project agreements in order to ensure that the project benefitted from a BBB rating from Standard & Poors.

The risk sharing and guarantee set Oaklands apart from the larger 420MW Macarthur wind farm that closed in September 2011. Financing for that project was split between an A$386 million construction and term facilities from ANZ, BTMU, CIC and NAB, coupled with a guarantee from the Danish export credit agency EKF, and equity from AGL Energy (50%) and Meridian Energy (50%). AGL is also the offtaker for Macarthur.

Suzlon Energy is the engineering, procurement and construction contractor as well as turbine supplier on Oaklands. Construction began shortly after financial close and is scheduled to be complete in the late first or early second quarter of this year. AGL is also the operations and maintenance provider.

Yung Lam, an associate director for infrastructure at Challenger who worked on the deal, highlights the tight timeline for reaching financial close despite the complex risk transfer arrangements. Lam says that the sponsor continues to explore other infrastructure investments. The ability of integrated developers and offtakers like AGL to offer long-term support to project economics like the Oaklands cap-and-collar will make subsequent investments possible.

Windlab Systems and Investec began preliminary development activities for a wind plant at Oaklands Hill in 2005. AGL later took over Investecs portion of the project and completed the planning permit process in October 2008. In July 2009 AGL, which was by then the sole developer, signed a 27-year electricity supply contract for up top 860GWh with the state of Victoria. The state will use the power to meet its renewable energy offset requirements and power the Victoria desalination project.

AGL has put development of additional wind plants on hold until 2014 at the earliest. The decision followed its purchase of cheap renewable energy certificates in early 2011. Delayed wind projects include the 130.2MW Barn Hill plant in South Australia, 79.8MW Hallett 3 in South Australia, 150MW Crows Nest in Queensland, 150MW Ben Lomond in New South Wales, 300MW Coopers Gap in Queensland and 200MW Coopers Gap II in Queensland.

Parts of the Oaklands process are familiar, particularly AGLs practice of selling on projects to financial investors at financial close. While AGL remains a sponsor of Macarthur, which closed in 2011, it sold the Hallett wind farm to Perpetual Asset Management, alongside closing on A$242 million in project debt, in August 2007. But Oaklands is the first to feature wind downside protection, and will allow developers to expand their group of possible buyers to include more conservative financial sponsors.

Oaklands Hill Wind Farm Acquisition
STATUS: Closed 27 June 2011
SIZE: A$242 million ($258.2 million)
LOCATION: Glenthompson, Victoria, Australia DESCRIPTION 63MW wind plant on 2,323 hectares in western Victoria state SPONSOR Challenger Life DEVELOPER: AGL Energy
EQUITY:A$36 million
DEBT: A$206 million term loan and A$2 million working capital facility
LEAD ARRANGERS:Bank of Tokyo Mitsubishi UFJ, National Bank of Australia and Westpac
FINANCIAL ADVISER: Macquarie Capital
SPONSOR LEGAL: Baker & McKenzie
DEVELOPER LEGAL: Norton Rose
LENDER LEGAL Freehills
EPC CONTRACTOR Suzlon Energy
TECHNICAL ADVISERS:SKM and Garrad Hassan
TAX ADVISER: PwC
FINANCIAL MODELER: Mercer
INSURANCE ADVISER: Marsh