GP Joule’s €30.7 million ($41.6 million) debt financing for eight solar photovoltaic (PV) plants, in north-eastern Italy’s Udine province, is one of the smaller of 2013’s award winners. But it had a tough road to financial close in a market where successful financings are all too rare.

Udine Photovoltaic Portfolio

STATUS

Financial close 11 October 2013

SIZE

€30.7 million

DESCRIPTION

Debt financing of a 30.1MW portfolio of eight solar PV plants in Udine province, north-eastern Italy.

SPONSOR

GP Joule

LENDERS

BayernLB (facility agent), UniCredit, KfW Förderbank

FACILITY AGENT

BayernLB

BORROWER’S LEGAL ADVISERS

Cornelius + Krage, Bureau Plattner

LENDERS’ LEGAL ADVISER

Clifford Chance

LENDERS’ TECHNICAL ADVISER

ARCADIS

LENDERS’ INSURANCE ADVISER

Willis

MODEL AUDIT

Corality

Italy’s feed-in tariff (FiT) regime is a cause for wariness amongst lenders, as projects only receive confirmation of their tariff post-commissioning. Compounding this challenge was the start of insolvency proceedings for one of the module providers in the months leading up to financial close. The sponsors and lenders used a dual disbursement to accommodate project risks, whilst taking advantage of attractively-priced debt from Germany’s KfW Förderbank.

GP Joule’s 30.1MW Udine solar portfolio comprises eight plants ranging in capacity from 0.9MW to 13MW. Construction of the portfolio began at the end of 2012, and all eight plants are due to be completed and connected to the grid by mid-2014.

Italy has been curbing government support for solar PV, after it became the country’s dominant renewable technology and installations grew at a fast pace in the last decade. The country’s feed-in tariffs fall under the fifth Conto Energia law, which came in to effect in August 2012. The new Conto Energia took effect after Italy hit the €6 billion ceiling for FiT support of ground-mounted photovoltaic technology in the fourth Conto Energia. The fifth is expected to be Italy’s last FiT regime, creating a race to access the €700 million of support that this phase offers.

Plants that were commissioned by August 2013 qualify for a marginally higher tariff than those connected before a second longstop date in June 2014. For the Udine portfolio, the average anticipated tariff is €0.1227 per kWh. The state offers the subsidies for a period of 20 years. Plants under 1MW in capacity receive the all-inclusive FiT from the regulator Gestore dei Servizi Energetici (GSE), whilst projects above 1MW benefit from an hourly zonal tariff from the region’s local grid operator, topped up by a GSE subsidy if necessary.

Whilst the eight plants have been pre-registered to benefit from the subsidies, each project will not have its tariff confirmed until it enters commercial operation. At the point of connection, on an individual plant basis, the developer can formally apply to the regulator GSE for the FiT, after which GSE has 90 days to review the application and a further 30 days to accept or refuse. GSE does occasionally reject applications, which creates a significant risk that lenders cannot ignore. Construction will be funded on the developer’s balance sheet.

BayernLB and UniCredit are each providing half of €28.5 million in senior debt, with two scheduled disbursement dates per plant to address the risk to subsidies. Half will draw after the plants are commissioned and the other half can be drawn once GSE has approved the FiT guarantees. The senior debt has a tenor of 16 years and amortises quarterly. The commercial banks also provided a letter of credit for €2.2 million. Each project has its own special purpose vehicle (SPV) as borrower, but lenders benefit from cross-guarantees from each SPV.

German development bank KfW Förderbank has funded almost all of the senior debt on a pass-through basis, under its Programm Erneuerbare Energien Standard Photovoltaik 274. The programme provides cheap funding for commercial banks to lend on to PV projects, resulting in a funding advantage of around 100bp. The commercial lenders must repay KfW in quarterly installments, irrespective of the project’s performance, meaning they are exposed to project risk.

The project financing faced another hurdle. The two PV module suppliers are German suppliers Conergy and Solarworld. Conergy, which is one of Europe’s biggest solar manufacturers, became insolvent in mid-2013. A glut of solar panel production, with Asian producers leading the way, has caused difficulties for many suppliers.

The module supplier would normally be expected to provide a long-term warranty on its technology, but lenders could not rely on that warranty given Conergy’s condition. They insisted instead on an upfront funded reserve account equal to 1.5% of the modules’ acquisition cost.