Ten years ago investors rated the alternative power production option a slow burner – a test of stamina dictated by advances in technology. Now that Kyoto as been ratified, EU emission targets looming and the availability of state-of-the-art onshore wind turbine technology, there seems to be a full on sprint for investor glory in the sector, writes Max Thompson.

In the race to take advantage of the booming onshore wind farm sector, Falck Renewables – the wind energy subsidiary of the Italian Falck Group – is fast emerging as one of the UK’s major players.

Its jointly financed 58.5MW Cefn Croes and 14MW Boyndie wind projects reached financial close in Q4 of last year and in doing so achieved a number of firsts. The project

The project has been co-developed by Falck Renewables - the wind energy subsidiary of the Italian Falck Group - the Wales-based Renewable Development Company (RDC) and GE Energy which is providing turnkey construction, wind turbine supply, operation and maintenance services.

The financing for the Cefn project – which is located at Devil's Bridge, 15km east of Aberystwyth and will come on line later this year – has been carried out in conjunction with the financing for the 14MW Boyndie wind farm in Aberdeenshire.

The electricity generated by Cefn Croes is to be sold to the Non-Fossil Fuel Purchasing Agency and distributed to the national grid through SP ManWeb. The wind plant's estimated annual generation will add enough to power 40,000 households.

The power generated from the Boyndie facility – will be sold under the ROC scheme, but as Charles Williams, Falck Renewables’ business developer says: ‘Boyndie is a different situation. It doesn’t have a PPA and the financing we have put in place doesn’t require us to have a PPA. So, we have flexibility to decide what term we want to contract for.’

Financing

In what can be regarded as something of an innovative scheme, the Cefn Croes and Boyndie projects were jointly financed with one financial scheme but with two separate tranches – with the debt repayments calculated for the overall scheme.

A syndicate of banks led by the Bank of Tokyo Mitsubishi (BTM) in partnership with Barclays, Alliance & Leicester and HVB facilitated a debt:equity ratio of 68:32 on an overall project cost of £59.5m.

Hans Schenk – finance director of Falck Financial Services – told IJ that the pricing was LIBOR plus ‘135-150 basis points’ and added that even though the two facilities have been financed as one package, it is important to remember the relative size of the different schemes.

At 14MW, the smaller Boyndie project is based on ROCs and, in order to obtain the debt facility, the banks had to be convinced that even if contracted on the shorter term, there was a floor price on which the financing capacity could be based.

Schenk says: ‘In Boyndie’s case the floor price was set at a bit over £40 per MW hour, including ROCs.’

He added: ‘Today trade is at a much higher value and the banks were convinced that they were not taking a risk – even if the ROCs are not sold over the long term – because the debt service is basically covered by the Cefn Croes NFFO contract.

‘As the NFFO runs out, either we contract a certain proportion of the now open market production or the banks will have a right to sweep cash during the latter years.’

Stephen Crane, head of structured finance at the Bank of Tokyo Mitsubishi’s EMEA investment banking division, was also keen to underline the unique nature of the deal.

He says: ‘The financing was the first wind deal ever done with any degree of merchant exposure. It had to deal with an up-front slice with an increasing back ended merchant tail and indeed a merchant component of a new wind farm.’

Crane also says the financing is the first ever for a dual plant: ‘Although the Beaufort portfolio transaction had previously been completed, the dual financing enabled up front, the Boyndie deal to close without contracted revenues, and that is novel.

'The Cefn Croes deal had a merchant top slice throughout the whole financing with NFFO contracts maturing at different times. If one was to draw a graph over time – ignoring Boyndie – one would start with around 90 per cent contracted and a 10 per cent slice, then, as the NFFO contracts fell away one would see an increasing merchant tail, such that it became fully merchant in due course.

'There was a structural complexity on the Cefn Croes project as the NFFOs were signed long ago and were going to mature  before the term of the debt and that created a challenge as  the bank market at the time was – as it is now – more interested in contracted transactions. So the problem was, even without Boyndie, how do you bank the merchant revenues at the back end of the financing?’

Crane says that profile of the debt facility is best described as having an on-ging and up-front merchant slice with an increasing merchant tail plus a relatively small new project that was uncontracted at the outset.

'BTM had to construct an arrangement whereby the borrower had a period of time where the dividends would flow ordinarily through to the sponsors but, if the project had the same degree of uncontracted revenues as a percentage of total revenues by a certain date, a cash sweep would kick in,’ Crane says.

Project at a Glance