Germany’s Butendiek offshore wind farm finally reached financial close in July 2013, more than a year after a group of municipal utilities abandoned its equity consortium, and almost 19 months after the previous major European offshore wind project reached close. The next, and most recent, landmark offshore wind project, Gemini, had a much smoother path to financial close.

The Dutch government awarded a contract for differences to a consortium of Bard Offshore and Typhoon Capital in 2010. Northland Power, a Canadian independent power producer, joined the sponsor consortium in April 2013, and brought the deal to financial close in May 2014.

Northland set ambitious targets for the financing process for the €2.8 billion ($3.84 billion) Gemini project, located in the Dutch North Sea.

Multi-tiered financing

The Gemini financing features a soft mini-perm, gearing of about 70%, and is the first major project to use the Dutch SDE contract for differences. The senior debt was oversubscribed and attracted several lenders that had not previously participated in offshore wind financings, including Canadian banks. Northland was also new to offshore wind, though not to Europe, because it owns two small German onshore plants. It was able to lean on some of its domestic relationship lenders.

The sponsors – Northland (60%), Siemens Financial Services (20%), Van Oord Dredging and Marine Contractors (10%) and Dutch utility HVC (10%) – contributed €400 million in equity. Neither Typhoon, which sold a residual stake in the project to Northland shortly before financial close, nor Bard, which sold out in August 2011, and lost Gemini’s turbine supply contract to Siemens, are now equity sponsors.

The debt financing for Project Gemini included €2 billion in senior debt and €200 million in subordinated debt. Northland and the Danish pension fund PKA provided subordinated loans of €200 million in total (€80 million and €120 million, respectively).

ABN AMRO, BNP Paribas, MUFG, Deutsche Bank, Natixis, SMBC and Export Development Canada each provided €90 million as mandated lead arrangers. The banks had been asked to commit to €125 million, but oversubscription allowed them to reduce their hold levels.

Bank of Montreal, CIBC and BNG each lent roughly €80 million, while Spanish banks La Caixa and Santander both provided just under €60 million.

ECAs EKF of Denmark, Delcredere Ducroire of Belgium and Euler Hermes also participated. The European Investment Bank is providing €590 million in debt – €180 million of which features Delcredere Ducroire cover, while €207 million is covered by EKF, which made a total commitment to cover €400 million in debt. Euler Hermes covered a €350 million loan funded by the commercial banks.

The remaining €200 million of project costs will be met with pre-completion revenues that the sponsors expect to earn before the plant achieves full operations, based on the sponsor’s conservative base case. The senior debt includes a €126 million standalone facility that can be drawn in the event of cost overruns. Deutsche has just started a post-close syndication of the debt.

Structure and terms

Northland decided to use a soft mini-perm, which tends to be popular with lenders, to attract as wide group of banks to join Gemini as possible. Soft mini-perms are rare in North America, and unlike hard mini-perms, which are common, a failure to refinance a loan does not lead to a default, but triggers a 100% cash-sweep. The Gemini financing has a 14-year amortisation profile, with step-ups and a 100% cash-sweep after five years.

The debt has a margin of 300bp over Euribor during construction, before slipping to 275bp after operations begin. That margin compares favourably with Butendiek, which closed at a margin of slightly more than 300bp over Euribor. Gemini has an effective all-in interest rate of about 4.75%.

The 14-year tenor matches the 15-year SDE subsidy, which was fixed at €169 per MWh in 2010. Delta, a Dutch diversified utility, will buy Gemini’s output at market-based prices under a contract that lasts as long as the SDE subsidy. Gemini will dispatch through transmission infrastructure owned by Dutch state-owned operator TenneT.

Northland has also signed foreign exchange contracts with several members of its corporate banking syndicate to effectively fix the conversion rate on most Euro-denominated cash inflows from Gemini. These contracts last for the 15-year term of the SDE at a weighted average exchange rate of about C$1.67 per Euro.

“Gemini represents a huge, complex project financing that was successfully completed in near-record time through the remarkable cooperation and commitment of all parties,” says Tony Anderson, Northland’s chief investment officer in Toronto.

Reaching financial close was not Gemini’s only challenge. The sponsors needed to pay for equipment even before financial close, and well before major construction, which is scheduled to start in early 2015.

Says Wolfgang Bischoff, EMEA head of energy finance investments at Siemens in London: “A project of about 100km of offshore wind requires long lead items, such as cables, to be ordered prior to financial close. This is quite a challenge to investors, who are at risk at this point of time as they put down money and, given the size of the project at almost €3 billion, down-payments were not insignificant – managing this was the main challenge.”

The Project

Project Gemini is located 85km north of the island of Schiermonnikog and will consist of two wind farms: Buitengaats and ZeeEnergie. The project will use 150 4MW Siemens wind turbines, and benefit from a 15-year operations and maintenance agreement with Siemens, and is expected to be the largest offshore wind farm in the North Sea.

Under a two-contract structure, Siemens will supply and erect the turbines, while Van Oord will build the rest of the wind farm. The two contracts reduce the number of construction interfaces to just one. Construction has begun, and full operations are expected in 2017.