Landmark Vestas deal allows wind farms to pay for turbines after production starts

Three Australian wind energy projects valued at more than $A400 million will be backed by a “landmark” payment deferral facility led by wind turbine manufacturer Vestas, that offers developers vital short-term financial support at the riskiest part of a renewable energy project – construction.

The facility, unveiled on Tuesday, was put together by Vestas in response to a request by renewables developer Global Power Generation to improve project returns on its Hawkesdale, Ryan Corner and Berrybank Two wind farms, all set for construction in Victoria and all using Vestas turbines.

Vestas Financial Solutions in Asia Pacific then spent roughly nine months structuring an Export Credit Agency (ECA) backed facility to extend the payment terms by two years, in partnership with Banco Santander, Deutsche Bank, EKF and Sinosure.

The result, says Vestas, has been the largest known payment deferral facility for a renewable energy project in the world – and Vestas’ first anywhere in the world – underwriting three major wind energy projects and totalling $A415 million.

It has also established another path for financial backing and project returns – to eligible customers – while demonstrating what Vestas describes as the “significant interest” shown by very large finance corporations in renewable projects and potential in Australia.

“This payment deferral facility is a landmark transaction for Vestas that demonstrates our capability to structure innovative financial solutions,” said Glenn Sundaram, head of financial solutions at Vestas Asia Pacific.

Sundaram told RenewEconomy that the payment deferral is akin to construction financing which effectively provides 90% of the cost of capex, and defers that over a two-year period, which should support an average project through all of its development milestones and well into the stage when it is generating revenue.

“We have access to these export credit agencies … and that makes it extremely cost-competitive. … So essentially we offer this very competitive product over the riskiest part of the project, which is construction.

“The advantage for the customer is deferring nearly all your capex until well after the project has been completed and at the point at which revenue is being earned.

“[And while] developers have to go out and re-finance at the end of two years, they can get a lot more competitive [terms] if they can demonstrate to lenders, ‘hey look, we’ve got a facility that expires when we’re generating revenue’,” Sundaram said.

“It’s not available to every customer … but for those who meet the terms, then projects that wouldn’t have otherwise achieved their investment return threshold might get up.”

For Vestas, the hope is that this new path for financial backing – the GPG facility represents the first time Vestas has offered an ECA backed payment deferral facility anywhere in the world – will be offered around the world.

But it is significant that the first has been deployed in the Australian market. “In essence you have these very large finance corporations … showing a significant interest in the projects and the potential in Australia,” a Vestas spokesperson told RE.

“With our pipeline, we expect that because this is proven now…this actually provides a level of financial comfort to other developers.”

For Global Power Generation, which is a joint venture majority-owned by Spain-based Naturgy Energy Group, previously known as Union Fenosa, the finance facility is described as “a significant step forward” for the company’s Australian portfolio.

“Undoubtedly, this has been a very important transaction for Global Power Generation,” said Alfonso Egana, GPG’s chief financial officer, on Tuesday.

“It is a significant step forward in the consolidation of our presence in the Australian market as one of the leading independent producers of renewable energy, allowing us to enhance financial returns and efficient allocation of capital for new projects.

“We sincerely appreciate the commitment and support of all the parties involved in the deal, with a special mention to the excellent work performed by Vestas’ Asia Pacific Financial Solutions team,” Egana said.

EKF said it was excited that its support of the payment deferral structure had helped Vestas secure the orders and GPG get the best possible construction financing of the projects.

“EKF we will remain focused on providing financial solutions and support to sustainable projects like these,” said Peter Boeskov, the company’s chief commercial officer of global wind and structured finance.

Deutsche Bank’s head of ESG for APAC, Kamran Khan, said the new financial solution led by Vestas demonstrated Deutsche’s ability to help structure cross-border transactions to make the renewable energy developments commercially viable.

“Our high standards for ESG compliance and our world-class financial structuring/pricing capabilities provided the necessary comfort to all parties that this transaction will be received by the market as a high-end ESG transaction, establishing important benchmarks for the renewable energy sector in Australia,” Khan said.

And Nicolás Cotoner, head of global transaction banking APAC at Santander CIB, was equally enthusiastic about its role in the new finance facility.

“Supporting clients who are at the forefront of the energy transition is a key focus for Santander, and by leveraging on our ECA expertise and in close collaboration with Vestas it has been possible to execute this tailor-made structure adding value and product diversification to our customers,” Cotoner said.