Wind farm project financing; Investment loans and Financial Models

Wind farm project financing; Investment loans and Financial Models

Wind farm project financing; Investment loans and Financial Models

Published Jul 14, 2022 


67 Articles

Wind farm project financing; Investment loans and Financial Models.

Wind farm project financing and its alarming rate has become a serious contemporary issues, requiring the use of combined financial models and the search for new sources of funds. Given the high initial investment, ranging from 1 million to over 3 million euros per megawatt of installed capacity, attracting low-cost financing is becoming critical to the viability of wind energy.

  Havelet Finance Limited is an international loan lending company that promotes the development of energy projects around the world. Together with our high net-worth investors, we are always ready to finance the construction of your facility. We not only invest, but also develop individual financial solutions for each client.

We also provide comprehensive engineering services, including engineering design, procurement and delivery of wind turbines and electrical equipment, construction and installation, operation and maintenance, repair and modernization of wind power plants. Please contact US to find out more.

The Main Ways to Finance the Construction of Wind Farms.

Where to get FUNDING for Construction of a wind farm?

This is one of the first questions that any person or company asks when considering starting renewable energy production. Renewable energy projects offer many benefits, including reduced carbon dioxide emissions, environmental protection, energy independence, and the ability to create sustainable businesses.

But the significant investment required could hinder the project. The search for sources of funding for the construction of wind farms begins with a detailed economic study of the project. After conducting a comprehensive study, we can determine the best ways to implement a specific project. This stage includes an analysis of the technical, economic and legal part of the project.

At the next stage of the project implementation, a specific action plan is developed. It should contain detailed technical data (location of wind turbines, installed capacity, selection of the best technologies, expected energy production) and financial research (amount of investment, interest rates, payback period).

Sources of Financing for a wind Power Project

The main sources of financing a wind power projects can be distinguished as follows;

1# Internal financing. The project is fully financed from the initiator’s own funds, without attracting additional borrowings.

2#External financing. The project requires attracting investments and bank lending. In this case, it is necessary to decide on the types of financing available in particular market.

3# Combined financing. This option assumes a combination of own and borrowed funds in the form of various financial models.

The main external financing options that can be used for wind energy projects will be listed below.

Choosing Methods to finance a Wind Farm project

When choosing the optimal financing model, project sponsors are recommended to adhere to a certain algorithm. It takes into account a number of key parameters, including liquidity, the scale of investments in absolute and balance terms, the possibility of obtaining bank loans by partners, as well as the potential for expanding the wind energy project in the future, etc.

One of the most distinguished methods for financing wind energy projects is credit lines or loans.

Usually financial institutions require a company to have a certain credit history in order to obtain a large loan on favorable terms. The credit line is provided for a specific period, but it can be renewable and expandable.

The bank provides the client with an account from which he can receive funds within the established limit.

The client pays a percentage calculated based on the funds actually used. This method of financing a business is used to cover the gap between profits and payments or for a temporary lack of liquidity. This type of financing is not well suited for the construction of wind farms, when significant funds need to be raised before the cash flow from the project is received. Some banks offer loans for the construction of wind farms or modernization projects, but the high interest rates and strict customer requirements make them unsuitable for most companies.

Participation loans can be provided by several lenders to the same borrower. For example, three banks may participate in the financing of one large project, with one of the banks acting as the lead bank. This financial institution then engages other banks to share risks and rewards.

Alternatively, financing of wind farm Projects construction can be carried out through leasing instruments.

Leasing is a long-term lease of an energy facility with the right to subsequently renew the contract or buy out the asset after a certain period. Forfaiting refers to the sale of bills of exchange or other payment obligations to a financial institution. The initiator of the project pays off the debt to the creditor, obtains liquidity, and the risks are transferred to the said financial institution.

The latter is the main difference between forfeiting and factoring, a very similar financing alternative. Factoring and forfeiting are alternatives that support the development of energy projects by freeing their initiators from debt. A sponsor of a wind power project can obtain long-term financing from investors by issuing new shares or increasing the par value of existing ones. In this case, the so-called business angels, venture funds and investment funds can act as investors.

Business angels are private investors who, in addition to capital, can share their experience in the wind energy sector and specialized technical knowledge. They can also provide access to a network of business contacts and other tools. Usually this type of person invests in the early stages of a project. There are business angel networks that are responsible for collecting information on the promising projects for potential investors. Some of these investors specialize in the development of the wind energy sector. There are also venture capital funds specializing in the wind energy sector. Unlike private investors, venture capital funds invest all resources in financing other companies.

To invest in a wind farm, venture capital funds need to have confidence in the business plan and the people who are executing it. They also require clarity about their own exit strategy. It is important for them to choose the moment when they will sell their share with the maximum profit. In general, venture capital funds contribute a lot to innovative energy projects. These funds prefer to enter the advanced phases of a project when the project has demonstrated its viability in the market. Specialized investment funds have developed due to the peculiarities of the implementation of projects in the field of renewable energy sources. Today specialized private, public and public-private foundations appear, which offer numerous solutions adapted for this type of project. Crowdfunding is a financing model that is based on collecting money from a large number of private investors without resorting to the services of a bank or other financial institution. Typically, crowdfunding is done through online platforms that offer this type of service.

Collective financing of projects can be carried out by purchasing shares of a future energy facility. There are also cooperatives that commercialize clean energy and invest in renewable energy projects. Some of these cooperatives offer their members opportunities to invest in wind power projects at a fixed or variable interest rate, or obtain cheap electricity. Despite the variety of financing options for wind energy projects, the implementation of large multi-million dollar projects requires individual solutions that combine different sources and conditions.

Wind farm project finance: Basic Fundamentals.

Project finance is a financing mechanism for large-scale projects based on the ability of the future enterprise to generate cash flows that allow it to pay off debts and provide profit for all participants.

These are predominantly reliable and highly efficient projects using mature and well-established technologies. Project finance is widely used in the telecommunications sector, but it is now gaining momentum in sectors such as power and infrastructure, allowing large investments, historically associated with public finance, to be transferred to the private sector.

In particular, large photovoltaic and wind farms in Europe are often funded using this method. The nature of this type of project is fully adapted to the philosophy of project finance, and European legislation allows for predictable and sufficient generation of cash flows to ensure payments on obligations. The increase in wind power project finance is associated with a significant increase in investment in renewable energy and the tendency of governments to reduce budget deficits despite the development of new large projects.

This model allows both government agencies and private companies to successfully implement projects with high capital investment.

The main characteristics of wind power project finance are listed below:

• A project company called SPV is created for the implementation of a specific project.
• The sponsor of the project can contribute a significant part of the capital of the enterprise, thus linking the financing of the project with its management.
• The project company enters into complex contracts with various participants (for example, a developer, supplier, client and financial institution).
• The project company operates with a high debt-to-equity ratio, so lenders have limited ability to claim SPVs in the event of project failure.
• The terms of guarantee agreements ensure that the interests of all participants are satisfied. These requirements are higher at the initial stage of wind farm construction (engineering design). The costs at this stage are very high with no income generated.
• Creation of a reserve fund from a surplus of cash flow, which allows companies to protect themselves from unforeseen circumstances throughout the life of the project.

Thus, funds within the framework of wind farm project finance are attracted not in the traditional form based on the creditworthiness of the participants, but depending on the expected profitability of the project. Distinctive features of project finance include cash-flow related lending, clear risk sharing between project participants, and off-balance sheet financing.

Global Wind Power Project Financing: Our Main Service.

The demand for project financing for the construction of wind farms around the world is growing.

Only professional adaptation of a financial product to the needs of each company can ensure the successful implementation of a project.

The variety of financing models, complex bureaucratic procedures, risks and hidden costs associated with choosing the optimal source of financing encourage businesses to seek professional advice.

The international Loan financier HAVELET FINANCE LIMITED is ready to act as your financial advisor and reliable partner in the field of investment lending.

We help find sources of funding for wind energy projects in Russia and the CIS, the EU, the USA, Latin America, Africa, the Middle East and East Asia. Do you need a bank loan, factoring, leasing or raising capital by issuing new shares? Havelet Finance Limited is your best bet. We will find the best solution to your needs.

We offer assistance in obtaining financing for the wind farms construction projects in the amount of 100% of the project cost.

Havelet Finance Limited have a wide range of experience in implementing dozens of successful investment projects and relies on a team of highly qualified specialists in the fields of finance, banking, project management and law.

We guarantee our clients professional advice and reliable financing models for each project. We develop business plans and carry out financial research that is necessary to attract business financing.

When working on business plans, we take into account the resources of your enterprise and the goals of all project participants. This allows us creating to develop a model that will help to obtain a bank loan or financing from alternative sources on favorable terms.

Contact US to learn more about wind farm project finance services

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