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Nordsee 1: financial close achieved – another success story

Nordsee---renewable-energy

We are pleased to share in the success of our clients, Northland Power and Germany utility RWE, who announced on the 19th March 2015 that their EUR 1.2bn Nordsee 1 offshore wind park reached financial close for the project finance transaction.

Nordsee 1 offshore wind park reaches financial close for project financing

Nordsee 1 is expected to be operational in 2017 and will be built using 6.15MW turbines supplied by Senvion. Corality provided the formal financial model audit sign-off prior to the financial close. Northland (85%) acquired its stake from RWE (15%) last year and will pay for the construction of the project using a combination of cash, credit facilities and a shares issue.

 

Project finance debt supported by international banks

The project is backed by EUR 840m of debt provided by a strong mix of Corality’s long-standing banking clients including ABN Amro, Bank of Montreal, BTMU, Commerzbank, Export Development Canada, Helaba, KfW Ipex, National Bank of Canada, Natixis, and Rabobank. All banks had equal tickets on the 12-year project finance debt.

 

Project finance advisor and wind farm financial modelling: Green Giraffe Energy Bankers

Green Giraffe Energy Bankers advised the sponsors on the debt financing on the back of their strong performance supporting Northland Power in reaching financial close on the largest ever offshore wind farm project financing of Project Gemini which Corality also supported with financial model audit services.

 

European offshore wind has positive outlook and requires comprehensive risk analysis and project finance modelling

The European offshore wind market has seen rapid growth over recent years. There are more active lenders in the renewable energy offshore wind space than ever before as well as a number of institutional investors and investment funds that have acquired equity stakes. Most equity participants are targeting wind projects that have already met some development or construction milestones. There is consensus that the offshore wind markets in UK and Germany will be the primary drivers of growth and expansion in this sector. But despite this positive outlook, the inherent risks from an offshore wind investor perspective are ever prevalent, and we have observed an increase focus on the scrutiny of project finance models, both in the financial model development stage and also in the financial model audit process.

 

Inherent project risks require comprehensive financial modelling and commercial analysis

The primary risk to offshore wind investors is the sheer scale of investment capital required. Whilst sufficient capital is expected to be available in the short term there are concerns as to whether there will be sufficient bank debt available in the longer term. Banks are also likely to become more selective with the deals they will finance. This is in part because of the increasing risk profile of the projects as developers are being pressed to innovate on offshore wind technology to reduce their costs whilst in contrast having to build their projects further away from the shore.

Another potential risk is a potential shortfall in equity. As noted above whilst institutional investors and investment funds are allotting greater levels of capital to the sector there are concerns that the appetite for traditional utilities to invest in the Greenfield sector will continue to decrease over time.

A final risk for an investor to consider is the heavy reliance on government subsidies to make the projects commercially viable. There is increasing push-back for such governmental support across Europe and it is only getting more fierce. With a small budget available for offshore wind projects under the new CfD subsidy regime in the UK and uncertainty building around the longer term capacity target in Germany, the credibility of the offshore wind market is at the beck and call of the governmental policy makers.

 

Structured risk analysis with a best-practice project finance model

In a well-executed wind farm project finance transaction it is expected that the financial advisor guides investors, sponsors and all other stakeholders through the process, supported throughout by financial modelling and analysis. The party responsible for financial modelling of the wind project will be preparing detailed commercial and risk analysis through a transparent and flexible framework. The purpose is to ensure that all stakeholders can make an informed decision based on their unique perspective and risk-appetite.

Corality has significant experience in the development of project finance models for the winds sectors, which is also complemented by the financial model audit services Corality provides. Through this experience we see a strong correlation between a well-executed project finance transaction and a robust financial modelling approach.

For further information on Corality’s expertise in best practice wind project financial modelling training courses, please follow the link.

Michael Michaelides
by Michael Michaelides

Michael develops commercial solutions tailored to the requirements of senior decision makers including infrastructure sponsors, pension funds and investment banks. Michael was born in Cyprus and has a professional background with CIT Group, a Fortune 500 company providing lending, leasing and advisory services around the globe.

Contact Michael Michaelides

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