Power Part3

Renewable Power Project Finance

Having unlocked the last part of this Theme Vitrine , here is the deal:

Wind Power

It was ingenious attaching feed-in, tax & other incentives to the global warming warning, creating a subindustry (tail that wags the dog) by enticing financiers, developers, vendors & consumers to adopt and improve the renewable technologies.

One of the biggest winners among those are the wind farms with the whole supply chain (less so bats). At almost 20% of the world’s TWh output, it became ubiquitous to the scenery, and with all the technology advancements (not noise reduction though), sufficiently cheap to install that it almost does not need incentives: many countries reneging on the initial FIT regimes.

As the wind power building blocks became more & more familiar to the wind farm developers, so did the financing & project documentation. Herein we will set out the typical information & pitch elements an entrepreneur or potential investor will need to move forward with a wind project endeavour (it is almost identical to solar & biomass, with hydro & geothermal being slightly more complex).

Investor perspective

Risk/return profile

Typically secure income stream with a quasi-like / sovereign or a strong off-taker

Understood inputs & known costs, built upon a long-term asset base generating dividend income

Systematic portfolio-approach diversification through the # of turbines & the # of farm sites

Active opportunities

Projects at various stages of development, in different regions & different countries

Incentive windows shifting and/or limited in one place, but then opening elsewhere

Early developers looking to exit & reinvest in a new place, yield investors or operators looking to rebalance portfolios


Leverage potential

All of the above allows for attractive debt terms, leaving a descent equity return margin

Typically refinancing is available if required for a yielding set of projects

Known processes

Not undermining specific local know-how(s), it is a fairly similar (copy/paste) formula to a successful renewable project – be it wind, sun or biomass.


The previous page on the African case study depicted how large the opportunity is in the EMMA countries for a systematic asset manager to build a diversified portfolio of both equity & debt investments.

Developer perspective

Typical processes / milestones / risk mitigation

  • A serial developer likely has a pipeline of potential projects ranging from purely speculative (as in a plot of land), to some MoU already signed or shaken on, to some permits already being under way
    • Alternatively, an entrepreneur knows someone who has a piece of land in a friendly municipality of a relatively serious country with descent enough regulation (local partner)
  • Then a developer teams up, drafts a project concept, sketches a design, scopes land & access to it, examines all the paperwork that will be required, consults a lawyer, goes to the local public office
    • Signs one or two MoUs
    • High level financial model & pitch development
  • Survey of the country electricity sector production & transmission general, legal framework & regulation
    • Repeat specific for wind sector
    • Investigate track record of price, FITs, guarantees, PPAs, FOREX, repatriation, etc.  history 
  • A notch higher, following best practices sets:
    • A project development timeline / schedule (Gantt charts), the site selection / description, geological survey / work
    • Technology selection & contracting strategy (technology, civil works, transport for delivery, interconnectivity, O&M)

Need for external advisors from hereon

  • Wind report: hire someone like Garrad Hassan to do an independent wind assessment study confirming the energy yield of the project using the selected turbines
    • Since the project development prior to construction lasts for a while (2-4 years), there is plenty of time to get a set of measurements for best averages – years, seasons, height
  • Other important advisors:
    • Legal advisors
    • Finance / tax advisors
    • Insurance advisors (this could be guided by both the vendor and the DFI/bank)
  • Environmental permitting:
    • The authorities to issue environmental permits for both the wind farm & the overhead line (OHL)
    • Including the assessment of bird, bat & other wildlife monitoring / public consultations; noise is a problem typically!
    • ESIA compliant standards for survey & eventual permits issued
    • Once commercial operation starts, frequent monitoring is required
    • List the positives, you will need them somewhere along the way:
      • Economic: land price + taxes + employment + CO2 displacement
      • CSR: sustainable development, infrastructure development, community development, increased property activity, promotion of the locality
      • Carbon certificates (trade or income)


  • Land: all land rights required for the project to be obtained
    • The majority of the land required for the wind farm itself (turbine foundation plots, crane pad locations, and roads) to be purchased or leased (99 years if possible)
    • Additional land acquisition for the on-site and access roads may be needed
    • All necessary land acquired through the purchase of easement rights
  • Wind turbine selected:
    • Typically done in combo with the operations & maintenance (O&M), and if one wants to play it safe with the DFIs and/or other investors then inclination would be on say GE to get OPIC or Siemens to get KfW (or a similar Asian strategy)
    • Ensure long-term warranty and O&M contract supporting the project after commercial operations date (COD)
    • Starts with MoU before the developer can make a firm commitment (including the # of WTGs x capacity) 
  • BOP / EPC contracting: all the non-turbine stuff
    • Typically organise a tender and jointly shortlist top suppliers using the turbine-vendor inputs
    • Mitigate construction / contractor cost overrun with a lump-sum turnkey under a FIDIC Silver Book contract
  • Urbanism & construction permitting
    • For the production & access facilities – OHL and roads
  • Road refurbishment agreement with municipality / local community
  • Power purchase agreement (PPA):
    • Sometimes a template is available because the country has already a number of renewable projects or the World bank has provided it with technical assistance; other times you need to do it the hard way with your lawyers
    • After a few reviews & rounds of negotiations, which include most stockholders including DFIs (on your side hopefully) and commercial banks, you get the all important PPA, basically your off-take
  • Grid connection approval (GCA):
    • Typically agreed & issued only after the PPA as the construction permit is a prerequisite
    • Overhead line & grid connection to be financed from total project costs (TPC)
    • Is the responsible entity (a transmission system operator) the same as the off-taker (public supplier)?


  • Information memorandum: apart from listing all this section, ensure the perceived risks are also separately & clearly stated:
    • Contract risks: any unsigned contracts may not materialise, or even if they do a counterparty may renege
    • Construction and engineering risk: intent is for the EPC contractor to bear risk for putting the project into successful operation on time & budget, however the project may bear some risks in certain situations
    • Inflation risk: if there is a income / cost mismatch by indexing or fixing
    • Liquidity event risk: typical private market risk
    • Off-taker default and/or sovereign risk: project’s revenues are entirely dependent on the PPA, and the off-taker may not be as credit worthy as thought; but also sovereign default could influence project off-take
    • Operations risks: intent is for the vendor / EPC contractor to bear risk under equipment warranties and O&M agreement, however some risk will remain with the project; after the these expire the project will bear the full risk
    • Permitting process: until all the permits are in place there are no guarantees, and in many a EMMA country maybe even not then
    • Power price risk: after the x-years of the PPA, the project’s revenues will depend on the average electricity prices in the market
    • Taxation risk: prevailing corporate tax rate or the withholding tax rate may change, or new ones be imposed; VAT repayments could be delayed
    • Wind risk: nature is variable & power yielded may not be as expected

  • Financial Model:
    • The financial model typically grows from the high-level internal one, while  constantly updated & growing, to something at least model-audited by an external financial adviser, unless you hire say a former KPMG energy associate as your CFO or borrow an existing model from your neighbour
      • To include sensitivities: load factor, capacity factor P00, seasonality, CAPEX, revenue, OPEX, financing costs, early exit, tax optimisation
      • Allow for oscillations: wind speed uncertainty, substation metering, wake & topographic calculation, energy loss factor, future energy variability (x-years)
    • DFIs and the commercial banks are also going to have their say in the final financial model, in particular if they already have experience in that country, which could also be a way of borrowing an existing financial model

  • Power producer status: could be preliminary or time-constrained privilege
    • If exists, allows for phased output deployment in limited quantities during construction
    • Typically against a bank guarantee


  • Debt: between the DFIs and the commercial banks
    • DFI’s will issue Mandate Letters, possibly even with an engagement fee
    • Their due diligence process will be relatively standard, following through the steps you have done (above) and mitigating the risks (below)
    • DFIs well worth it because they are effectively de-risking the project for other financiers (not to mention protecting)
    • Terms: currency, LIBOR+ rate, fees (IDC, bank fees, and DSR), loan maturity, grace period, leverage up to 70-80% (including mezz), disbursement tranches, security


  • Insurance: preferably a reputable international insurance company
    • Erection all insurance (EAR, property insurance), transit (cargo) insurance, third-party liability insurance and wind derivative insurance
    • DFIs and commercial banks will have a say


This could go on, but probably easier to contact us with a real life project, preferably in the renewable power project finance​ segment in EMMA:

Theme Contribution

Enterprise Power Limited

en/power has been created to develop IPP and off-grid ventures from an early stage in sub-Saharan Africa. Our business model is to yield investment multiples through the successful development of power generation projects from concept to execution with exit opportunities at financial close or commercial operations date


African resources Capital

African Resources Capital was established in 2009 as a financial advisory firm specialising in structuring and raising finance for medium size businesses in sub-Saharan Africa. It has grown into a multi-faceted business, operating across four industrial sectors – namely energy, mining, agribusiness and healthcare


A Conscious VC


Small Nuclear?



1 Response

  1. 2emma_2418g4 says:

    Some feedback that came directly but could spark some comm:

    – Don’t subscribe & don’t quote ft,economist,wsj,nyt…and all that crap

    – Merrill and BofA both went bankrupt in 2008-9 and should have disappeared altogether. Saved by Washington and NYC, swept the problems under the rug by merging the two

    – As for oil, shale will prevail. The problem is in the stock and commodity exchanges. BIG MONEY popularizes climate change, drives down the price of oil and then the smaller oil companies when they try to refinance their debt, BIG BANKS don’t cooperate, and the BIG RATING AGENCIES add salt… So small companies and all their reserves get swallowed up by BIG COMPANIES. Plays again and again in hard-rock mining, and now we see it in shale

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