Banks are unlikely to put debt finance into merchant wind farms, according to a major renewables infrastructure fund.
“Our approach is completely unlevered,” Laurence Fumagalli, partner at Greencoat Capital, told Aurora’s Summer Renewables Conference. “You won’t find a bank lending you any significant amount on a merchant wind farm.”
Even where a project secures a government-backed contract for difference, the same applies, said Fumagalli.
“[Greencoat] only invests in merchant wind farms on an unlevered basis. Frankly, that is the only way I would invest in a CfD wind farm.”
The conference discussed the impact of price cannibalisation as growing renewables penetration increases curtailment and drives down the wholesale cost of power, creating uncertainties for investors in long-term power projects.
Fumagalli said the key element for investors is “making sure you have enough of a return in the period that you have visibility over”. Investors, he said, “accept the back-end can be unknowable, provided they have [secured] returns in the early years [of a project]”.
Lindsay McQuade, CEO, ScottishPower Renewables, said the merchant model “introduces an awful lot of risk” for investors.
“There will be a shift in relevance of the wholesale power price to the investment case and we will have to learn a lot more about ancillary markets,” she suggested.
Brian Davis, vice president Energy Solutions at Shell International, said the industry would need to rethink some of the market’s current fundamental mechanisms.
“How does dispatching in a merit order work in a world where assets are essentially zero marginal cost?” he said.
Renewable UK deputy CEO, Emma Pinchbeck suggested government would need to “redo electricity market reform (EMR)” to create more suitable structures for renewables financing and flexibility markets.
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