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Wind Finance & Hydro Finance

A lot of people have a wind or hydro site with great potential, but don’t have the available cash to develop it. This page tries to explain the options available to you to make best use of your wind or hydro asset to produce an income. There are two main ways of funding wind power and hydropower projects: bank (loan) finance and by leasing the site to a third-party developer. The advantages and disadvantages of the two options are outlined below: Stack of £20 notes

Bank Finance		Leasing the Site
Advantages	Disadvantages	Advantages	Disadvantages
You keep control	You have financial liability	You are completely ‘hands off’	You have no control over the project
No tenants with rights on your land	Loan may be secured against land or property	You have no financial risk at all	Smaller proportion of the financial benefit once operational
100% of the financial benefit once operational	You have to manage the project, or appoint a suitably qualified consultant to do this	A regular income without having to do anything	Tied-in with an exclusivity / option-to-lease agreement
	You carry the risk if the project fails
	Bank finance normally only funds the ‘capital’ (i.e. post-consenting) stage

Different arrangements apply for hydro and wind, so please click the relevant link:

Wind Project Finance – Leasing the site to a third-party

This is probably the most common option for site owners that do not want the financial risk of developing the site themselves, and if done properly it can result in a considerable risk-free income. The normal route is to make an enquiry through our website and select ‘Wind Project Finance’ as the ‘enquiry type’. We will then have an initial look at your site to check it is suitable for further investigation, and assuming it is carry out an initial desktop appraisal and produce a site briefing document for the financiers. We work with several financiers, each with slightly different offers and preferences for different scales of development. We send the site briefing document to the appropriate financier(s) and they review it. It they are interested they will issue either an exclusivity document or an option agreement to the site owner, which will outline the structure of the deal offered.

It is important at this point to get appropriate legal advice, because once signed the agreement will be binding. Most financiers provide access to third-party independent legal advice through lawyers that are already familiar the the structure of the deal being offered, or of course you can use you own lawyer. If you use your own lawyer some financiers will make a contribution towards your legal fees (typically up to £500, provided the agreement is subsequently signed).

Once the agreement is signed the financiers appoint Renewables First as consultants, and we would complete our standard wind feasibility study on the site. Assuming the site was still considered suitable for development once the feasibility study was completed, the project would then follow our normal development program. All costs would be paid by the financier.

The normal deals offered pay a percentage of the gross income from the wind turbine to the site owner (see here for a description of the total potential income from a large wind turbine). The percentages offered can range from 2% to 15%, with the range due to the quality of the deal and the scale of the project. For projects in the up to 500 kW bracket a good deal would be between 10% and 15%. The upper end of this would only be offered to the most exceptional sites (i.e. high wind speed) with absolutely no development issues so that the likelihood of obtaining planning consent within a reasonable timeframe would be high. Even then 15% is high, and to date this has only been offered by new entrants into the market who are keen to get a portfolio of sites developed as quickly as possible. 10% deals are more common, which are still very good offers. There are companies offering less than 10% for upt to 500 kW sites, but these are generally poor deals where the landowner would be losing out, so it is well worth shopping around. Renewables First has a reputation for being able to offer the best and fairest deals, which we intend to maintain.

Things to look out for are ‘lump sums’ paid for signing the option agreement; these are not bad, but are sometimes used to encourage landowners to sign to get a on-off payment of say £2,000, and the then the percentage of the gross revenue offered is appallingly low for the next 20 years. It is vital to look at the income over the whole 20 years and don’t get tempted by one-off signing fees, particularly if they are for poor long-term deals. Also look out for fixed per-turbine annual lump sum payments. £10k per turbine per year might sound good, but if 10% of the gross income equates to £30k per year this is clearly much better.

We only work with funders who are interested in financing larger wind turbines. The minimum size of project would be a single Enercon E33 (330 kW), and currently the upper limit would be 1.5 MW, though we are getting increasing interest from our funders to fund larger projects so please feel free to enquire. To be of interest your site would have to have the following basic attributes:

An annual mean windspeed at 50 m above the ground of at least 6.5 m/s
A suitable grid connection point nearby
Good site access for wind turbine delivery vehicles and cranes
Be far enough away from neighbours (normally at least 500 m)
Not be in an area with any special landscape or environmental designations

If you think this type of project finance would be suitable for your site, please get in touch with us using the enquiry form, and make sure you select ‘Wind Project Finance’ as the ‘Enquiry Type’. Alternatively call us and we will discuss the options currently available. Calculator

Wind Project Finance – Bank (Loan) Finance

Loan finance for wind projects can be provided by several of the well-known high street banks or from several specialist asset finance providers. The basic deals are similar overall, though they all have their peculiarities. Fundamental to all of the deals available is that they only fund the capital i.e. ‘installation’ stage and not the pre-planning consent stages. This means that the site owner will have to fund the pre-installation stages, which for a typical 500 kW single-turbine project is in the order of £100k, and more importantly if planning consent or permission to grid connect the proposed system is refused, then the costs incurrered up to that point would have to be written-off.

Assuming the you have £100k to fund the development stages and can accept the risk, then the approximate terms offered by banks and asset finance companies are:

They will fund 100% of the installation phase of the project. For a typical 500 kW single wind turbine project with a total project cost of £945k, £840k of this would be the installation phase with £105k for the ‘development stage’, hence the loan would be 89% of the total project value. Note that different institutions offer different maximum percentages of the total project value, and for some the percentage varies depending on the average wind speed at the site, but generally the range is 80 – 90%.
Note that generally the institutions accept the ‘development’ costs so far as legitimate project value, so assuming the percentages work out it may be possible to get 100% of the installation phase funded through a loan.
Precise terms vary, but typically the interest rate on the loan is 2.5 – 3% above LIBOR (London Inter-Bank Offered Rate), which in July 2011 would mean an overall interest rate of around 3.25 – 3.75%.
Often the interest is around 1% less during the build stage, before the wind turbine is generating revenue.
Some institutions require security, others do not. Some require the entire loan amount to be secured against alternative assets such as land or property, and want to see that the business (or individual) and has sufficient non-wind related income to repay the loan in the event of a problem with the wind turbine. Others require no additional security other than the wind turbine; in these cases the institutions are confident that the wind turbine will produce the forecast revenue for the expected life of the wind turbine (typically at least 20 years). Exactly how much security is required (if any) and the interest rate on the loan are negotiable to a certain degree.
In adition most loans have a set-up fee of around 2.75%
Loan terms are typically 8 to 15 years.

Hydro Project Finance - Leasing the site to a third-party

Although common in the wind industry, leasing-deals are relatively thin on the ground for hydropower projects. That said, Renewables First works as consultants and installers for several ‘hydro investors’, and if your hydro site offered a reasonable investment opportunity then they may be interested.

The proportion of the gross income normally offered to the site owner is between 3 and 5% (see here for a description of the total potential income from hydro system). This is lower that the equivalent deals offered for wind projects because the typical returns on investment for hydro projects are lower (hydro costs proportionately more to build) so there is less profit to share around. Also the licensing and consenting process for hydro projects is typically longer, so more money is tied-up for longer before the project starts operating.

The same general comments made above under ‘Wind Project Finance – Leasing the site to a third-party’ apply to hydro – don’t be tempted with lump sum payments to sign a lease at the expense of a reasonable long-term percentage of the income.

Because smaller hydro projects are disproportionately expensive to build, the scale of projects that our finance providers would be interested in financing would be 50 kW to 1 MW. Other positive attributes that would be attractive to an investor would be:

Decent head (change in water levels). The minimums would depend on the average flow rate, but is likely to be around 2.5 metres, but more head would always be preferred.
No aquatic environmental sensitivities (not an aquatic SSSI, SAC etc.) – note this wouldn’t be a show-stopper, but adds to the environmental licensing and construction costs
Preferably not on a migratory-fish river – again not a show-stopper, but adds to the environmental licensing and construction costs
Good site access for construction and ongoing operation
A suitable grid connection point nearby

If you think this type of project finance would be suitable for your site, please get in touch with us using the enquiry form, and make sure you select ‘Hydro Project Finance’ as the ‘Enquiry Type’. Alternatively call us and we will discuss the options currently available.

Hydro Project Finance - Bank (Loan) Finance

Currently there are no speacial 'hydro' loan finance deals that are structured specifically for hydro projects. This is likely to change as the renewables loan finance industry develops, and as the wind loan finance industry gets more competitive and providers start looking for other technologies. If we get details of any credible deals we will update this webpage. If you know of any please let us know, and we’ll add details here.

However it is still possible to get bank loans to finance hydro projects from the normal high street banks, and several of our clients have sucessfully negotiated reasonable deals. The bank will need to see a good quality feasibiliity study with realistic total project costs and accurate energy production and income estimates, because ultimately they will base there lending decision on this information.

Please note, all of the above information is provided in good faith and is intended as a guide. Make sure you get suitable professional advice before committing to any project financing agreements.

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