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Financing Windpower Projects

Financing Windpower Projects

Financing Windpower Projects

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 for financing windpower available to you to make best use of your wind asset to produce a long-term income.

There are three main ways of funding wind power and hydropower projects: self-financing, bank (loan) finance and by leasing the site to a third-party developer. The advantages and disadvantages of the different options are outlined below:

Self/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 You have to manage the project,
or appoint a suitably qualified consultant to do this
You have no financial risk at all Smaller proportion of the financial benefit once operational
100% of the financial benefit once operational You carry the risk if the project fails A regular income without having to do anything Tied-in with an exclusivity / option-to-lease agreement
(Bank Finance only) Loan may be secured against land or property
(Bank finance only) normally only funds the ‘capital’ (i.e. post-consenting) stage

If you are interested in self-financing your project, please get in touch for a quote for the engineering consultancy services you will need to move your project ahead.

If you are interested in leasing your site so that you can get a risk-free long-term income, read the wind or hydropower ‘site leasing’ tabs below and then get in touch so that we can complete the initial site checks and match you up with one of our currently available leasing offers.

If you are interested in bank (loan) finance, we have provided the information below on the ‘loan finance’ tab, but this is for information only. We don’t offer loans directly so you will have to contact a bank to discuss more details. Once you have obtained a loan we would be very happy to discuss providing the necessary services to deliver your project.

Wind site looking for investment

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 significant risk-free income.

The normal route is to make an enquiry through our website and select ‘I have a wind site looking for external investment’ 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 investors. We work with a range of investors and each has slightly different offers and preferences for the different scales of development. We send the site briefing document to the appropriate investors(s) and they review it. If they are interested they will make an offer, and assuming this is acceptable will ask you to sign an Exclusivity and Heads of Terms agreement which secures the site exclusively to them while the detailed feasibility work is carried out.

It is important at this point to get appropriate legal advice, because once signed the agreement will be binding. Most investors either provide access to third-party independent legal advice through lawyers that are already familiar the structure of the deal being offered, or you can use you own lawyer. If you use your own lawyer most investors will pay your legal fees (typically up to £500, paid against receipts) provided the agreement is subsequently signed). Most also pay a signing fee as a goodwill gesture (typically £500 to £1,000).

Once the agreement is signed the investor will 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 investor would the ask you to sign an Option to Lease agreement, which would be based on the outline terms on the already-signed Heads of Terms agreement. Once the ‘option’ was signed the project would then move onto the consenting stages and follow our normal development program. All costs would be paid by the investor.

Once planning consent was obtained the ‘option’ would be exercised and the Lease signed, and then the wind turbine would be ordered, the site prepared and the turbine installed and commissioned. Once the wind turbine was operating you would begin to receive your regular income for leasing the site.

Most investors offer to pay a percentage of the gross income from the wind turbine to the site owner. The percentages offered generally range from 6% to 12%, with the range due to the wind speed at the site and the ‘ease’ of development. For projects in the up to 500 kW bracket a good deal would be between 8% and 12%. 12% is only 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. The majority of sites are offered 10%, and lower wind speed sites or sites with smaller turbines less.

Some investors offer a guaranteed fixed annual income which some landowners prefer, though this is generally lower than an equivalent percentage of the gross income because the risk to the investor is greater. In reality any projects Renewables First were involved in would only be specified with the best wind turbines available, so should operate reliably for at least the 20-year design life of the wind turbine. In this case the percentage of the gross income would provide the highest income to the landowner.

Most of the investors we work with are only interested in financing larger wind turbines. The minimum size of project would be a single 500 kW turbine, and some would be interested in up to five larger turbines. We sometimes have smaller private investors who are looking to fund 50 kW or 100 kW wind turbine projects, so even if your site is smaller it is worth getting in touch. The returns on investment just aren’t there for turbines smaller than 50 kW, so we can’t offer anything for micro-wind projects.

If you are interested in leasing your site in return for a risk-free long-term income, this is what most investors are looking for:

  • An annual mean wind speed 50 metres 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
  • Far enough away from non-owned residential properties (normally at least 500 m)
  • Not be in an area with any special landscape or environmental designations

If you think your site is suitable please get in touch using the enquiry form, and make sure you select ‘Wind site looking for investment’ as the ‘Enquiry type’. Alternatively call us and we will discuss the options currently available.

Bank (loan) finance

Loan finance for wind and hydropower projects can be provided by several of the well-known high street banks or from specialist finance providers.

Please note that Renewables First does not offer loans, so please contact your bank direct for more information. We would be keen to discuss providing the consultancy and delivery services once you have secured a loan.

The offers available are similar overall, though they all have their peculiarities. Fundamental to all of the deals available is that generally they only fund the installation stage and not the pre-planning and consenting stages. This means that the site owner will have to fund the pre-installation stages, which can typically be £100k. Remember that if for any reason your site fails to obtain the necessary consents then all costs incurred up to that point would have to be written-off.

Assuming the you have the £100k to fund the pre-installation stages and can accept the risk, then the approximate terms offered by banks typically are:

  • Normally banks will fund 75 – 90% of the total project cost. So, if the total project cost is £1M, a loan of £750 – 900k would be available. Assuming you have already obtained the consents, then the cost of these can normally be offset against the site owner’s contribution to the project.
  • Precise terms vary, but typically the interest rate on the loan is 3.5% above LIBOR (London Inter-Bank Offered Rate), which currently means an overall interest rate of around 4 – 5%.
  • Often the interest is around 1% less during the build stage, before the system is generating revenue.
  • Some banks 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) has sufficient alternative income to repay the loan in the event of a problem with the wind or hydropower system.
  • Others require no additional security other than the wind or hydropower system; in these cases the institutions are confident that the system will produce the forecast revenue for the duration of the loan.
  • Exactly how much security is required (if any) and the interest rate on the loan are negotiable to a certain degree.
  • In addition most loans have a set-up fee of around 2.75%
  • Loan terms are typically 8 to 15 years.

Are you considering a wind turbine project?

Renewables First are an experienced wind consultant and have a full project capability, from initial feasibility study through to wind consenting and installation.

The first step to develop any wind power site is to conduct a full Wind Turbine Feasibility Study.

If you are interested in installing a wind turbine, the first step is to Contact us to discuss your requirements and to complete a Wind Turbine Feasibility Study.

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