The Hindu Business Line : Banks to fund large wind farm projects based on cash flows

Chennai, Dec. 11 With more multi-national companies looking at setting up large wind farms, banks are now prepared to fund these projects based on their cash flows rather than take recourse to the parent company’s balance sheet.

Experts in the wind energy sector say this is good for the sector as it will result in project sizes increasing. Hitherto, investments in wind farms have been of sizes up to 50 MW, but that will change and larger sized wind independent power projects will come up, according to them.

Infrastructure status

Wind energy does not enjoy infrastructure sector status such as roads, power or ports projects do, according to them. Therefore, banks have been reluctant to go in for non-recourse funding for wind power projects. That is changing because of the attractive tariffs in some progressive States such as Karnataka, Maharashtra and Gujarat.

Shift to IPPs

Till recently, investments in the wind power sector in the country have been mostly for captive purposes and the shift towards IPPs is because of the higher tariffs and electricity regulatory commissions specifying that utilities buy a percentage of power they distribute from renewable sources and the willingness of utilities to sign long-term power purchase agreements.

Multi-national players such as CLP Power of Hong Kong, Acciona and GEI of Spain, BP and domestic private utilities such as Tata Power and Reliance Energy are investing in wind power projects.

Besides, public sector units, including NTPC Ltd and ONGC are also investing in wind energy.

Debt equity ratio

According to sector experts, the debt equity ratio for a typical wind energy project is 70:30, with banks insisting on a higher equity contribution from the promoters in a few projects, in which case the debt equity ratio is around 65:35.

Banks have various methods to secure their monies. They could insist on first right on the assets or insist that project promoters create an escrow account through which revenues from the sale of electricity will flow, according to Mr Sunil Jain, Vice-President, Green Infra, an IDFC private equity enterprise that is setting up a wind farm in Tamil Nadu.

SBI tie-up

Recently, Indian Energy Ltd, promoted by an NRI, tied up with State Bank of India for Rs 90-crore debt for its 25 MW project in Gadag district of Karnataka. Turbines for this project are being supplied by Enercon India and a part of the project has been commissioned and the balance will go on stream shortly.

Dr Pankaj Agarwal, Managing Director and one of the promoters of Indian Energy, told Business Line here recently that the company tied up with SBI for a 11-year loan. He expected the project to break even in eight years. Karnataka offered a tariff of Rs 3.40 a kWh for the first 10 years and had signed a PPA for 20 years. Revenues from carbon trading would account for as much as a fifth of projected cash flows, he said.

Investments

Green Infra is investing Rs 300 crore in a 48 MW (turbines to be supplied by Suzlon and RRB Energy) wind farm in Tamil Nadu. The company is talking to some leading banks for debt for the project, according to Mr Jain. Green Infra is looking to have about 500 MW of wind energy capacity by 2011.

Acciona Wind Energy Pvt Ltd, a subsidiary of Acciona of Spain, has set up a 30 MW wind farm in Karnataka with Vestas turbines at an investment of about Rs 210 crore, according to industry sources. The company went in for a bridge loan from Banco Santander of Spain, which it hopes to replace with debt from a consortium of Indian banks. The Spanish parent has about 3,500 MW of wind energy capacity in Europe, North America, Australia and Asia.

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