San Francisco-based Pattern Energy signed a 27-year power purchase agreement with Manitoba Hydro in March for the output of the C$345 million ($344 million), 138MW St Joseph wind farm. The project, which will utilise 30 Siemens 2.3MW turbines, will be built on farmland about 85 kilometres south of Winnipeg and 20 kilometres north of the US border. It is expected to be online in December.
Reacting to circumstances
Pattern will invest C$95 million ($95 million) in the project, while the utility will loan the firm the remaining C$260 million ($259) to be repaid over 20 years. Manitoba Hydro public affairs manager Glenn Schneider says the decision to provide financing was not something the utility envisioned when it set out to buy wind power with a request for proposals issued in 2007. He says: "It was really in response to the particular circumstances."
The government-owned utility received 84 bids in that 2007 solicitation, and in November 2008 announced it had given the green light to a proposal from what was then Babcock & Brown Canada for a 300MW project (Windpower Monthly, January 2008).
But the global credit crisis intervened and prevented the firm from raising the financing it needed, says Colin Edwards, Pattern's senior developer in Canada. At the same time, Babcock & Brown's North American wind business was going through an ownership change in the wake of its Australian parent's bankruptcy. It was acquired by Riverstone Holdings LLC and became Pattern Energy (Windpower Monthly, September 2009).
Getting a loan from Manitoba Hydro rather than traditional lenders is largely a matter of debt pricing, says Edwards. "Pricing has not returned to levels that were predominant when we put our bid proposal in to Manitoba Hydro. So this was the bridge solution to take us back to 2007 and 2008 debt parameters."
Neither party would disclose the terms of the loan, but Schneider did confirm the utility is charging a small premium on its cost of capital. "Obviously, we get a pretty good rate. We generally borrow under the name of the province as well, because we are a Crown corporation and they back our operations here," he says. In May 2009, the province sold a five-year bond issue at an interest rate of 2.75%. The last Manitoba Hydro bond issue was in 2007 at a fixed five-year rate of 4.65%.
The difficulty securing financing was a factor in Pattern's decision to cut the size of the project from 300MW to 138MW, says Edwards. But so was the looming end to the Canadian government's ecoEnergy for Renewable Power incentive, which pays a C$0.01/kWh production incentive for the first 10 years of a project's life.
The St Joseph project has qualified for the funding, says Edwards, but the turbines have to be online by the end of March 2011 to get it. "Because our negotiations were so protracted, 300MW would be too difficult to complete on that schedule, and so we scaled the project back," he says.
Manitoba Hydro's decision to move the project forward with a loan was also driven by the federal funding deadline, says Schneider. "It made a significant difference in terms of the economics of the project," he explains.
The 99MW St. Leon project is currently Manitoba's only operating wind energy facility.