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Italy

Golden credit days gone in Italy -- Banks more conservative

Banks are likely to impose stricter conditions when financing Italian wind projects in the wake of the global credit crisis, one of Italy's leading project finance lawyers has warned. "We don't know yet if projects that were considered bankable will still be considered so," says Catia Tomasetti, the head of the Italian project financing team at law firm Allen & Overy. "Bankability has a different flavour now."

Lenders have already become more conservative in terms of the amount of financing they are willing to provide for Italian wind farms, says Tomasetti. While in the "golden days" for Italian wind projects some banks had been financing as much as 90%, or in some cases even 95%, of project costs, that figure has come down sharply. More normal now, she says, is a 75-25 debt-equity split, which can come down to as much as 50-50 in cases where a project has run into trouble with authorisations.

Gaining full permission for a wind farm is problematic in Italy, sometimes making for considerable risks for lenders. "Banks want certainty on authorisations, but it's undeniable that it's often a long and laborious process," according to Tomasetti, speaking at a conference on project financing at last month's Expo Eolica trade fair in Rome.

Tomasetti notes that in some cases even fully authorised wind plants in Italy have been subject to seizure orders and even to penal proceedings. These situations are particularly difficult for foreign lenders to fathom. While developers have often won these cases in the courts, now that financial market conditions are difficult there is greater fear of financing projects that could lose their right to Italian incentive prices for wind energy, Tomasetti says. There will also be greater rigour in evaluating the bankability of projects. One result is that banks are likely to increasingly seek corporate guarantees from even the most financially solid companies. "For the others, they will also want banking guarantees," she adds.

High incentive prices for wind in Italy are one reason why some banks have taken a more lax attitude in the past to approving financing deals for wind projects in the country. But Tomasetti warns that incentive prices are likely to fall in future. "Italian norms say the green certificate price is adjusted every three years; that doesn't mean they will be raised. What lawyers are telling banks is to be careful of the value of green certificates because they could fall."

A tighter financing market should also condition who will dominate Italy's wind sector in the next few years. "It will become a market that is less Italian and dominated by sponsors with large financial shoulders," predicts Tomasetti.

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