After long and difficult negotiations, the transaction was agreed with a commitment by the EIB of EUR300 million in non-recourse loan finance, nearly two-thirds of the total EUR482.5 million of long-term lending required for the project. A non-recourse loan is one where some collateral is used to secure the loan but where the borrower is not personally responsible for the debt. Thus, should the borrower default and the collateral not cover the debt, the lender makes a loss as it is unable to seek additional payment from the borrower.
In addition to the EUR300 million EIB loan, EUR182.4 million is being provided by lead arrangers ASN Bank, Dexia and Rabobank. The Danish government's export credit fund (EKF) is also supporting the project, with risk guarantees of EUR210 million.
It is the first time the EIB has assumed finance risk for an offshore wind farm. Belwind project director Frank Coenen calls the package a "milestone" for the financing of offshore projects. "The strong backing from partners has allowed us to get to the construction stage in just three and a half years, a record-breaking short amount of time." While onshore construction started in August, work offshore begins this month and, weather permitting, Coenen hopes installation of foundations will continue through the winter, with the wind farm fully operational by end-2010. Electricity output will be sold to energy retailer Electrabel. Transmission operator Elia will purchase the green energy certificates with the cost of supporting the wind farm borne by users of the electricity network.
The wind farm is being built by Van Oord Marine and Offshore Contractors under an engineer, procure and construct (EPC) contract. Van Oord previously built the Princess Amalia wind farm, formerly known as Q7, off the Netherlands. The project will be operated by Vestas, which is supplying 55 of its 3 MW V90 turbines - relaunched earlier this year, months after multiple gearbox failures at UK and Dutch wind farms had led it to withdraw the machine from the offshore market.
Bligh Bank, the first half of a 330 MW wind farm, will be located 47 kilometres off the Belgian coast near Zeebrugge. Construction should be completed by early 2011.
Until July, Belwind was owned by Dutch renewables group Econcern, but when the company hit the financial buffers, new equity investors were needed to rescue the project. By the end of the month, a consortium of Belgian and Dutch investors including PMV, Meewind and Rabo Project Equity had stepped in.
This paved the way for a project finance deal with ASN, Dexia and Rabobank as lead financiers, and Rabobank and ParticipatieMaatschappi Vlannderen (PMV) as mezzanine lenders. Despite earlier financial precedents, the final negotiations were difficult, according to one banker close to the deal. "We needed everybody on board and had to persuade various parties that they wouldn't get everything they wanted," the banker says.
"The EIB had been begging us to be part of this deal and because of the economic crisis its offer looked more interesting, but we wanted it to join on commercial banking terms," says the banker. He adds that in this instance the institution "played by the rules of the (commercial) banks and in this case we managed to work quite quickly." But he adds that the EIB's relative lack of familiarity with offshore wind triggered lots of due diligence procedures and the EIB, subject to many lending constraints, is never very flexible.
However, Marc Schmitz of Rabobank welcomes the EIB's involvement. He says: "It's a good thing for offshore wind with the advantage that its funding costs are lower than those of commercial banks and they provide a large amount of risk participation."
The EIB's Christopher Knowles adds: "The project would not have happened without us as nobody else was in a position to provide significant long-term liquidity." But, he insists, "we are not there as the fire brigade, but there because it is a strategic objective of the EIB to be more involved in renewables projects and to stimulate economic recovery." He adds that "offshore wind power is a priority for us because of the (high) megawattage (it contributes to our goals)."
Knowles says he hopes that the EIB taking on the risk will "send a positive sign to the commercial market." Mortimer Menzel, a partner with merchant bankers Augustaco, believes this will be the case and that the deal "will hopefully break the log jam of debt funding." He expects more bank interest in non-recourse funding for offshore projects as a result of Belwind. However, he adds, that he wants to see more debt investment in offshore wind projects from the commercial banking sector. This would be preferable than having to rely on government or EU-related sources of debt."
Schmitz insists that there is appetite from commercial banks for offshore wind. "We were called by many banks when working on this project," he says. "(But) we chose, in this instance, to bridge the funding gap using the institutions on order to close the deal quickly - as it had already been delayed due to the change of shareholder."
Should this private sector funding fail to materialise, Knowles says the EIB is ready to offer a helping hand. "For future projects we are open to being involved," he says. "Provided that the economics, the credit structure and the ratios are good, we will be happy to get involved. Offshore wind is a capital intensive sector - in the EU, possibly needing EUR80 billion up to 2020 - and EIB's active support is important."
EIB contributions to offshore wind projects
Presence in three countries
Project/ Developer Turbines EIB support MW Online
Horns Rev Offshore Vattenfall & Vestas 134 160 2002
Wind Farm/ Dong Energy 2MW
North Sea, Denmark
Nysted Offshore Dong Energy Siemens 120 165.5 2003
Wind Farm/ E.ON 2.3MW
Nysted, S. Denmark
Barrow Offshore Centrica and Vestas 77 90 2006
Wind/East Irish Dong Energy 3MW
Gunfleet Sands/ Dong Energy Siemens 250 172 Autumn
Essex, UK 3.6MW 2009
Horns Rev 2/ Dong Energy Siemens 240 210 Nov
North Sea, Denmark 2.3MW 2009
Greater Gabbard Scottish & Siemens 118 500 2010
Offshore Windfarm/ Southern 3.6MW
Suffolk, UK Energy and
Belwind/ Consortium Vestas 300 160 2011
Bligh Bank incl: PMV, 3MW