From developer to owner
The Astraeus deal marks a change of strategy to increase the company's wind farm ownership. Up until now, RES' core business was development and construction of projects; in the UK it sold most of its development capacity to utilities who have an appetite for renewables obligation certificates (ROCs). Under the Astraeus transaction, RES also bought out the interests of its Northern Ireland partner B9 Energy in five existing wind farms in Ireland and Northern Ireland, giving it 100% ownership of all the projects.
The change in strategy reflects the evolution of the wind power market, says Mike O'Neill, RES' commercial director. "Our assessment is that the market will evolve into a situation where the major players are turbine suppliers, utilities and IPPs [independent power producers] who develop, build and own generation assets themselves. We want to occupy the middle ground. We are a well integrated company; ownership is the completion of the circle."
Another prong to the strategy is to create a more sustainable business for the future, says O'Neill. "We are developing some of the best sites in the world. To own the wind farms ourselves opens up more opportunities to repower the projects at a later date."
The Project Astraeus facilities are underwritten by three lead arrangers: Bank of Tokyo-Mitsubishi, BNP Paribas and Royal Bank of Canada, all of whom were involved in the Zephyr/Beaufort £400 million project financing deal for 160 MW of wind power in 13 operating plant for npower renewables in January 2004 (Windpower Monthly, March 2004). The Astraeus financing comprises flexible portfolio project finance facilities for the 14 projects which can be extended to incorporate more projects in the future.
O'Neill calls Astraeus a major transaction in the wind sector because of its international nature. "What makes this groundbreaking is that it covers a number of different jurisdictions." Half the capacity in the portfolio is in France which is a completely different market to the UK in terms of legislation and tariffs, he says. "I think the banks took some comfort from the diversification -- particularly of wind resource. Some of our projects are in the extreme south of France where the winds can be very different from north-west Europe." And the 15-year fixed-price rate that utility EdF must pay under French law provides a good anchor, he adds.
O'Neill points out that the deal was closed within seven weeks of mandating the lead banks. "That is a very quick timescale for project finance." Particularly for a mix of existing and development projects in three different countries -- each with different markets and laws, he says.
Astraeus is just a first step in growing RES' ownership assets, but the company insists it does not intend to take exclusive ownership of all its projects under development. It will continue to develop and build projects to sell on to other parties. Nor does it have any current plans to pursue its ownership model in America, where it has been involved with development and construction of over 900 MW of projects. "That is a completely different market from an ownership point of view. You need someone who can use the PTC" says O'Neill, referring to a specific production tax credit for wind power in the US. "We felt that our European projects on their own were enough to justify the portfolio."