Innovative financial structuring – UK wind

Location:         UKsingle wind

Client:             confidential

 

Project Description:

The UK medium wind sector ports both the highest Feed-In Tariffs and the lowest rate of implementation for UK wind.  This is no coincidence – the tariffs remain relatively high because the government wants to encourage this renewables sector, in line with its EU 20/20/20 commitments (part of the EU’s Third Industrial Revolution implementation programme), but take-up has been low so the tariff degression thresholds (which reduce the tariff with increased take-up) have not been materially breached.

Single 500kW turbines can theoretically provide good investment returns, but they are difficult and costly to develop, and the total investment per site is circa £1.5 million, making it too small for banks or commercial investors to be interested.  Aggregation is the obvious answer, but this does not provide an immediate solution, as installation of turbines at this scale remains a “cottage industry”.

The client had systematised the site acquisition and development process so that the route from initial site identification through to planning permission was efficient.  The client needed the same to be done on the financial, commercial and construction side of the business, to enable a pension-fund exit and to thereby attract development and construction capital.

 

Bainton Capital’s Role:

The assignment was intellectually challenging and played to Bainton Capital’s strengths, with the integration of finance, engineering and commercial structuring.  It was an open brief to identify the key issues and solve them.  A key issue was optimising the selection of turbine types to balance performance and reliability (including supply chain impact assessments, etc.), together with the design and implementation of a structured combination of insurance wrap and O&M services, so as balance cost with the predictability of long-term revenue streams.  Differently levels of long-term revenue assurance affect the exit route and effective discount rate applied by the purchaser, and hence exit value.  Bainton Capital put together the models and assessment tools, negotiated the O&M and insurance elements and made recommendations regarding different potential outcomes.

Bainton Capital also helped the client to systematise and de-risk the construction of the plant, through the design and commercial negotiation of a true turnkey EPC (engineer-procure-construct) arrangement to manage site assessment and construction risk.

The company has now raised its required development and construction capital and is developing sites across the UK.