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Post by bengilbert on Sept 15, 2014 23:39:00 GMT
Deals like the recent ones listed on Assetz or Thincats - loans to build wind turbines, paying 9-10% - seem fairly low risk to me. If I understand it right, installation and initial proper functioning of the turbine is covered by the manufacturer, and the income generated is government guaranteed, subject to weather conditions that are fairly predictable. However, the borrowers are paying 10-12% in order to get financing for their projects. Any ideas on why banks aren't offering money at lower rates?
On property deals, I can see why banks don't compete - previous large losses in the sector, top-level restrictions on increasing the size of their property lending books, inflexible and slow systems for approving borrowers, etc. Are there any comparable reasons why they won't lend on wind turbines?
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Post by mrclondon on Sept 16, 2014 12:50:46 GMT
I suspect the issue is more to do with the banks being reluctant to provide development finance in any context (property or renewables). In most cases the renewable energy projects we see are at the start of the construction phase, and the accompanying docs suggest refinance should be straight forward once commissioned and one or two years of operating accounts available.
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Post by formertrader on Sept 16, 2014 19:09:30 GMT
Banks will finance large projects but not small ones. ie. there is a lot of planned development for offshore wind farms and banks (including my former employer) are all over them because they are big. A small turbine is really just a small business. Whilst the cashflows are secure-ish in the short term, they are subject to changing regulation continually. There are also several different parts to finance from a bank's point-of-view (the turbine, the blades, the cabling). Damage to the cabling can take down a turbine for a while and that would impact the return on the asset.
For a single turbine, if it falls over (and this does happen!) then the bank has nothing to claim against. If they need to repossess the asset, what do they do with it? All-in-all it is a lot of uncertainty.
Even looking at offshore projects there are risks - what if a dredger accidentally takes out the cable?
However, lots of fund managers look at it like you do - a quasi-govt guaranteed cashflow. It is a bit of a marmite product.
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Post by bracknellboy on Sept 16, 2014 20:24:16 GMT
"Even" if its an offshore project ? I would have thought that an off-shore project carried substantially more risk than on shore (with respect to unforeseens).
Bit confused by that. Surely in general one is financing the project, not financing different component elements, let alone different component elements of the physical WT itself ? Apologies, but not following that bit (but fully follow the "too small to worry about" bit).
Presumably normally insurance against such incidents, assigned to the lender, would mitigate that risk ?
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Post by formertrader on Sept 16, 2014 21:23:33 GMT
1. re offshore projects - sorry, I wasn't clear. By "offshore project" I was referring to the arrays of several hundred turbines where there is a big return rather than one individual turbine. What I meant was "Even where there is a large group of turbines where the risks of an individual failure are mitigated...."
2. For a big project, the turbine etc won't be sold, it will be leased. The separate parts will be individually financed and viewed as individual risks.
3. Insurance never satisfies banks. I did a lot of work on this and basically there is never a way that a bank will be satisfied by the level of insurance as there will always be some lacunas that aren't covered.
It may seem strange, but banks just aren't set up to deal with wind turbine projects unless they are big £500mio plus projects.
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Post by Ton ⓉⓞⓃ on Sept 16, 2014 21:49:51 GMT
1. re offshore projects - sorry, I wasn't clear. By "offshore project" I was referring to the arrays of several hundred turbines where there is a big return rather than one individual turbine. What I meant was "Even where there is a large group of turbines where the risks of an individual failure are mitigated...." 2. For a big project, the turbine etc won't be sold, it will be leased. The separate parts will be individually financed and viewed as individual risks. 3. Insurance never satisfies banks. I did a lot of work on this and basically there is never a way that a bank will be satisfied by the level of insurance as there will always be some lacunas that aren't covered. It may seem strange, but banks just aren't set up to deal with wind turbine projects unless they are big £500mio plus projects. Sorry what's '£500mio'?
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Post by formertrader on Sept 16, 2014 21:53:55 GMT
Sorry. £500,000,000 . ie. a big loan for a big project. The offshore projects are of this kind of scale because they involve large numbers of turbines, a whole load of footing for them and a lot of very expensive cable to get the leccy back to the grid.
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Post by Ton ⓉⓞⓃ on Sept 16, 2014 22:08:08 GMT
Sorry. £500,000,000 . ie. a big loan for a big project. The offshore projects are of this kind of scale because they involve large numbers of turbines, a whole load of footing for them and a lot of very expensive cable to get the leccy back to the grid. Thank you. And they would get one co. to insure the blades & perhaps another co. to insure the substation etc?
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