flow explores how Deutsche Bank’s project finance services partnered with one of Europe’s leading asset managers for renewable energy investments in the growing corporate power purchase agreement market for Nordic wind energy
There is a bluster of activity in the Nordic onshore wind market with several large corporates buying their energy sources from this market, signing up with clusters of farms for periods of 15 years or more.
These power purchase agreement (PPA)-driven transactions in Nordic wind make the market not only the largest for corporate offtake but also the longest. In these deals, corporates buy an offtake from the local grid and use it to power their centres and production sites.
The largest deal occurred in Sweden in 2017 when, according to infrastructure magazine Inspiratia, an aluminium producer struck a 19-year agreement to buy power from the planned 650MW Markbygden ETT project – whose sponsors General Electric and Macquarie's Green Investment Group (GIG) sold a majority stake to China General Nuclear (CGN) power group.
In July 2018, GIG joined forces with Norsk Hydro again on the 235MW Överturingen wind farm, also in Sweden, sealing a 29-year PPA.
In Norway, another aluminium producer Alcoa agreed a PPA with the 281.4MW Nordlicht wind farm, in a deal that reportedly included funding from Norwegian export credit agency GIEK.
In the latest deal in May 2018, a Silicon Valley giant signed a long term PPA to buy power from German asset manager Luxcara’s Bjerkreim site set to power its data centres in Odense, Denmark, and Luleå, Sweden.
The sites were partially funded by a project bond issuance, where Deutsche Bank acted as financing agent and security agent on the project bond issuances. quity is provided by a renewable energy fund for institutional investors, which is advised by Luxcara, an experienced asset manager investing in PPA projects since 2015. The company’s portfolio includes solar and wind farms in Europe with a total capacity of almost 2 gigawatt and an investment volume exceeding 2.5 billion euros.
Luxcara's 294MW Bjerkreim cluster consists of three wind farms: Eikeland-Steinsland, Gravdal and Skinansfjellet in South West Norway. Once fully operational in the fourth quarter of 2019, the complex will feature 70 turbines of 4.2MW each.
Powering ahead, together
To structure and finance the wind farms, Luxcara and a group of institutional investors led by MEAG, the central asset manager of insurers Munich Re and ERGO, raised a “lower three-digit million euro” senior secured project bond. The Namensschuldverschreibung 1, or German N bond, is a physical debt certificate issued in the name of the investor, evidencing an obligation of the issuer and made out in the name of the creditor (hence the German term Namensschuldverschreibung which means “name bond”). These bonds were privately placed with the MEAG consortium and European institutional investors seeking projects whose duration and steady revenue stream match their long term liabilities.
N bonds are treated like loans and as such they allow companies issuing them to place the “loans” on balance sheet for accounting purposes. A large number of foreign issuers have started to include N bonds in their cover bond programmes or have started to issue them on a standalone basis.
The loan features of these unique hybrid harmonised debt instruments required an agent to closely monitor project covenant compliance, manage cash flow and ensure timely distribution of key project documents and other communication between finance parties.
As an agent with the local knowledge and experience in infrastructure and renewable energy finance, Deutsche Bank was able to support the transaction over the lifespan of the project and facilitate the needs of both borrower and investors.
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