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The spread of COVID-19 continues to have far-reaching consequences with falls in oil and power prices, business shutdowns, financial market downturns, and a shift to the “new normal” of social distancing. Despite this current flux in the financial, commodity, and labour markets, renewable energy assets – particularly those with long-term, stable, contracted cash flows – remain relatively more resilient in the face of such situations.

It is nevertheless vital that sponsors and developers in this sector identify and seek to resolve potential issues that may impact their renewable energy project financing schemes. Elgar Middleton considers the following to be such issues:

Liquidity and solvency

A combination of financial market distress, lower power prices, and supply chain disruption associated with COVID-19 may impact the near-term cash flows of some renewable energy assets – particularly those with pre-existing distress or a large proportion of uncontracted revenues. In certain instances, this may impact the sponsor’s ability to meet its loan obligations.

It is imperative that borrowers review their obligations and, if they have any concerns, engage proactively with lenders to discuss measures such as: extensions to short-term credit facilities, reduction in the repayment amounts, deferred scheduled payments – and in more extreme scenarios – seek to refinance their entire project finance loans.

Ratio covenant tests and other documentary conditions

Even if current cash flows do not result in immediate concerns, COVID-19 may have an impact on financial covenant tests typically required by project finance schemes. Borrowers should consider early engagement with lenders to discuss amendments or waivers to these clauses, as necessary

Other contractual positions in existing loan agreements which are becoming particularly relevant during these times include drawdown conditions on revolving facilities and reserve accounts, material adverse effects, representations and warranties, and events of default.

Market for project finance debt

In response to the current situation, borrowers who are looking at their capital structures and ways to optimise them or most effectively inject new funds – be it through bridge financing, revolving facilities, or replacing long-term debt, need to be aware of additional considerations.

We are currently seeing lenders reviewing key areas including downside sensitivities, the risk allocation between borrowers and key counterparties, and reporting requirements relating to future outbreaks.

It remains crucial for sponsors to structure resilient financial packages that consider these factors without jeopardising returns. It is also worth highlighting that the project finance lending market has not stalled, with deals continuing to progress during these turbulent times.

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COVID-19’s impact on renewable energy projects and their financing remains uncertain and will vary significantly between projects. As this situation develops, Elgar Middleton remains keen to share real-time insights with our clients. If you want to discuss these topics further, please do not hesitate to contact us.

In early April, AEMO published the final Marginal Loss Factors (MLFs) applicable for FY20-21.  Broadly speaking the MLF changes are relatively modest compared to the large decreases experienced by many renewable projects in the last two years. Several projects, particularly solar farms in central and north Queensland received modest upgrades. Others were still downgraded, though not by as much as foreshadowed in AEMO’s draft report released in March (for example the problematic West Murray region in NW Victoria / SW NSW).

These outcomes are a reflection of the challenging Australian renewables market, with AEMO citing additional network constraints and a slowdown in new developments as key reasons for the smaller changes.

What does this mean for equity and debt?

The MLF stabilisation is likely to narrow the observable valuation / expectation gap between buyers and sellers. Nevertheless investors should conduct careful due diligence, have an informed view on the MLF trajectory of their potential acquisition targets, and avoid over-extrapolation of the current outcomes.

Although we expect senior debt providers to relax the most severe downside restrictions, there is little doubt that this topic will continue to be a key focus for most credit teams. It remains crucial for sponsors to structure resilient financial packages so that future MLF changes do not cause a critical covenant breach (coverage ratios) and potentially jeopardise returns.

We are conducting additional root-cause analysis on major MLF changes in light of the recent AEMO announcements and will share more insights in due course.

Link to AEMO press release.

This is a subject full of myths, claims and counterclaims and was the challenge we put to Elgar Middleton’s latest recruit – Malek Benlarbi-Delai – to investigate. The results are extraordinary.

To determine the carbon footprints of various types of vehicles, Malek analysed an internal combustion engine (ICE) vehicle , an electric vehicle (EV) and a hydrogen fuel cell vehicle (HFCV). Each had its construction-related carbon output calculated and then the carbon released from its ongoing use.

It was no surprise that the analysis confirmed that ICE vehicles are not the way forward for our society. What was a surprise was that an EV can result in just as much carbon emissions overall as an ICE vehicle, depending on where it was manufactured and subsequently driven. In fact, an EV which has its battery manufactured in China and is then driven in Australia will generate more carbon over its lifespan than a standard ICE vehicle.

This all comes down the energy generation mix in those countries with both China and Australia remaining highly dependent on coal for its power. And as the main source of energy of an EV is the electricity coming from the grid, an EV driven in Sydney is indirectly, almost entirely coal-powered.

The report’s conclusions however are not all bleak. The results are far more encouraging in countries where governments have taken proactive measures to switch to renewables.

These regional variations form a key conclusion and reinforce why it is fundamental that we continue to press for each and every community globally to go carbon neutral – because the electrification of transport will not help us reduce our global carbon footprint if our electricity is not produced from renewable sources.

And what about HFCVs? When the hydrogen that powers the HFCV is derived from renewable sources, the process produces no waste products but water. This solution then becomes, without a doubt, the greenest form of transport available.

If you want to know about Elgar Middleton, or indeed wish to see Malek’s full report, then please get in touch.

COVID-19 Update

The wellbeing of our staff, their families and our clients is our top priority. In light of the current situation, our teams in London and Sydney have been adopting full remote working arrangements and our ability to do so is well tested. Despite these worrying times, we are very much open for business and we stand ready to support our clients in any way that we can.

Elgar Middleton is delighted to have sold the 2.4MW Lower Drayton anaerobic digestion facility in Staffordshire, England

Elgar Middleton BioPower Limited has sold the entire share capital in the 2.4MW Lower Drayton anaerobic digestion facility to Lower Drayton Biogas Invest Co Limited. The project is located in Staffordshire and, once constructed, will supply renewable natural gas and allow the local network to de-carbonise the gas supply to circa 3,000 homes.

Elgar Middleton Infrastructure and Energy LLP was financial adviser to the transaction.

Elgar Middleton is delighted to hit its latest milestone of raising £3bn of renewable energy debt on behalf of its clients

2019 saw Elgar Middleton raise almost £1bn of non-recourse debt across renewable technologies in the UK and Australia. This brings our total amount of renewable energy debt raised since inception to £3bn. We are hugely encouraged by this milestone which reflects both the hard work of the team worldwide and the trust placed in us by our clients.

We have been delighted to see so many of our clients returning to us throughout the past few years: we take the time to understand the goals of each financing, we identify the most competitive funders to deliver the best possible terms, and our Partners ensure a smooth transaction execution by project managing the process from start to finish.

We would like to thank our clients and fellow advisors as well as each of the members of the growing Elgar Middleton team for their support in achieving this landmark. Here’s looking forward to billion number 4!

Elgar Middleton is delighted to have advised Neoen SA. and John Laing on the refinancing of Hornsdale 309MW wind farm portfolio

The three stages of the Hornsdale wind portfolio located near Jamestown, SA have successfully transitioned to steady operational stage over the past years.

The projects benefit from strong ACT PPAs, improving grid/curtailment conditions, as well as the strategical support of the MLA club: Korea Development Bank, Natixis, Mizuho Bank and Societe Generale. The long-term debt solution is designed to unlock significant value for the Sponsors in the medium and long term as well as align the legacy financing of the assets with the most recent developments and precedents in the Australian renewables project finance market. This marks the second successful cooperation between Neoen and Elgar Middleton after the award winning Bulgana Green Power Hub (IJ Global’s APAC Storage Deal of the Year 2018).

White&Case acted as Legal advisors for the sponsors, while HSF supported the Lenders. Further specific transaction support was provided by JCRA, EY, Baringa, Willis, GHD and DNV.

Elgar Middleton is pleased to announce the arrival of Malek Benlarbi-Delai in its London office.

Malek joins the team as an Associate specialising in the wind and solar sectors. His focus will be on supporting the origination and execution of M&A and debt financing opportunities in Continental Europe.

After completing his Masters degree in Financial Analysis and Management from the University of Exeter, Malek worked at JLL and before then, at Ardian and the Caisse des Depots et Consignations. His experience includes conducting multiple in-depth analysis of the European infrastructure and renewable energy market and being involved in the advisory of various renewable energy projects in the UK.

Elgar Middleton has advised Foresight Solar Fund Limited on the refinancing of a 321MW solar PV portfolio in the UK

The financing comprised a £170m senior secured facility provided by Sumitomo Mitsui Banking Corporation (“SMBC”) and Landesbank Hessen-Thüringen Girozentrale (“Helaba”), a £65m revolving credit facility provided by National Westminster Bank plc (“NatWest”), and a £10m debt service reserve facility.

The new financing benefited from reduced margins and an extended tenor, and provides additional flexibility for Foresight Solar Fund Limited to pursue new investment opportunities.

The project consists of a portfolio of 321MW of solar PV assets spread across 28 sites, and is wholly-owned by Foresight Solar Fund Limited – a fund managed by leading independent global infrastructure and private equity manager, Foresight Group.

Elgar Middleton is pleased to announce the arrival of Carlos Andrés Prudencio in its London office.

Carlos joins the team as an Associate Director specialising in the wind and solar sectors. His focus will be on supporting the origination and execution of M&A and debt financing opportunities in the UK and Continental Europe.

Prior to Elgar Middleton, Carlos was a Vice-President in Santander’s London Project and Acquisition Finance team and before then, he worked in Société Générale’s Energy Advisory and Project Finance team, based in London. During this time, Carlos worked on advisory and lending mandates for landmark energy and infrastructure projects across Europe and the Middle East. With over 6 years of experience in the energy space Carlos has gathered considerable exposure to onshore and offshore wind, solar PV and CSP as well as conventional thermal energy and infrastructure.

Carlos holds a Master in Management from ESSEC Business School Paris and is fluent in English, French and Spanish.

• Elgar Middleton leads financing on the IJGlobal ‘APAC Storage Deal of the Year 2018’ award

• Elgar Middleton is shortlisted for the IJGlobal ‘Financial Advisor of the Year 2018’ awards (Europe and APAC)

Image courtesy of Teslarati

Elgar Middleton is delighted to congratulate Neoen Australia / Siemens and Tesla on winning IJGlobal’s APAC Storage Deal of the Year Award – Bulgana Green Power Hub.

This unique and innovative project consists of a 200MW wind farm and an integrated 20MW/35MWh Tesla battery storage facility. The combined facility will provide uninterrupted power to an adjacent greenhouse via a private-wire PPA, whilst supplying the rest of the generated electricity to the state of Victoria through a tailored state Power Offtake Agreement.

This combination of a behind-the-meter storage and complex offtake agreement was considered by the panel of judges to be visionary due to its ability to manage industrial loads and provide complete power solutions to C&Is.

Elgar Middleton acted as the financial advisor to the project, and alongside Neoen’s team, ensured that the financing structure matched the innovative technology solution.

White and Case and Herbert Smith Freehills supported the borrower and lenders respectively.

The AUD350 million project was supported by long-term non-recourse project debt provided by KfW IPEX-Bank, Societe Generale, and the Korea Development Bank.

Damien Bonnamy, CFO Australia at Neoen commented:

“Elgar Middleton’s support in structuring and leading the financing process was decisive to reaching financial close in less than 7 weeks from commercial agreement, for a project mixing large wind farm, storage facility, behind the meter corporate client and a state PPA. Elgar Middleton also successfully brought together a unique combination of lenders from Europe and Asia.”

Elgar Middleton’s structuring and execution capabilities earned the firm nominations in two further categories:

– IJGlobal APAC Financial Advisor of the Year 2018
– IJGlobal European Financial Advisor of the Year 2018

These accolades demonstrate Elgar Middleton’s expertise in complex multi-technology renewable energy financings and reinforces its status as a leading financial adviser in the renewable energy sector.