The Week in Green Energy: The Bankable Project

by Terrence Murray - November 19, 2010

It’s a good news/bad news scenario right now for renewable project developers.

Banks are finally funding projects, but accessing that cash is difficult. Banks are requiring a signed, long-term power purchase agreement with a large utility and a cash-rich, A-rated blue-chip backer. Fulfill these two requirements and bankers will crack open the vault!

It’s a tall glass, to be sure, but this week we saw a perfect example of the kind of project that is succeeding in this environment: the 845-megawatt, Shepherds Flat wind farm in Oregon. The project has a hefty $1.3 billion price tag but its the model of a bankable project. GE is a part owner and is supplying the plant’s turbines and the power plant is also backed by a 20-year, fixed-price PPA with Southern California Edison.

“In terms of backing, it really doesn’t get better than that,” a banker involved with the Shepherds Flat financing tells G.E.R. His colleagues have not shied away from offering cash, so much so that he expects the funding to be oversubscribed by the time it closes later this year.

Back in 2006, when money was cheap and abundant, project developers could secure funding based on expectations. The debt crisis changed that. Now, projects without strong institutional backing and a signed, long-term PPA won’t even make it to bank credit committees. “Over the past four years we’ve moved from a ‘development potential’ market to a PPA market,” Richard Brandt, in Chicago, tells G.E.R.

A slew of projects became (more) bankable this week, thanks to Southern California Edison. SCE signed long-term power purchase contracts with about a half dozen project developers to buy as much as 240 megawatts of solar power and some 19 megawatts of wind power. The big winner was Silverado Power, an outfit backed by a large European strategic investor, which secured purchase contracts supporting the construction of 113 MW of solar generation. That’s an impressive coup for the San Francisco startup, which launched just a year ago. Still, the devil’s in the details and the prices Silverado brokered for its power will determine if it will get to develop all 113 megawatts contracted by SCE.

Another almost bankable project is Cape Wind, which is waiting for Massachusetts’s regulators to approve their PPA with National Grid. As we reported, a decision by the state’s Department of Public Utilities (DPUC) is expected at the latest next week. The project could cost as much as $2.3 billion to develop and banks have been waiting on the sidelines for the DPUC to complete its review before committing to the project. The DPUC’s eventual greenlight is therefore crucial. As a Cape Wind official told us, a DPUC approval would in effect kick start funding negotiations with banks and other investors.

VC and PE Watch

Petra Solar, the South Plainfield, N.J., solar technology developer, told G.E.R. that it was considering various options to raise capital including a Series C round of funding or even a buyout.

A fund managed by Hanover, N.H.-based New Energy Capital able to generate up to 4.5 MW of electricity. The energy project is located on sites jointly owned by the University of California San Diego and the City of San Diego.

CoolPlanetBioFuels, a Camarillo, Calif. biomass startup secured $8 million from North Bridge Venture Partners and GE Energy Financial Services.

Greenleaf Power, a Sacramento, Calif. owner and operator of biomass power plants, backed by energy-focused private equity firm Denham Capital, acquired a 28-megawatt biomass power plant in Scotia, Calif.

GE and a group of leading venture capital funds committed to collectively invest $55 million in power grid technology companies.

Rambling

GM is back! At least, it’s back in the public markets. A little more than a year after it nearly flat lined, then was saved by a controversial government takeover, the Detroit automobile maker , potentially raising some $22.8 billion. Anchoring the communications around the share sale is the Chevy Volt, the green electric car the company spent years developing. GM is hoping the Volt will fuel its rebirth as a leaner, greener and innovative car maker — all traits it sorely lacked in the SUV laden years that eventually led to a government takeover.

Photo: KJW59, flickr

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