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BOX 4.1 Financing a wind farm Financing is a key element in the early stages of a wind energy project, particularly in terms of the services that are required. Both fossil fuel- and wind-powered energy-generating projects require significant upfront investment; however, because operating costs for wind projects are so much lower, properly financing the construction of the wind project becomes relatively more important.a It is the project developer who secures the financing, usually in the form of a construction loan that converts to long-term project financing.b There are many variations of financing structures in the wind energy sector.c Larger developers are able to issue bonds to finance their projects, while smaller developers may require bank funding. The ability to issue bonds gives large developers a competitive edge, as bonds typically require lower interest rates than bank loans do.d Like developers, some OEMs offer financing. It is not clear how OEM financing compares to other third-party funding, but it is likely that they are able to use financing as a competitive advantage for their turbine sales, by offering favorable terms to developers as an incentive to use their equipment.e Before the financial crisis, some OEMs offered financing for all wind projects. Now, most are more fiscally conservative and finance only projects that use their turbines.f Finally, the role of export credit agencies has risen in emerging markets where financing for wind projects might not be readily available.g For instance, in 2011, the Export Import Bank of the United States (Ex-Im Bank) provided financing for a wind farm in Honduras and the subsequent expansion of the project, which used Gamesa turbines produced in the United States.h In addition to the financial implications, the source of funding can also drive the development process. Typically, the more a project relies on third-party finance, the more outside verification is needed to demonstrate the economic benefit of the wind farm. Banks typically want studies from third-party consulting or geotechnical firms to demonstrate the economic benefit of a project, rather than accepting the project developer’s assurances.i _____________ a Harper, Karcher, and Bolinger, Wind Project Financing Structures, September 2007, i. b Industry representative, interview by USITC staff, Washington, DC, January 23, 2013. c For example, see “Description of Seven Financing Structures,” in Harper, Karcher, and Bolinger, Wind Project Financing Structures, September 2007, ii. d Industry representative, interview by USITC staff, Washington, DC, January 23, 2013; industry representative, telephone interview by USITC staff, January 25, 2013. e Industry representative, interview by USITC staff, Washington, DC, January 23, 2013. f Industry representative, telephone interview with USITC staff, January 18, 2013. g O’Brian, “Wind Projects Look to Export Finance As New Markets Open,” February 27, 2013. h Ex-Im Bank, “U.S. Exports Will Expand Wind Farm in Honduras,” March 5, 2013. i Industry representative, interview by USITC staff, Washington, DC, January 23, 2013. wind farm is relatively quick, generally taking less than a year, compared to the lengthy process of development, which can last three to four years. Wind projects typically use EPC contracts, in which a single firm is responsible for providing the necessary design, engineering, procurement, construction, commissioning, and testing.22 Although EPC contractors compete primarily on price, project developers also weigh a number of other factors, including technical quality, previous experience, availability, safety, and whether the construction firm accepts the developer’s financing.23 As noted earlier, once selected, the EPC contractors―typically engineering and 22 DLA Piper, “EPC Contracts in the Power Sector,” 2011, 1, 4; Massy, “Banks Opting for Lazy Route Could Increase Risk,” October 17, 2010. 23 Industry representative, telephone interview by USITC staff, January 30, 2013. 4-6PDF Image | Renewable Energy and Related Services: Recent Developments
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