Ineffable concepts: bankability of a wind farm project

Wind energy, as probably all niche sector, is full of acronyms and hard to define terms.

One of them is the “bankability” of an EPC project.

In a nutshell, it express the idea that the lenders are fine with the development and are ready to put on the table a relevant percentage of the money (easily up to 70% or more), normally with a consortium of financial institutions.

In this post we will focus on the “Capex” part of the problem: we will ignore all analysis related to the expected cash inflow (PPA, wind data, financial models, etc.) and Opex (basically, Operation & Maintenance of the turbines and substation for 20 years).

In a EPC project the money will normally flow from the banks through the developer to one or more subcontractors.

The banks will check several different features of the contracts between the developer and the subcontractor, being  the most important point a fixed completion date and price. To reach this target, they will try to minimize the ability of the subcontractors to claim extensions of time and additional costs.

If unable to reach completion on time, the subcontractor(s) will have to pay delay liquidated damages (DLDs). These DLDs are normally expressed as “dollars per day of delay”. The amount is obviously project specific, but is usually several thousand USD per day and I’ve seen project with over 50K USD/day. Obviously banks likes high DLDs.

Another type of liability is the performance liquidated damages (“PLDs”) that the contractor will have to pay if it fails to meet the performance guarantees. These are usually linked to power curve and an availability guarantee for the whole wind farm, but can also (and do often) include other concepts more directly related to the civil and electrical works of the BoP.

Banks also like large caps on liability – being “uncapped” the best scenario for the lenders (which never happen in the real word).

Connected to these concepts there is the need for the lenders (and the project sponsor) to be able to get money from non performing subcontractors. Therefore, some kind of security (often in  the form of a Parent Company Guarantee) is requested to the main EPC contractor.

Bank also appreciate proven technologies, and like to pay for wind turbine with extensive track record.

In general, a project  may become “bankable” even in a situation where the bank is not 100% satisfied if the sponsor (the wind farm developer, or the shareholders behind) are ready to put a bigger percentage of money, lowering the risk profile for the bank.

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