Gregory Hutton, managing director and head of project finance for the Americas in Rabobank’s New York office, discusses the renewables landscape, project finance pricing and deal flow and the impact of the Suniva trade case in the first part of an exclusive interview with PFR reporter Fotios Tsarouhis.
PFR: When you became head, Rabobank’s 12-person team was overseeing $2.5 billion in assets. Has the team grown or shrunk and how much is under management today?
The team is the exact same size. When I moved up into the head position there was an open spot and we hired an associate to buttress the deal teams. It’s the same group of senior folks out chasing deals and executing transactions. As for the portfolio size, it’s around the same amount. There are always repayments and fluctuations so it hovers around the $2 billion mark in North American wind, solar and biomass assets now and we’re hoping to add more. We’re definitely in a growth mode.
There are no plans immediately to get into renewable energy M&A. Rabobank as a whole is a Dutch cooperative focused on the food and agriculture sector globally. The project finance group is linked to the rest of the organization through the very strong, embedded sustainability mission of the bank. That dictates the team’s focus here in North America. As a team in this region, we focus on two different things, broadly. One is the renewables sector—utility-scale and distributed wind, solar and biomass. Another goal is applying project finance structures for the food and agriculture clients of the bank, so it’s not necessarily renewable energy, though it can mean rooftop solar for a food distribution company, for example, or other large corporate that we would finance.
PFR: Do any of the food and agriculture companies have generation assets onsite?
Some of them could. We see food and agricultural waste-linked energy production as an area that Rabobank is uniquely positioned to develop given the bank’s focus. We see projects on the horizon in which our corporate food clients sign agreements with projects to dispose of their food waste in digesters that produce electricity or biogas to sell to a third party. On the agricultural waste side, large dairies, for example, face increasing pressures to dispose of their manure, either because of regulation or odor control. This waste can also fuel onsite or centralized anaerobic digesters. We are beginning to see adequate scale in these projects as well as more sophisticated developers, capital, and technology providers enter this sector because there is significant opportunity in North America.
PFR: Where is project finance pricing heading as we head toward the final quarter of 2017?
We’ve generally seen pricing going down and I think that’s a function of a number of things. There’s a lot of competition in general, a lot of stability in the bank market—not necessarily a flood of new entrants, but it’s been stably growing I would say. Pricing recently has also been a function of the deal flow in the beginning of the year. As you know, deal flow was pretty scarce in renewable energy and I think that’s partially a result of the larger builds in the prior couple of years. The renewables-focused banks had very good years in 2015 and 2016 because developers pushed their pipelines forward in anticipation of a [production tax credit] or an [investment tax credit] cliff at that time. Now they are nurturing their project pipeline and getting projects ready for financing. We’re starting to see a definite uptick in activity now as projects reach the construction stage and the market would like to close those deals by the end of the year so I think that drives a certain competition.
PFR: Is there pushback from banks in response the downward pressure on pricing?
Pricing has been going down over the last couple of years generally but this is partially offset by the fact that there aren’t many standard deals now. Banks are seeing new, unique aspects, like different offtakers, different types of structures, back-leverage, for example. Not every bank can do every deal so you do have transactions where the potential bank group is limited and that highly competitive dynamic isn’t as prevalent as in a straightforward deal.
PFR: What factors do you see contributing to deal flow?
One is the attractiveness of wind to utility buyers of projects and the positioning of sponsors in serving that demand in the market. One of broad trends in renewables is this diversification of offtakers, which has been well discussed—the corporate offtakers, community choice aggregators, energy hedges. The analysis the banks have to do with each deal is very different, it’s no longer just “OK, what’s the rating of the utility offtaker and here we go.” These deals are much less standardized now.
PFR: Are people still motivated by the eventual end of the renewables tax credits?
When I think about what we’re seeing in deal flow now there are multiple factors. Besides a few large utility-scale deals closed earlier this year, with solar there has been a pause due to uncertainty with the [Suniva] trade case. We do see an uptick in large wind deals where you have purchasers using safe-harbored equipment to preserve that full PTC value. So not necessarily a rush at the moment, but that’s most of the deal flow we’re seeing.
PFR: How is the market reacting to the saga of the Suniva trade case?
Many developer partners report that panels have been very hard to come by this year and that there has been postponing of construction schedules and increased costs and stockpiling of panels—all these short-term effects. But I also understand that the market is resilient and flexible. I’ve heard suggestions of manufacturing cells here in the U.S. and shipping them overseas for assembly and then reimporting them back in. This may only increase the price a little bit and not up to the floor that’s proposed by the case.
For the second part of this exclusive interview, click here.
