The eight-strong banking group that had been assembled to finance Avangrid Renewables' and Copenhagen Infrastructure Partners' 800 MW Vineyard offshore wind farm is waiting in the wings as federal permitting issues threaten to push back commercial operations dates and alter tax equity investments.
Bank of America Merrill Lynch, BBVA, BNP Paribas, Crédit Agricole, JP Morgan, Natixis, Natwest and the sponsors’ financial adviser Santander were ready with a $2 billion, construction-plus-10 year loan package.
Between 15 and 20 lenders had submitted debt proposals in February (PFR, 2/11).
Meanwhile, JP Morgan and BAML had been lined up by CCA Group as the tax equity investors for America’s first large-scale offshore wind deployment, 14 miles off the coast of Massachusetts.
Then came an announcement from U.S. Interior Department secretary David Bernhardt on Aug. 9, stating that the Bureau of Ocean Energy Management would be extending the mandatory environmental review and potentially delaying construction-start past the end of 2019, which has given financiers cause to rethink their strategy.
The first 400 MW phase had been planned to come online in 2021 with the second 400 MW set for completion by 2022—they were projected to capture 24% and 18% of the investment tax credit respectively.
If BOEM does not approve the Final Environmental Impact Statement by September and Vineyard cannot begin construction by December, the first phase will not be eligible for the 24% ITC (PFR, 8/7/18).
“I don’t think anyone knows what BOEM’s motivations are,” says a source working on the deal. “I have been told it’s not political—that there’s no fundamental issue with offshore wind from this administration.”
Parties to the project finance deal were on a somber Aug. 13 conference call to take stock of the decision and chart a course forward. The sponsors’ plans to make up a potential shortfall in tax equity could not be determined.
According to Avangrid marketing materials circulated in June, 56% of the construction cost will be funded through construction debt, with 28% coming from turbine supply financing—guaranteed by the sponsors—and the remaining 16% delivered through sponsor equity.
Given that MHI Vestas will supply the 9.5 MW turbines (PFR, 1/15), Danish export credit agency EKF has been involved in financing discussions (PFR, 3/20).
While the 56% construction debt is expected to flip into a term loan post-completion, a 25% tax equity piece was penciled to take out the turbine finance with cash equity projected to rise to 19%. The project finance structure in a lower ITC scenario is still being decided.
“Both sponsors are committed to the project and intend to build it. It’s a question of ‘when, not if’," says the executive. "To the extent rejiggering needs to be done to a fill a hole economically, the sponsors will figure that out.”
Vineyard has received Massachusetts Energy Facility Siting Board approval, regional development review permits and secured over 80% of its supply agreements.
Sif Group will arrange monopile foundations, Jan De Dull Group will provide array cables, Windar Renovables will deliver transition pieces, offshore cabling would come from Prysmian Group, and Bladt Industries would handle the offshore substation.