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Q7 wind farm wins Euromoney Deal of the Year Award

13 March 2007

Haarlem, the Netherlands, 13 March 2007. On 10 March the Dutch Q7 wind farm, which is being built in the North Sea, won the prestigious ‘Deal of the Year Award’, an initiative of Euromoney in cooperation with Project Finance Magazine. Q7 was the 2006 winner in the ‘Europe Renewable Offshore Wind’ category because of its outstanding and unique financial construction, which has an impact on the offshore wind industry in particular, and on the renewable energy sector as a whole.

Q7 is currently being built 23 kilometres off the coast of IJmuiden in the Netherlands. The construction phase is ahead of schedule, with 42 mono piles already in place.

First ever wind farm financed by banks

Q7 is unique because financing is being provided on a non-recourse basis by a group of international banks. This means that the leading banks involved – Dexia, Rabobank and BNP Paribas – rely solely on the project to generate the revenues needed to service the interest costs and principal repayment of the financing with very limited additional sponsoring support. This is an important milestone in the development of offshore wind worldwide.

Full construction risk

Another unique aspect is that the financing also covers the construction phase of the wind farm. This has resolved an issue which has bogged down a number of other similar projects in Europe, where contractors have been wary of providing fully wrapped Engineering, Procurement and Construction (EPC) contracts, normally a standard requirement of project finance and sponsors.

Dirk Berkhout, board member of Econcern, a shareholder in Q7: “Q7 is based on proven technology (Vestas V-80) and an EPC contract with a renowned international offshore contractor (Van Oord group). Rabo was involved at the outset and later joined by Dexia, in a combination that is beyond doubt one of the cornerstones of the project. Both banks are really ‘putting their money where their mouth is’ – they are not only proving that they are taking climate change seriously, but also that they can earn money.”

Toon Meijers of ENECO Energie, also a shareholder in Q7: “Without bank loans we would not have got involved in this project. Although the negotiations on the various agreements were long and tough, the final result is a package that balances the risks and rewards for all those involved: sponsors, contractors and banks. Q7 demonstrates that limited recourse financing is possible for offshore wind and should help boost the development of similar projects.”

Jaap Groenhof, Energy Investment Holding: “Q7 appears to be the financial engineering template for getting funding until lenders become more comfortable with the relatively new offshore technology risk.”

A new structured finance template for offshore wind

The financing structure includes a number of features that lowers the risks associated with the construction and long-term operation of wind turbines in the North Sea. These include:

  • the availability of a contingent facility to cover potential cost overruns or delays. If it is required, this will be shared 50/50 between the project company and the banks, so the banks fully share the construction risk
  • cash sweep mechanisms that, to a certain extent, require additional debt service, which as a consequence will shorten the tenure of the senior debt
  • tailored availability guarantees under the operating contract with Vestas, allowing debt service to continue even during periods when the availability is lower than expected. Nevertheless, the lenders are clearly as confident as Vestas about the technology and have agreed to a higher level of availability in the financial model than that guaranteed by Vestas, thus allowing for higher debt levels
  • a “cradle to grave” insurance policy reducing the lenders’ and sponsors’ risks resulting from gaps in the various contracting arrangements, and
  • optimizing the available grants and tax facilities for the project.

The financial structure

In addition to the sponsors’ equity, a significant part of the project is financed by loans from Rabo, Dexia and BNP Paribas acting as Mandated Lead Arrangers (MLA). Eksport Kredit Fonden, the Danish export credit agency supported the export of the Vestas turbines by also participating in the financing. The debt financing for the project includes a €189 million, 11-year, long-term project finance facility as well as a €30 million standby facility to cover contingencies. Included in the facilities are Letters of Credit in favour of the contractors Vestas and Van Oord. Rabobank is the Hedging Agent, Security Agent and Facility Agent for the transaction. Additionally, Rabo provided a junior loan to fund the debt service reserve account upon completion.