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Innovative funding models alleviate project bankability

Emerging markets are increasingly looking to renewable energy to fuel their growth but securing competitive financing solutions tailored to their local context remains a challenge.

Through a structured finance solution, wind turbine manufacturer Vestas assisted Vietnamese developer, Tan Hoan Cau Joint Stock Corporation (THC), to secure foreign-denominated project funding that made possible the 33MW Huong Linh 1 Wind Farm in late 2018.

The company was instrumental in coordinating with the involved parties – which included the Danish Export Credit Agency (EKF), a leading offshore bank, to identify the challenges and develop a workable solution.

By having a thorough market and customer understanding, Vestas was able to lead a collaborative effort in developing an innovative solution that featured structuring a local bank guarantee to the offshore bank, who in turn received a further guarantee from EKF.

The result was a better business case and return on investment for THC, thus creating a more bankable project with a lower cost of debt, for a longer term and higher amount of borrowing than would have been otherwise achievable. Read more: Finance needed to close global energy access gaps, still falling short

“Achieving the financial close for this deal with EKF, the Danish Export Credit Agency, is a significant milestone in Vietnam’s wind industry. With Vestas’ proven track record in the Asia Pacific region and its ability to provide customised solutions, we are glad they connected us with the right partners to finance our project”, said Nguyen Trung Thanh, Deputy Director of Tan Hoan Cau Joint Stock Company.

Customised financing solutions

“Securing this order underlines Vestas’ expertise in Structured Finance to offer our customers customised financing solutions based on their specific requirements. This project also demonstrates THC’s continuous confidence in us since our cooperation in Huong Linh 2 Wind Farm which started generating clean energy in September 2017”, said Clive Turton, President of Vestas Asia Pacific.

The Huong Linh 1 Wind Farm is the first project of this nature in Vietnam.

It is envisaged that this unique financing concept will help to open up a new path for financing wind projects in Vietnam and support the Vietnamese government to achieve its targets for renewable energy generation.

Furthermore, this solution works to incentivise foreign investment into Vietnam, allowing for further Export Credit Agency support for future renewable energy project.

Although this was a solution for a specific Vietnamese project, the solution can – with some modifications – easily be applied to other developing/emerging wind energy markets.

The Huong Linh 1 Wind Farm achieved financial close in December of 2018, with turbine installation expected to commence around the end of first quarter of 2019.

This article was originally published on Green Building Africa and is republished with permission with minor editorial changes.