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Got Bonds?

MidAmerican’s Topaz solar financing proves that bond investors have an appetite for green investments.

Fortnightly - June 2012


Size Matters

If capital market financing does indeed become more mainstream in the renewable energy space, will there be a limit to how small the project can be?

“I think anything under $100 million starts to be too small for the public bond markets, but we do see smaller deals getting done in the private market. I would say $50 million is the absolute cut-off for a private bond deal,” Howells says.

Obviously the larger the project size, the greater amount of debt offered to investors. That was certainly a key to the Topaz offering. As a result, developers might attempt to gather a handful of smaller projects—perhaps with the same equipment supplier and EPC contractor—and finance the projects as a single package.

Whether that will happen depends on markets and policy trends. Navigant projects that without a PTC extension, the U.S. wind market will shrink to 2 GW in 2013, down from more than 8 GW in 2012. At the same time, it estimates the U.S. PV utility scale market will grow from about 700 MW in 2011 to about 2,500 MW in 2016, with total capital requirements of $3 to $4 billion in 2012 alone. Though investor appetite for solar bonds appears to be strong, it’s still early.

“Based on what we’ve seen and the financial metrics the banks have discussed with us, there are a number of [$100 million-plus] projects in the works this year, and developers are looking at their financing options,” D’Olier-Lees says. “They have signed PPAs in place and we think they will probably lean towards a bond issue. But of course nothing is done until it’s done.”