Yesterday Nebraska-based renewable energy developer Tenaska revealed that it has closed a $400 million bond refinancing deal for the 150 MW Imperial Solar Energy Center West plant, located in Southern California’s Imperial Valley. The project has been supplying electricity to utility San Diego Gas & Electric Company for the last seventeen months, officially coming online in April 2016.
Despite MidAmerican floating a billion-dollar bond for a massive solar project in 2013, bonds have been a less common means of financing solar projects. Bloomberg New Energy Finance (BNEF) Senior Analyst Nathan Serota says that when the Imperial Solar Energy Center West project was originally financed in 2014, bank financing loans for both construction and term debt had been readily available at low rates.
Serota notes that this was due to “an overall low interest rate environment, as well as competition among project finance lenders to serve developers, which has resulted in available, cheap financing for projects”.
“The upshot is that this has reduced the incentive to issue bonds instead of taking out debt from a bank,” Serota told pv magazine.
However, now the tide appears to be turning, with the federal reserve hiking interest rates, which he says is making bond issues increasingly attractive. But there are limitations, and not every project is a candidate for bind refinancing.
“In order to make the transaction economics of doing a big project bond issuance work, you need assets of a sufficient scale, and they need to be at or near completion,” notes Serota. He also observes that such instruments are much more likely to be used for refinancing solar projects than supporting the construction of new ones.
“As the installed base of projects in the U.S., particularly utility-scale projects have grown, the bank loans they initially took out have become candidates to be refinanced through the bond market.”
Another sweetener for bond deals is the popularity of green bonds, and the bond floated by Tenaska was endorsed by Sustainalytics, following the guidance provided by established green bond principles.
“There is strong demand from institutional investors in liquid fixed-income products that meet their criteria for ESG, assuming that these are investment grade and at a sufficient deal size,” states Serota.