Financing Wind Farms
In Ireland to date, most wind farms have typically been installed in upland remote locations. This can increase the costs of the proposal, but the higher wind speeds achievable at these locations means higher sales of electricity can be generated.
Ballpark figures for wind farm development would be in the region of €1.6 to €2m, so a 5MW wind farm would expect to cost in the region of €7-10 million. The figure represents the total project cost and includes the feasibility studies, EIS and planning application, civil and electrical engineering works, grid connection costs, plus all operating, maintenance and decommissioning costs.
Return on Investment
Where a wind farm has been sensitively situated in an area of suitable wind resource, it is fair to expect a competitive return on the investment costs. The projects running costs are much lower than those for similar sized conventional fuel projects because there are no fuel costs involved. Most of the cost involved is for the procurement of the hardware and the necessary work associated with getting the project up and running.
Technical requirements for wind energy projects
Obviously not all sites are suitable for wind farms. In order to payback the initial investment, the project must generate adequate electricity to sell to the electrical utility company.
The wind profile at the site will therefore determine the feasibility of the project and under previous market mechanisms only sites with wind speeds in excess of approximately 7.5 metres per second (m/s) have proved viable. Such windy sites tend to be in exposed regions (mountain tops or coastal areas) and can conflict with other land uses and visual amenities. Good sites should not detrimentally impact upon the local or wider vicinity of the wind farm.
Support mechanisms (feed-in tariffs) plus lower prices for wind turbines and equipment will encourage wind farming in areas of lower wind speeds. The costs incurred with the procedure for grid connection vary with the size of the project and the type of connection (whether connected to the distribution network = 38kV or the transmission network =110kV). Therefore, a nearby grid access point is advantageous to the financing of a wind farm project.
The adoption of a well-designed predictable regulatory regime will facilitate the wind industry by allowing long term investment in such projects.
What will financiers look for?
Financiers are aware of the quality and potential growth dynamic of the Irish wind industry. Institutions that provide funding for wind farm projects employ experts from the sector and are aware of the advances in technology. They recognize that wind farm projects can be relatively simple to manage and can offer a safe investment opportunity.
When entering into a project the financiers will look for:
- Planning permission
- Grid connection agreement and dates
- Site wind regime assessment
- Power purchase agreement
- Experienced development team
- Project costings
- Proof of site title or land rights
- 15 year cash flows
- CER generating and construction licence
- Details of other funding
What will financiers offer?
When financiers are satisfied that the project is feasible they will be able to provide the developer with the agreed capital necessary to procure and commission the wind farm and its associated hardware.
Financiers will facilitate debt funding wind farms by:
- Provide letters of credit
- Funding the construction phase
- Debt funding up to 85% of the project costs (recent reports suggest 75% is now more likely)
- Equity funding
- Making funding available for Venture Capital and individual investors
- Supporting BES funding
- Arrange any planning/decommissioning bonds
Typical Project Costs Breakdown
- Wind Turbine Procurement 70%
- Civil Engineering Works 11%
- Electrical Infrastructure & Commissioning 7%
- Electrical Network Connection 5%
- Project Development and O&M Costs 7 %