How do you finance a wind farm in South America?

When you mention wind farms, most Dutch people think of the North Sea, where giant wind turbines at various locations off the coast generate renewable energy day and night. ABN AMRO is involved as a lender in many of these projects, with the total investment sometimes running into the billions of euros. One of these is the Gemini Offshore Wind Park, located about 60 km off the coast of the West Frisian island of Schiermonnikoog. The wind turbines here provide some 785,000 households with power. But as Peter Boogers, Head of ABN AMRO’s Global Energy Clients, is quick to point out, the bank’s activities extend far beyond the Dutch coastline. “We leverage our expertise for clients all over the world,” he says, “in projects in North America, Asia and Australia, but also in South American countries like Brazil and Chile.”

Assessing risk

The bank needs that expertise for financing wind farms and has built up a strong reputation in the sector as a financer of large offshore and onshore wind farms in different jurisdictions. This expertise is embedded in the sector teams of Energy and Utilities and the product teams of Structured Finance, in particular in the Project Finance team. “Each stage of development has its own level of risk,” Boogers explains. “During construction, for example, errors can immediately lead to additional costs and project delays.” It’s important to know how the wind turbines are planted in the ground, but it doesn’t end there. Experts also analyse how they’re connected to the existing energy infrastructure, or the grid, which can have an impact on the construction phase. “Can the grid handle the additional power?” he continues. “It’s an important question, especially in countries with outdated or underdeveloped infrastructure.” The operations phase also poses a risk, albeit a lesser one. “Once the wind turbines are operational,” says Boogers, “there’s more certainty about the energy yield and, consequently, the cash flow. But sometimes it turns out that the wind on-site is at variance with initial projections. That’s why quality wind data are crucial. Ultimately, the amount of energy generated by the wind turbines, in combination with expected energy prices and any possible subsidies, will justify the investment and be a deciding factor when we set the terms of repayment.”

Experience in South America

The bank’s experience and expertise are essential when it comes to advising and providing financing solutions to its wind farm clients, and ABN AMRO specialists are closely involved in the development of farms in Brazil and Chile. Based in São Paulo, Silvana Bianco is Head of ABN AMRO’s Energy Clients & Transportation Clients South America entity and oversees these projects for clients. She says, “One wind farm in Chile has been financed by ABN AMRO, and we’re involved in the financing of four others in Brazil. These projects help meet the growing energy needs of these countries. Before the bank signs a loan agreement with a client, so much analysis and assessment have already taken place,” Bianco explains. “We look at the site, wind studies and the power network. A knowledge of existing legislation and the political climate is also important. Some countries offer substantial wind energy subsidies, but those could quickly evaporate if the political situation changes. We have to be mindful of all these factors.” The experience the bank has gained in such relatively stable countries as Brazil and Chile will be applied to future projects in the region.

Replacing coal

ABN AMRO also analyses what the effect the various projects will have on the energy transition – the extent to which renewable energy sources in a given country are replacing fossil energy sources. “That varies considerably from one country to the other,” says Bianco. “Brazil has already made a lot of progress in renewable energy sources. In fact, over half the country’s electricity now comes from sources like hydropower, solar and wind energy. With these new wind farms, the country is preparing for the increased energy demand. The picture is very different in Chile, where a number of coal plants are used to meet the country’s energy needs.” Obviously, burning coal generates high levels of carbon dioxide, and coal extraction poses a serious threat to the landscape. ABN AMRO’s policy states that it will not fund any new coal-fired power plants. By contrast, Bianco emphasises that “its investment in wind farms throughout the world is helping to make the energy transition a reality”.

Global energy bank

ABN AMRO sees the development of renewable energy sources as an important way to make the energy mix sustainable and to meet the goals of the Paris climate accord. Wind energy is an ideal source of electricity for households. “In the short term, there will be a strong need for both fossil fuels and renewable energy,” says Boogers. “Since the world population is growing quickly and people are earning more, energy consumption will be increasing in absolute terms – particularly in emerging markets. The proportion of renewable energy sources is growing, too, but fossil fuels will still be needed to meet the global energy demand. As a global energy bank, ABN AMRO must use its expertise relating to all the components making up the energy mix while working together with our clients to contribute to the energy transition.”