Are you planning to launch a sustainable energy venture, such as generating power from wind, solar, geothermal, or biomass sources, or investing in recycling, battery storage, or EV charging infrastructure? It’s a great initiative, but one that demands a significant investment—both in terms of effort and capital. Typically, the costs are incurred long before the project begins to yield returns.
Project financing can help. This financing approach is structured around anticipated future cash flows, meaning that lenders expect to be repaid from the project’s own generated revenue. Consequently, they will require specific conditions in the various agreements involved. This approach to financing differs from traditional methods. Onno Hakvoort and Bart Wilton, our specialists in this field, offer expert guidance to both entrepreneurs and financiers.
What needs to be done?
A renewable energy project entails numerous steps, including:
- Contracting with a builder to construct the facilities
- Securing irrevocable permits for the construction phase
- Arranging contracts with suppliers and customers
- When applicable, establishing long-term purchase agreements for the renewable energy generated (such as Power Purchase Agreements or PPAs)
Managing these agreements with various parties is essential and runs parallel to securing financing. Lenders will closely review these agreements, assessing them to evaluate the project’s financing risk.
Applying for SDE+ subsidy
In many cases, you may be eligible for the SDE+ subsidy to support the production of renewable energy. Applications are submitted via the website of the Netherlands Enterprise Agency. Upon approval, the subsidy provides compensation over a specified period (typically 15 years) for each kilowatt hour of generated electricity.
SDE+ applications must meet specific conditions, and further requirements apply after approval. For instance, it’s crucial to start construction within the designated timeframe and complete the project punctually. Banks and other financiers usually require proof of the irrevocable SDE+ subsidy allocation before advancing project financing. This long-term subsidy security per kilowatt hour generated offers financiers a crucial layer of assurance. At Legaltree, Bart and Onno can expertly guide you through this careful process.
Project financing: combination of equity and debt
Renewable energy projects are typically financed through a combination of equity and debt. The proportion of equity required will depend on the project’s risk profile; the higher the risk, the greater the equity contribution needed.
Tip: Financiers often view the risk more favorably when solid contracts are in place with contractors, suppliers, and buyers, and when all necessary permits and subsidies are secured in advance.
To attract debt financing, you must demonstrate your ability to meet both interest and principal repayments in the short and long term. Comprehensive financial documentation is vital here.
Legaltree: Expertise and Experience in Project Finance
Project financing is inherently complex, and this complexity increases when issues arise with contracts involving contractors, suppliers, or customers. If a financier deems a contract insufficient, renegotiation may be necessary, incurring additional costs and potentially causing the financier to reconsider the initial terms.
Our goal is to prevent such complications by getting it right from the outset. At Legaltree, you’ll work with our seasoned experts, Bart Wilton and Onno Hakvoort, who bring the experience and skills necessary to navigate this process smoothly.
At Legaltree, we’re ready to assist with drafting and negotiating the required credit documentation, evaluating contracts, or conducting a ‘bankability due diligence’ to assess whether agreements align with a project financier’s likely requirements. If adjustments are advisable, we can provide practical recommendations.
Getting It Right the First Time
Negotiated agreements are best left unaltered to avoid potential disruptions to business relationships, extra legal expenses, or opportunities for other parties to revisit price terms.
We take a “high-level view” approach with you from the start. This way, you make an optimal first impression with financiers, contractors, suppliers, and buyers. A well-prepared approach to project finance is an investment that saves on unnecessary legal expenses, reduces delays, and minimizes frustration.
Every project financing is unique. This is precisely why engaging experienced lawyers early in the process is prudent. We’re here to provide the guidance you need, tailored to your preferences.
Curious about the 5 key characteristics of project financing often overlooked? Click here.
