You plan to start a sustainable energy project as a business, for example by generating energy from wind, solar, geothermal, or biomass, or by investing in recycling, batteries, or charging stations. A great initiative, which at the same time requires a substantial investment. That goes for the time and effort you put into it, as well as for the costs. These go (considerably) before the benefits.
Project financing can help. In fact, this type of financing is for an expected future cash flow. Because the financiers must be repaid from that expected future cash flow of the project, they will place appropriate conditions on the various agreements entered into as part of the project. Project financing thus differs from regular forms of financing. Onno Hakvoort and Bart Wilton are our specialists in this area, advising both entrepreneurs and financiers.
What needs to be done?
With a corporate renewable energy project, there is a lot to do. You should think about:
- An agreement with a contractor for the construction of the facilities
- The irrevocable permits to carry out construction
- Agreements with suppliers and customers
- As appropriate: long-term purchase contracts for generated renewable energy (such as Power Purchase Agreements)
That means you have to make arrangements with many different parties. Moreover, this is still separate from financing. While financiers do look at the agreements you make, and review them to assess the risk of project financing.
Applying for SDE subsidy
In many cases, you can apply for SDE subsidy to generate sustainable energy on a business basis. You can do this on the website of the Rijksdienst voor Ondernemend Nederland. Is the subsidy granted? Then you will receive compensation during the set period (usually 15 years), for example per kilowatt hour of electricity generated.
Your application for an SDE subsidy must meet a number of conditions. Moreover, additional requirements apply after the subsidy has been granted. For example, it is important that construction work is started within the specified period, as well as that the project is completed on time. Banks and other financiers, in turn, require the irrevocable provision of the SDE subsidy before providing the project financing. Specifically, the year-long payment per generated kilowatt hour is an important piece of additional security for the project financier. Carefulness is the starting point here; Bart and Onno can provide excellent guidance in this process.
Project financing: combination of equity and debt capital
You normally finance a renewable energy project with a combination of equity and debt. The required contribution of equity depends on the risks associated with the project. If there is more risk, you will be asked to contribute a larger portion of equity.
Tip: financiers assess the risk more favorably if you sign the right contracts with contractors, suppliers and buyers. In addition, it helps if the permits have already been granted, as well as the SDE subsidy for the project.
To attract loan capital, you must be able to demonstrate that you can bear the interest and repayment obligations in both the short and long term. The underlying (financial) documentation plays an important role here.
Legaltree helps: we have both the expertise and the experience
Project financing is complex, both its application to the financier and what must be arranged around it. Moreover, the complexity increases quickly if, for example, a contract with a contractor, supplier or buyer turns out to be flawed. Suppose the financier rejects the contract, then you have to renegotiate. As a result, you may incur more costs, and the funder may backtrack on the earlier proposal because of the increased costs.
Avoid falling from one thing into another by getting it right from the start. At Legaltree you choose our experienced experts Bart Wilton and Onno Hakvoort. They combine the expertise and experience needed to guide you through this.
At Legaltree, we are happy to assist you in drafting and negotiating the relevant credit documentation, in reviewing the various agreements or with a so-calledbankability due diligence. With this we assess the extent to which the agreements meet the conditions that a project financier will (probably) impose. Are adjustments needed on this basis? If so, we can provide concrete advice.
The first blow is worth a dime
We know that it is undesirable to have to modify a negotiated agreement. This can also affect the relationship with the other party. It can also lead to additional costs for legal advice, and may provide an incentive for the other party to want to review price agreements.
That’s why we like to look ‘high over’ with you, right from the start.
This way you make a good first impression with project financing, both in agreements to contractors, suppliers and buyers and to the financier. It is an investment in your project financing, which pays off in saved (extra) legal costs, in saved time preventing delays and in saved unnecessary frustrations.
Every project financing is customized. This is precisely why it is wise to involve experienced lawyers early on. We are happy to look with you, can monitor and advise in the way you wish.
Wondering what 5 characteristics of a project finance are often overlooked? Then click here.
If you have other questions about financing, either regular or for a project, please do not hesitate to contact Onno Hakvoort or Bart Wilton.
