Convergence of Project Finance and Structured Finance in the Wind Power Sector

Abstract

Over the past 12 months wind power has emerged from the periphery of global energy policy to become a viable alternative to coal-fired and other traditional energy sources. The shear volume of capital required to meet the global growth projections for wind energy suggests that developers and power producers ultimately will be required to go to the capital markets for funding. Over the past 24 months, there have been three instances of wind power transactions financed through the issuance of rated debt securities placed with institutional investors. While drawing on certain structural features and rating methodologies found in the structured asset-backed securities market, these transactions have more in common with the commercial-bank-funded project financings. It remains to be seen whether the cash flows from wind projects can be structured in ways that will take advantage of more of the structural features of the ABS market, and whether the employment of those structuring techniques can result in higher-rated tranches, higher advance rates, and lower all-in financing costs than are currently available to finance the needs of the growing global wind power economy.