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Drilling for Dollars: prominent expansion in Geothermal Finance
Geothermal capacity additions are on track to peak 100 MW in 2012, making this year one of the best for geothermal deployment in the last ten years. This could be a tentative sign that conditions have been advancing for geothermal investment (traditionally, investment has been one of the primary obstacles to the technology’s broader adoption). Projects approaching online this year have demonstrated some creativity in leveraging economic possibilities. Here are some highlights.
Commercial Lenders may be Revisiting Geothermal Asset investment
One especially notable project for geothermal investment was the 49.9-MW John L. Featherstone vegetation (formerly Hudson Ranch I), which started financial procedure in the Salton ocean, California locality in March. According to Project investment magazine, Featherstone was the first utility-scale geothermal facility in the United States since the 1980s to protected debt for building finance from financial lenders, a class of investor that has typically shied away from geothermal task finance. The liability deal featured a association of banks, and amounted to about $300 million, about 75% of task costs. It is organised as a five-year, mini-perm, which equity holders plan to refinance in the capital markets.
While it is noteworthy that EnergySource, the Featherstone project’s developer, was adept to protected commercial lenders for its construction, it is even more so that the firm was able to do so to finance investigation drilling. The Icelandic bank Glitnir (now Islandsbanki) issued the Featherstone task a $15-million “resource verification” lend to perform test-well drilling. normally, geothermal tasks must investment the exploration stage through equity investments, as the risk of non-discovery has tended to make banks painful. That Glitnir decided to loan to developer EnergySource expected reflects the confidence the bank had in the asset potential, and in the power of the development team. Little public data is available on the periods of the lend beyond the disclosure that it was a senior-secured, mezzanine vehicle that was made available to only one other developer (Nevada Geothermal). No farther “resource verification” loans have been made since Glitnir was taken over by the Icelandic government and rebranded as Islandsbanki in 2009.
The John L. Featherstone project was financed on a debt-to-equity ratio of 75%, with the 25% balance comprised entirely of developer equity from EnergySource’s parent businesses. The freshly operational 23-MW Neal warm Springs task, developed by U.S. Geothermal, was initially financed with a similar ratio, though its debt came from the joined States Federal Financing Bank and was backed by a 1705 lend assurance. The Neal Hot jumps project was one of only five geothermal tasks to secure a lend assurance under the 1705 program. U.S. Geothermal financed the residual piece of their task with an equity stake from the Canadian oil and gas company Enbridge. While initially a 20% position, that equity was bumped to 40% after U.S. Geothermal incurred added drilling charges.
financial liability and equity are, however, not the only two causes of financing that geothermal has been utilising recently. Ormat, through its subsidiary organizations, has been handing out bonds collateralized by task assets to attract capital to its development portfolio. Bonds issued for the portfolio of tasks which obtained a partial guarantee under the 1705 are 80% backed (principal and interest) by the government government. In this respect Ormat could verify a bellwether for other renewable power technologies seeking alternate financing arrangements — especially solar which is actually discovering procedures for securitizing their money flows through asset-backed devices, task bonds, and other vehicles.
From commercial liability, to government incentives, to project bonds, the geothermal development community has illustrated some creativity in leveraging alternate financing options. although, as government inducements expire, and as macroeconomic shifts in the liability markets play out over the next some years, developers will need to extend their seek for progressive financing schemes if they desire to elaborate on this year’s uptick in capability deployment. And with as much as 872 MW of verified geothermal tasks in the early stages of development and looking for capital, there are gains to be had if developers can find innovative ways of opening the taps.
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Geothermal capacity additions are on track to peak 100 MW in 2012, making this year one of the best for geothermal deployment in the last ten years. This could be a tentative sign that conditions have been advancing for geothermal investment (traditionally, investment has been one of the primary obstacles to the technology’s broader adoption). Projects approaching online this year have demonstrated some creativity in leveraging economic possibilities. Here are some highlights.
Commercial Lenders may be Revisiting Geothermal Asset investment
One especially notable project for geothermal investment was the 49.9-MW John L. Featherstone vegetation (formerly Hudson Ranch I), which started financial procedure in the Salton ocean, California locality in March. According to Project investment magazine, Featherstone was the first utility-scale geothermal facility in the United States since the 1980s to protected debt for building finance from financial lenders, a class of investor that has typically shied away from geothermal task finance. The liability deal featured a association of banks, and amounted to about $300 million, about 75% of task costs. It is organised as a five-year, mini-perm, which equity holders plan to refinance in the capital markets.
While it is noteworthy that EnergySource, the Featherstone project’s developer, was adept to protected commercial lenders for its construction, it is even more so that the firm was able to do so to finance investigation drilling. The Icelandic bank Glitnir (now Islandsbanki) issued the Featherstone task a $15-million “resource verification” lend to perform test-well drilling. normally, geothermal tasks must investment the exploration stage through equity investments, as the risk of non-discovery has tended to make banks painful. That Glitnir decided to loan to developer EnergySource expected reflects the confidence the bank had in the asset potential, and in the power of the development team. Little public data is available on the periods of the lend beyond the disclosure that it was a senior-secured, mezzanine vehicle that was made available to only one other developer (Nevada Geothermal). No farther “resource verification” loans have been made since Glitnir was taken over by the Icelandic government and rebranded as Islandsbanki in 2009.
The John L. Featherstone project was financed on a debt-to-equity ratio of 75%, with the 25% balance comprised entirely of developer equity from EnergySource’s parent businesses. The freshly operational 23-MW Neal warm Springs task, developed by U.S. Geothermal, was initially financed with a similar ratio, though its debt came from the joined States Federal Financing Bank and was backed by a 1705 lend assurance. The Neal Hot jumps project was one of only five geothermal tasks to secure a lend assurance under the 1705 program. U.S. Geothermal financed the residual piece of their task with an equity stake from the Canadian oil and gas company Enbridge. While initially a 20% position, that equity was bumped to 40% after U.S. Geothermal incurred added drilling charges.
financial liability and equity are, however, not the only two causes of financing that geothermal has been utilising recently. Ormat, through its subsidiary organizations, has been handing out bonds collateralized by task assets to attract capital to its development portfolio. Bonds issued for the portfolio of tasks which obta
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