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Syndicated Loan Structured for 2MW Solar Project Despite Output Restriction

2016/11/07 14:12
Shinichi Kato, Nikkei BP CleanTech Institute
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The planned construction site in Sumita-cho (source: The Tohoku Bank)

The Tohoku Bank Ltd announced Oct 27, 2016, that it has structured a syndicated loan for a solar power plant with an output of about 1.999MW.

The mega (large-scale) solar power plant is being developed in Iwate Prefecture, Japan. With a syndicated loan, multiple banks give a loan under the same conditions based on the same loan contract document.

The Tohoku Bank and The Bank of Tokyo-Mitsubishi UFJ Ltd became arrangers. The total loan amount is ¥486 million (approx US$4.67 million), and the contract was signed Sept 27, 2016.

The planned construction site is located in Sumita-cho (town), Kesen-gun, and is owned by the town. The project is part of the "Reduction in Use of Fossil Fuel by Effectively Using Natural Energy," which the town is promoting as a "general strategy/plan." Also, it is part of the "Kesen Wide-area Environmental Future City Project," which Sumita-cho, Ofunato City and Rikuzentakata City are promoting in the aim of reconstructing areas hit by the Great East Japan Earthquake as "environmental future cities."

The power producer of the plant is Kesen Energy KK (Ofunato City, Iwate Prefecture), an SPC (special purpose company). It was established by AMIFA (Ofunato City, Iwate Prefecture), which deals with solar power generation facilities in the area, etc with a capital of ¥60 million (approx US$576,037).

According to The Tohoku Bank, the solar project is also financed by local companies and based in the region because it rents the land owned by the town and employs some wooden mounting systems made by using locally-produced Japanese cedar. Especially, it will be the first solar power plant in Iwate Prefecture that uses wooden mounting systems, contributing to the local economy and the local forestry.

The loan is targeted at mega solar plants for which limitless/uncompensated restriction is required. It is difficult to evaluate the business risk of projects (after exceeding the connectable amount or the total output of solar power plants over which output control for more than 30 days, etc is required) for which limitless/uncompensated output restriction is required for grid connection, and project financing for those projects are not in progress.

This time, the syndicated loan was successfully structured because the SPC collaborated with The Bank of Tokyo-Mitsubishi UFJ, which has considerable experience in project financing for mega solar plants, used "output restriction insurance," increased credit and reduced construction cost by tying up with a highly-evaluated EPC (engineering, procurement and construction) constructor and optimized the business plan.