Secret of success of the venture company in obtaining project financing
Q: In the past, banks in Japan were not familiar with the project finance method and requested excessive sponsor support contracts. Project financing in Japan was almost the same as corporate financing and it was believed that it was difficult for venture companies to form project financing.
Kiminami: We faced some difficulties in securing project financing at the start of the FIT scheme. We got over the difficulties by alliances with companies of high creditworthiness. We obtained investment from Mitsuuroko Co Ltd for the projects in Itako and Futtsu. We also responded to requests by banks to use solar panels manufactured by domestic companies.
Japanese financial institutions rapidly improved their project finance knowhow based on their experiences with mega solar projects, however, and the situation has changed substantially in the past five years. The domestic renewable energy industry is currently supported by Japanese banks led by the three mega banks.
Foreign-based renewable energy developers are constructing mega solar power plants in Japan by obtaining loans from overseas banks, but the conditions offered by Japanese banks are definitely better than the conditions set by foreign banks in the case of 20-year senior loans. Such preferable conditions are not widely known, but they are a strength for Japanese companies engaged in the development of renewable energies.
Q: Mega solar power plants that exceed 10MW fall under the targets of environmental assessment, depending on the ordinance of the local government, and the development period is extended by more than one year. Developers often reduce the development scale to 10MW or less to avoid the funds remaining idle.
Kiminami: The development period of a mega solar power plant in Nasushiobara City, Tochigi Prefecture (approximately 25MW) was extended because it took one year for the environmental assessment according to the ordinance (Fig. 2). As for the project in Yokkaichi City in Mie Prefecture (approximately 22MW), construction of which was started in October this year, it took four years before the start of construction because a full assessment was carried out. The capital efficiency is negatively affected by environmental assessments, from the management prospective, but we think "it is natural to perform environmental assessments to construct infrastructures."
Companies often reduce the development scale to "avoid assessment," but half of the candidate sites will have to be given up if you stick to that policy. We may have hesitated to undertake such development if we encountered projects that require assessment soon after we started the mega solar development business. Fortunately, we could secure sites that are comparatively easy to develop with no need for assessment for the projects under the tariff of 40 yen/kWh.
We began to move earlier than other companies by "half a step" or specifically "half a year" in preparation for the start of the FIT scheme, which seems to have contributed to securing projects of favorable conditions.