Monday, October 8, 2012

Bridging finance: the solar sector's lifeline?

Bridge financing is a familiar and often vital instrument in bringing PV projects of all sizes to fruition.

If you are building a PV project then you probably want a piece of flat land with plenty of sunlight. But when it comes to paying for the development, the chances are you could do with a bridge.

Bridge financing, which is basically a loan to tide a developer over until money starts to come in for a project, is a common and frequently crucial ingredient in funding plans for PV plants.

It is particularly useful for developers that do not have deep enough pockets to fund for themselves the often-lengthy period needed for construction, grid connection and collection of receipts under a power-purchase agreement (PPA).

Since smaller firms are less likely to have large cash reserves than large businesses, bridge financing has been proposed as a way for small engineering, procurement and construction (EPC) companies to offer ‘pay on delivery’ terms comparable to those of larger competitors.

“Bridge financing provides small firms the ability to offer better credit terms to a client because they can get cash on day one, with cash rebates as collateral, to purchase equipment and pay for labour,” says Heatspring Magazine’s Guide to Bridge Financing for Solar EPC Contractors.

Purchasing equipment

“They can use this cash to purchase equipment and can bill the client later.”

Banks are usually happy to enter into PV bridge financing arrangements provided there is sufficient guarantee of income, often in the form of rebates or incentives such as feed-in tariffs, at the end of the project.

In the US, Builder’s Solar, an outfit dedicated to selling solar PV packages to general contractors for residential installations, even offers an off-the-shelf bridge financing deal from Umpqua Bank’s GreenStreet lending division, giving away unsecured loans up to USD$15,000.

Elsewhere, manufacturers with sufficient financial muscle, such as Phono Solar, which is owned by the Chinese engineering conglomerate Sumec Group, are able to offer their own bridge financing packages. Not just for minor projects, either.

Last month, for example, it was reported that Q-Cells North America provided a bridging loan to seal the $18 million backing for a 5MW project by SolarVision in Ohio, US, alongside investors New Energy Capital Cleantech Infrastructure Fund, Finance Fund and JPMorgan Chase.

Bridge financing

And back in July, the Indian PV maker Waaree launched a bridge financing scheme to complement its long-term finance packages for solar projects eligible for PPAs.

“Waaree’s mission is to make renewable energy affordable and accessible to all,” said Hitesh Doshi, the group’s chairman, in a statement.

Over the years, bridge financing has been instrumental in bringing some of PV’s biggest projects to fruition.

In April, for example, Deutsche Bank announced it had restructured an €83 million bridge financing package offered in 2011 for the construction of one of the largest PV plants in Italy, S.A.G. Solarstrom’s 48MW Serenissima project in Canaro.

Given the prevalence of bridge financing across PV projects at all levels, it does not seem far-fetched to ask whether this form of support could be extended more widely throughout the value chain.

Cost-reduction path

After all, many manufacturers, particularly of technologies such as thin film or CPV where there is a clear cost-reduction path, could claim to be almost certain of a return to profitability once the current glut of Chinese crystalline silicon panels is exhausted.

However, say analysts, it would be take a brave bank indeed to offer anything like bridge financing to most of today’s PV makers.

“Bridge financing is rather common on projects but that is because they have a clear, objective outcome,” says IHS Emerging Energy Research solar power advisory analyst Josefin Berg.

“For a company looking for this kind of backing, for finance investors it could be interesting but they would have to be risk prone. If you look at the German companies that have gone bankrupt, many had been trying to find interim financing solutions since 2008, and couldn’t.”

Logan Goldie-Scot, of Bloomberg New Energy Finance, adds that for a manufacturer to hope to secure bridge financing or similar support “is probably a bit too optimistic.”

Value chain

He says: “At the moment most of the solar manufacturing companies along the value chain are operating at a loss, largely because they are working below their operating margin because there is this huge overcapacity in the industry.”

With many PV vendors currently having to sell their wares at cost or below-cost rates, not only are manufacturers currently a risky loan proposition, but in a number of cases also candidates for takeover or bankruptcy over the next year, Goldie-Scot adds.

“There is too much capacity for the market at the moment, which is why everyone is suffering. I would be surprised if many of these solar companies would be able to get bridge financing,” he says.

“For a project developer the economics are different because you have a project finance model and so a bridge finance facility definitely works better.”

1 comment:

James Norman said...

Keep it up Good Going.Thanks John I also send you other site which is mainly based on Bridging Finance