Strong personal relationships and the combination of a merchant power purchase agreement (PPA) and a contract for difference (CfD) were key driving factors behind the successful financing of the UK’s Cleve Hill solar-plus-storage project.
This was a conclusion drawn by speakers on a panel at the final day of Solar Media’s Renewables Procurement & Revenue Summit, held this week in London. Joseph Valvona, infrastructure and project finance origination at Lloyds Banking, one of the project financiers, said that working with an established industry player like Quinbrook Infrastructure Partners helped minimise perceived risk associated with a project of this scale and significance.
“We like not only [Quinbrook’s] profile in the UK, but some of the stuff they’ve done in the US, including the Gemini project,” said Valvona. “That demonstrates to us that they have the capacity to build this out.”
This was an important consideration considering the scale of the project – a 373MW solar-plus-storage project that will be the largest in the UK once construction is completed – and its status as the first project in the country to be designated a Nationally Significant Infrastructure Project (NSIP). The project is something of an important proof-of-concept for large-scale renewable projects in the UK, and Valvona suggested that working with Tesco as an offtaker helped bring the project closer to reality.
“They’re investment grade, we know them well [and] that familiarity helps,” he said, suggesting that Tesco’s market position enabled it to function as a single, reliable buyer for an offtake agreement of this type.
“Their position in the market is very strong. Historically we’ve looked at deals where you have a CfD or a PPA with a corporate or a utility, and that provides the diversity so if one thing goes down the whole thing goes down.”
Minimising project and finance risks
However, this is not to say that project development was not without challenge, or not without the need to overcome risk.
“The biggest one is actual volume shaping risk,” said Lyudmil Banev, director of project finance and infrastructure at NatWest, the project’s other financier. “There’s a fixed volume commitment that’s fixed in a granular half hourly commitment, for example.”
“Locationally there were pros and cons,” added Valnova. “It was by the sea, so there’s a particular sea wall that runs along the coast and we had to do a lot of work to get comfortable with the maintenance and the projection of that sea wall, [ahead of] the handover from the local authority to Quinbrook.
“A lot of the feedback the consultants put forward were adopted – [Quinbrook] took the flood risk very seriously – and critical infrastructure is housed in what looks like a bomb-proof structure.
The backers also sought to minimise financial risk, as much as is possible. Valnova suggested that his team look at the potential implications of Tesco defaulting on its payments—itself a very unlikely possibility—to see if the project would be financially viable without Tesco’s input. This just demonstrated “how strong the project is” on its own merits.
“It’s 100% contracted for 15 years … so that removed reliance on the volatile near-term price forecasts,” said Rosalind Smith-Maxwell, director at Quinbrook Infrastructure Partners. “[Tesco] has very clear decarbonsiation targets and a nature pathway, and we, as a sponsor, welcomed an uncapped, pay-as-produce inflation-linked offtake agreement with a FTSE100 company.”
