Philippines wind farm first to spark renewables

Author: Ashley Lee | Published: 3 Nov 2014
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The Burgos wind farm is the first wind farm project financing in the jurisdiction to reach financial close. It is also the first to be completed under the country’s feed-in tariff (FiT) regime.

The $315 million non-recourse financing for the 150 megawatt (MW) project – the largest wind farm developed in the Philippines to date – involved a combination of US dollar and Philippine peso-denominated debt by international and Philippines banks. Danish export credit agency Eksport Kredit Fonden (EKF) supported the US dollar-denominated facility.

Although the project market in the Philippines has been active, this deal highlights the potential for renewable energy projects in the jurisdiction.

This represents the banks and EKF taking an increasingly sophisticated view on the Philippines market and by extension Philippines sovereign risk, said Brendan Quinn, partner at Herbert Smith Freehills in Melbourne, who acted for sponsor Energy Development Corporation.

"There’s no traditional offtake arrangement with this deal," he added. "Instead it relies on a feed-in tariff, which of itself created a number of challenges from a legal perspective."


  • The $315 million Burgos Wind Farm Project is the first wind farm project financing in the Philippines to reach financial close;
  • It is also the first to be banked under the jurisdiction’s feed-in tariff;
  • The feed-in tariff in the Philippines is allocated on a first-come, first-served basis so there was no offtake agreement when financing this project;
  • More wind projects will depend on whether the Philippines government increases the feed-in tariff.

The deal
The financing agreement was signed on October 20. Both US dollar and peso-denominated tranches will mature in 15 years. EKF guaranteed part of the US dollar loan component.

"We haven’t seen non-recourse project finance in the Philippines in a while, so this transaction was significant as it showed that international banks are prepared to take risk in the jurisdiction," said Smith.

Burgos is the largest wind farm to be developed in the Philippines to date, and is on a 600-hectare site in province of Ilocos Norte. It is EDC’s first wind power project; the sponsor is already active in the geothermal space.

It is expected to provide electricity for two million people at its completion.

" There’s no traditional offtake arrangement with this deal "

The end retailer is essentially paying through the state, so it raises the question of whether the banks and sponsor are taking credit risk on the government or the Philippines retail sector, Smith added.

The FiT
In terms of project finance generally in the Philippines, there is already a lot of activity in other sectors, including coal and gas-fired power and airports and other transport infrastructure, said Philip Sealey, partner at Clifford Chance in Perth, who acted for Export Kredit Fonden.

"This deal is still very significant for renewables projects and particularly those hoping to avail themselves of the FiT," he added.

The FiT in the Philippines is similar to schemes seen in Europe and other parts of the world, in which the end user pays for electricity and the revenue goes through a government trustee to ensure that it gets to a generator, said Quinn.

It has 200 MW allocated for wind power. But it operates on a first-come, first-served basis; no wind project actually has a FIT allocation because they’re still being built.

As a result there was no traditional offtake agreement when the deal was financed.

Regardless, deal counsel expected to see more transaction if the government – particularly the Department of Energy – increases the allocation for wind power.

"What will drive the next round of renewables is the extension of FIT," said Quinn, noting that he expects to see the 200 MW awarded in a very short time.

He added that the importance of Burgos – among other aspects – is that it shows both equity as well as international, ECA and local bank support for a deal of this nature and by extension the FiT mechanism.

Smith added that there have been encouraging signs. The FiT solar implementation target recently increased from 50 MW to 500 MW. The energy secretary has announced that the government was thinking about increasing the installation target for wind projects as well, and the success of this project will encourage the government along those lines.

Tear sheet
The $315 million financing agreement for the 150 MW Burgos Wind Farm was signed on October 20. According to local media reports, it’s expected to be completed in November.

Herbert Smith Freehills represented sponsor Energy Development Corporation.

Clifford Chance acted for Eksport Kredit Fonden and the lenders. The mandated lead arrangers for the US dollar facility were ANZ, DZ Bank, ING, Malayan Banking Berhad and Norddeutsche Landesbank Gironzentrale. The peso facility was arranged by PNB Capital and Investment Corporation and SB Capital Investment Corp, and the syndicate comprised BDO Unibank, Land Bank of the Philippines, Philippine National Bank and Security Bank Corporation.

See also

Japan FIT changes needed to continue growth

Sarulla precedent to heat up Indonesian geothermal

Clean Energy loan sets pre-commercialisation finance precedent