The Deal: Feed-in Tariff Boosts Ontario Wind Farms

Manulife Financial completed a C$194.5 million (US$190.77 million) financing with Boralex Inc. to build and operate a portfolio of nine 10 MW wind farms in southwestern Ontario.

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Manulife formed and led a syndicate of Canadian life insurance companies to provide construction and term loans to support the Thames River Project. Manulife served as the arranger and agent with an investment of C$88.5 million. Also involved in the syndicate were Sun Life Financial, Canada Life and Industrial Alliance.

The 90 MW Thames River Project includes nine operationally and contractually independent 10 MW wind farms. Four of the nine are complete and operational. The other five are under construction with scheduled completion expected for later in 2010. (Left: 1.5 MW GE Energy nacelles ready for installation at the 78 MW Raleigh Wind Energy Centre in Ontario, which received C$200 million in financial support from Manulife. Photo: Raleigh Wind Power Partnership.)

Each of the nine 10-MW wind farms will have five 2-MW E-82 wind turbine-generators from Enercon GmbH.

Boralex said the financing represents 76 percent of the total investment, including initial financing costs, interest payable during the construction period, working capital and contingencies. By increasing the financial leverage on Phase I, Boralex said it will complete Phase II without adding additional equity investment and will also free up C$12.7 million. The loan amortizes over 21 years at a 7 percent interest rate for the entire period.

Manulife’s underwriting requirements have remained consistent over the past several years. It looks for well-founded projects with a good contract in place, as well as reputable turbine and balance of plant suppliers. The Thames River financing structure was written to include a 1.05 debt service coverage ratio that will increase over several years to 1.60.

“Any good quality project is going to get financing,” said Bill Sutherland, Manulife’s Toronto-based senior managing director of project financing. Sutherland’s investment team, which focuses on power and infrastructure projects, remained active even during the financial crisis. Earlier this year it arranged C$200 million in financing for the 78 MW Raleigh Wind Energy Centre, which is being developed by Invenergy in Ontario. The Raleigh project includes 52 GE 1.5 MW wind turbine generators and is expected to come online in the first quarter of 2011.

Although Manulife has done business in the U.S., it currently favors Canadian investment opportunities. First, U.S. Production Tax Credits don’t favor the types of leverage Manulife structures. Second, the Investment Tax Credit and Department of Energy loan programs are still unfolding. And third, market prices in the U.S. are not as favorable as in Ontario. The province’s feed-in program is a cornerstone of its Green Energy Act, which began in September 2009. The program ranks as one of North America’s first comprehensive feed-in tariff programs for renewable energy. Feed-in tariffs avaiable in Ontario range from around C$.10 for landfill gas to C$0.13 for wind to around C$0.80 for solar.

Those prices are “lucrative for developers,” Sutherland said.

Sutherland said many thousands of megawatts of renewable energy projects have been proposed in Ontario. Not all will be built, however, given constraints related to both access to transmission and finance.

Boralex Inc.’s first wind turbines in Canada began operating in December 2009 and January 2010, said Patrick Lemaire, president and CEO. Boralex is a publicly traded company listed on the Toronto Stock Exchange. The company, based in Kingsey Falls, Quebec, developed its first power project in the early 1990s, one of Canada’s first natural gas-fired cogeneration power plants. To date, Boralex has built 417 MW of generating capacity at 29 power stations in the United States, Canada and France. Its generation mix includes wind, hydroelectric, biomass and natural gas.

Boralex’s wind portfolio accounts for more than 50 percent of its installed capacity. All 259 MW of its wind capacity have long-term power purchase agreements. Electricity generated by the Thames River wind farms will be sold to the Ontario Power Authority under Advanced RESOP (renewable energy standard offer program) contracts.

In October 2009, Ontario Power Authority offered a contractual amendment to RESOP contract holders for proposed wind power projects that already had received a certificate of approval from Ontario’s Ministry of the Environment. The amendment provided projects with an enhanced price and removed requirements to share any potential ecoENERGY payments with OPA.

In exchange, developers were required to provide the Authority with completion and performance security assurances and commit to bringing the facility into commercial operation by Dec. 31, 2010. Liquidated damages could be assessed for late delivery.

The Amended RESOP benefited the Thames River project developer with higher prices, Sutherland said, but Manulife “would have financed it regardless.”

Sutherland began his career in 1980 in government finance. Eleven years ago he built a project finance business for a Canadian insurance company then moved his entire team to Manulife in 2003. The team focuses on project finance primarily for electric power and infrastructure projects.

Sutherland favors renewable energy projects at present because they result in firm power contracts. Fewer such contracts are available for other forms of electric power generation.

Rather than favoring renewable projects in particular, “we are looking for high quality, stable investments” regardless of technology, he said.

The Boralex financing is the fifth arranged by Manulife over the past year. The company anticipates completing additional renewable power project financings in 2010. In the past five years, Manulife has arranged C$1.6 billion and provided C$900 million for 12 projects.

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