Banks eager to lend lion’s share of £800 million for windfarm

The banks are willing to fund 80 per cent of the proposed £800 million Viking Energy windfarm, leaving Shetland Charitable Trust with £72 million to find from its own funds or loans.

Discussions with the European Investment Bank and four other large commercial banks have left trust financial controller Jeff Goddard confident that £640 million could be raised from a consortium of lenders who, it appears, are falling over themselves to invest in windfarms.Trustees heard on Thursday at Clickimin that they are still about 18 months away from “the big decision” on whether to risk community funds in the venture, which would change the face of Shetland and either bring huge riches into the community purse or financial disaster.

At around the same time the trust is also likely to debate whether to raise funds by selling off some of its shares in the windfarm to local investors for their private gain instead of keeping its share to make profits on behalf of the whole community.

Meanwhile, next month will bring a major landmark for the massive project when the Shetland public get its first chance to view the long-awaited final revised plan for a slimmed-down windfarm – the product of more than half a year spent reworking the previous 150-turbine layout.

The so-called addendum to the application for consent is intended to address the widespread concerns about the scale and layout of a 540 MegaWatt windfarm in the Central and North Mainland.

Mr Goddard expects the final price tag to be less than £800 million, the “working figure” which has been used over the past couple of years.

Recently he has been sounding out four major commercial banks – Lloyds, Royal Bank of Scotland, BNP Paribas Fortis and Barclays, who he said were very interested in how the project would be financed.

Talks with the European Investment Bank have mainly been conducted by Shetland’s partner in the venture, Scottish and Southern Energy (SSE), which already has a windfarm loan for about £330 million from the EU’s non-profit-making development bank.

A similar amount might be possible for Viking with the other £310 million coming from perhaps eight or more commercial banks.

Having SSE on board as an equal partner with the local company Viking Energy Limited (VEL) apparently gives potential lenders more confidence as they have had previous dealings with the giant company, which is a FTSE 100 listed company.

Mr Goddard said Shetland’s “world-class wind”, as demonstrated by the success of the Burradale windfarm, also helped win over backers because it showed the concept worked well in the isles. The trust itself is a good bet for lenders with its £200 million balance sheet and no debts, he said.

He told the trustees in his report: “The banks do have money to lend and they are under pressure to lend it, but to ‘good’ borrowers. The banks see renewables in general as something they want to lend to.”

Scottish and Southern would have to put up £80 million, the trust £72 million and the four private investors from Burradale windfarm would have to find £8 million. Mr Goddard will offer several options to the trust when it comes to finding its £72 million contribution. Currently he favours a mix of perhaps £36 million from trust reserves and borrowing £36 million against windfarm profits.

Paying all £72 million up front in one big cheque would mean no interest to pay, he said, but would require stock market shares to be sold to raise the funds. Alternatively the whole £72 million could be borrowed, secured on the income the trust earns from the windfarm, although banks are keener on lending £36 million. He said he was floating the options this week with a view to opening up a debate.

There was concern from some trustees that existing groups and activities paid for by the trust, costing £11 million a year, could be badly hit during the three years when the trust has spent funds on the windfarm before any profits are generated. Jonathan Wills said trustees would need to decide whether the pain was worth it for the long-term stability for Shetland from the profits.

Mr Goddard said a temporary cut in income to the trust did not mean spending would have to be cut back. Some of the trust’s capital could be used instead. However, he admitted it would require “thought and some nerve” from trustees when it comes to “the big decision”, if they are to make the windfarm happen.

Laura Baisley raised the idea, debated in the past, of offering shares for sale to people in Shetland with spare money to invest. Trust chairman Bill Manson said it had been discussed by VEL which thought it should be left to the trust to decide at a later date.

Afterwards the pressure group Sustainable Shetland, which attended the meeting, said the trust’s funding projections were seriously flawed because they did not take into account the sums needed to service the loans and the interest during the early years before the windfarm starts turning a profit.

For full story, see this week’s Shetland Times.