As part of a special report on renewables offerings
among Europe’s lessors, Claire Hack examines De Lage Landen’s
expansion plans for its solar energy finance team.
Go deeper with GlobalData
As the green agenda becomes ever more pressing, so too does
the need to finance the assets associated with renewable
energy.
Dutch lessor De Lage Landen (DLL) has
therefore set up its own “dedicated renewable energy finance
project team”, culling three experts in the field from HSH
Nordbank, and began work in January of this year.
Currently based in DLL’s Wayne, Pennsylvania
office, the three new hires are Ed Sproull, Ann Hardy and Christine
Park.
Between them, these three have nearly 20
years’ experience in renewable energy, and have completed more than
200 transactions in this field over recent years.
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By GlobalData“They’re specialised in solar roof and
distribute generation solar projects,” said John Sparta, DLL’s
vice-president, who is responsible for global commercial
development of sustainable business.
Choosing the right
markets
Business so far is limited to the US and is
focused mainly on solar power for the time being, but plans are in
place for expansion into other territories.
DLL is currently in the process of analysing
which markets will be the best to tap into.
DLL is “definitely looking at Ontario,
Canada”, Sparta said, because of the recently announced feed-in
tariff legislation, intended to create grid parity for renewable
energy providers.
“We’re also looking at Germany, Italy, the UK,
and Spain, which has previously been a hot-bed for renewable
energy,” Sparta said.
“It comes back to the business plan we
presented internally to our executive board and various
stakeholders, to continue to push to expand as effectively and
sustainably.”
Although currently only focused on the solar
market, DLL is also exploring the possibility of entering other
sectors in the renewables energy market.
Sparta said: “We’re absolutely exploring other
technologies, but our main focus is on what we’ve started with
solar.
“There will be increased confidence and desire
to develop these types of initiative, but we’re trying to stick to
technology that’s time-tested and well-established at the
moment.”
However, he added that DLL is “in principle”
open to analysing the potential of other technologies and the
outlook for the future is positive, with a strong performance from
the team expected in the first few months.
“Thus far, we’ve been above plan in terms of
our performance. We have done some transactions and our pipeline is
very large,” Sparta said.
Competition, furthermore, remains limited to
banks, focusing on larger projects, while DLL has a “distinct
advantage” in being the only major lessor within the segment in the
US market.
Long-term leasing
Commenting on DLL’s solar energy capability,
Sparta said: “For solar, basically, what we offer is a Power
Purchase Agreement (PPA) model, which is a model geared to
investment.
“It’s structured with a master lease between
DLL and developers.”
A PPA, Sparta explained, is a fixed term
agreement, usually for about 20 years, offering power generation at
a fixed rate, with an “inflator”, typically lower than grid
price.
“Over the 20-year period, it should remain
less than the grid price,” he added.
“The risk is if the client goes out of
business or the system doesn’t produce the power that’s expected or
doesn’t produce any power.”
Effectively, therefore, the client pays DLL
for its energy following the installation of solar panels on the
relevant building, and that cash flow ultimately pays the lease
obligation.
“The thing we like a lot about solar is that
systems are relatively simple. The technology has been around for a
long period and it’s well-tested,” Sparta said.
“It requires very little service and
maintenance, and its generated by the sun, so it’s easily produced
and the inherent risk of building a power system is mitigated. That
enables us to have some confidence that there’s cash flow coming
from the PPA.”
Its inaugural transaction was completed in
March this year after three months in business, a deal consisting
of 592 solar panels for a school in the US, expected to generate
192,000 kilowatt hours in the first year.
DLL has also been working on a programme for
the last six months to finance LED lighting – low-energy light
sources with longer life spans than traditional bulbs – as part of
its Corporate Social Responsibility (CSR) scheme.
Sparta said: “We have some programmes that are
in place already – they’ve been up and running for maybe six months
longer than solar.”
The company as a whole, moreover, has made an
additional “green” commitment to cut its carbon emissions by 20%
per person over the course of five years.
And parent bank Rabobank has already been
active in the renewables space for a number of years, Sparta said,
embarking on various solar projects over the last decade.
Sparta said: “I think they have a wealth of
knowledge and experience to share with us.
“In particular we’re working closely with our
‘mother company’ research team and the Rabobank Energy and
Infrastructure Finance (REIF) group. There is a great ongoing
co-operation that’s helping both of us.”
Deal sizes, Sparta said, will typically range
between $1m (€809,000) and $3m, usually generating under one
megawatt of power.
He said: “We will do bigger deals, but it will
be hard to do deals under $1m, based on our current model.
“There’s a lot of cost that comes into play
and I would expect that, over the next six months, we’re going to
come up with a more streamlined finance product.
“What I would like to see would be a
step-by-step process and the first step would be to establish a
foundation of expertise in solar. There is no reason we can’t
leverage that expertise on a global basis.”
