Bank funding of AD project signals secure investment recognition

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15 December 2010

The securing of a £2.1m loan by Farmgen for its AD plant based on income from energy generated rather than asset-based security is a step forward for the sector, signalling recognition that AD projects can be seen as a secure investment for financial institutions

In November renewable energy specialist Farmgen secured a £2.1 million loan from the Co-op Bank for its Carr Farm AD facility in Lancashire. As previous farm AD plants have been financed using asset-based security, for example land, the deal signals the recognition of renewable energy plants as a bankable project.

Central to the plan which secured the loan was income from the Government’s 20-year Feed-In Tariff (FIT) scheme, which guarantees payments for electricity generated from renewable sources. The plant also has funding from a small group of private investors.

Marks and Spencer has a five-year commitment to buy power from the plant once it begins operation in spring 2011. The commitment is part of the retailer’s Plan A sustainability programme to procure 100% ‘green’ electricity by 2012.

“The Farmgen deal is another example of how AD can make commercial sense, as well as providing a host of green benefits for project stakeholders,” said Burges Salmon senior associate in the Environmental Projects team, Nick Churchward, “I am sure this project will be of real interest to those considering  their options for financing AD projects and is a great example of the sort of novel structures for selling renewable power we are advising on”.

The team at Burges Salmon advised M&S and worked closely with its energy supplier and Co-op Bank to develop the suite of ‘standard’ power purchase documents used on the Farmgen project. “These standard documents have proved to be a real success for M&S and have been used on many renewable energy projects over the last 18 months, including a number of AD plants" says Ross Fairley, partner and Head of Energy at Burges Salmon, ”it’s this sort of innovation that helps to reduce transaction costs which clients really value”.

Indeed, Mervyn Bowden, Head of Energy Management at M&S noted that "we are looking to attract more suitable, farm-based AD plants into the power supply portfolio using the generic contracts developed with Burges Salmon's help".

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