ING builds green loan structure for small renewable projects in Asia

It sealed its first green loan through Sunseap’s rooftop solar projects for over 20 C&I customers in Singapore.

In April, ING and Singaporean developer Sunseap sealed a green loan that will finance a portfolio of brownfield and greenfield rooftop solar projects with sizes from 100kW to 5MW each. The solar projects will be contracted to over 20 commercial and industrial (C&I) customers in Singapore.

In an interview with Asian Power, Erwin Maspolim, head of utilities, power & renewables, Asia Pacific, ING, gives an overview of the bank’s process in creating a structure for financing renewables projects and tackling an issue for small projects that has been widely discussed for years. He also shared the milestones they reached with Sunseap from the initial discussion on the loan to its financial close.

Can you walk us through your role in making the green loan happen?
In the past few years, many developers and clients in the region approached lenders to find out ‘how to finance small scale but impactful green projects’, which often feature in the renewable space. The challenge is so apparent that the topic often gets discussed at conferences and roundtables participated by project developers, development financial Institutions (DFIs), sustainability-based NGOs, as well as economic or green catalyst development boards at the regional or country level. We have seen attempts by the relevant stakeholders to create this kind of “small projects bundle pilot”.

Participating in the roundtable discussion with the DFIs and NGOs and recognizing the importance of finding a solution to meet the financing need, ING started thinking of ways to tailor such financing in Asia. Portfolio financing is not new to the market. For example, we have arranged the first ever ECA-financing for the acquisition of a portfolio of power assets in the Philippines in the past and more recently we underwrote the financing for GIP’s acquisition of Equis Energy’s assets in the region. But those portfolios were relatively large (in terms of utility size) which attracted sufficient financial institutions to participate in the transactions. It is a whole new game for smaller scale projects such as rooftop solar or distributed generation projects.

The challenge was placed in front of us when Sunseap Group approached us to consider financing their portfolio of brownfield and greenfield rooftop solar projects with sizes ranging from 100kW to 5MW each. We decided to take up the opportunity, taking into account the assets’ quality and the sustainability factor of the transaction.

And if we were successful, our intention was to replicate the structure in the region. Alongside our due diligence, we also involved our Sustainability Finance team to advise and develop a Framework for Sunseap Group to mark the rooftop solar financing and their future debts as green finance, be it loan or bond. It took us over a year to structure and close the project financing, but the result is obviously one of its kind in ASEAN, if not Asia Pacific.

How did you assess the project and developer profile and how was it deemed creditworthy?
One of our first questions to Sunseap Group (the developer) was: “Tell us about the challenges you faced in the past few years.” Their answers revealed their vast experience as the market leader in the Singapore rooftop solar space and they are well positioned to take on the projects technically and commercially.

To ensure the bankability, we created a model whereby we identify and analyse the credit quality of off-takers and their power purchase agreements (PPAs). For the portfolio of projects, the commercial and industrial (C&I) customers/off-takers are categorized based on their credit profile, most of whom are reputable international and domestic corporates based in Singapore.

Sunseap is expected to develop and own approximately 50MW portfolio of rooftop solar PV assets, to be contracted with over 20 C&I customers in Singapore under long term PPAs at agreed tariffs. The power generated by each project would be primarily for direct consumption by the C&I customer. We believe that the experience of the sponsor, diversity of the portfolio and quality of the off-takers mitigate the credit risk of the portfolio financing.

Why did ING decide to finance solar rooftop projects? What are the prospects of such projects?
With one of the highest population densities in the world and urbanised land, Singapore lacks the space for ground-mounted solar farms. What's more, the country's electricity predominantly comes from gas-fired power plants, which makes it difficult for companies to source renewable energy. Rooftops and water bodies are our options here in Singapore. This green portfolio financing we have done will become a model for future transactions and will attract more interest from both sponsors and lenders to develop and finance rooftop solar projects in Singapore and the region.

What are the KPIs you have set to determine the success of the green loan and how will you measure them? Which is the most important?
From a credit perspective, we would like to see the portfolio show that it can achieve or outperform the base case debt service coverage ratio we target and that the shareholder is afforded dividend distributions. From a commercial perspective, we wish to see the funded portfolio grow in size with more off-takers added into the borrower. From a sustainability perspective, we want to see how our financing is able to penetrate across the diverse industry and make an impact on society.

Can you explain how financing the portfolio on a limited-recourse basis and having a single loan facility will help limit its uneconomic nature?
Generally speaking, if a sponsor funded all its projects on a guaranteed (recourse) basis, the direct debt burden will eventually strain its corporate balance sheet. As a corporate moves to project financing (limited or non-recourse), it will have better access to debt and capital market.

If the sponsor funded its projects one by one on a project financing basis, the lender will have to conduct several/separate due diligence (which typically could extend to legal, technical, insurance and model audits) and documentation process, hence incurring significant costs to the sponsor. Therefore, it makes less economic sense to finance each project individually.

Our financing is unique in that its accordion structure allows Sunseap to finance multiple projects, greenfield or brownfield, as long as they meet both the technical and financial parameters pre-set by ING in conjunction with ING’s consultants on aspects such as on engineering, procurement of panels/inverters, construction and operational/maintenance and insurance terms.

What other renewable energy initiatives can we expect from the bank in the next months?
In the region, we will continue to see large offshore wind farm financing in Taiwan and a number of solar PV and onshore wind in neighbouring ASEAN countries. Vietnam is a space to watch, endowed by its solar and wind resources, it is becoming a hot spot for renewable energy envied by many.

Do you see an increasing interest amongst existing clients in green financing?
Absolutely. We have seen not only more clients with interest in investing in the green energy or seeking green financing, but also more clients looking to consume green energy. RE100 (the world’s most influential companies committed to 100% renewable energy) participants continue to increase.

This is a signal that private business concurs that it is crucial to combat climate change. ING itself has committed to procuring 100% renewable electricity by 2020 for all buildings in which we operate worldwide as part of this initiative.

Back to our green loan to Sunseap, we also hope to see that the financing will benefit the nation. We can already see the green energy produced by Sunseap touches a wide spectrum of commercial, industrial and social activities in Singapore, including transportation, utility, technology, entertainment, logistics, education and consumer businesses. We are proud that we are lending with purpose.