A Breath of Fresh Air for Spanish Renewables?

Guest post by Rodrigo Berasategui, finance partner, and David Diez, regulatory partner in the Madrid office of law firm Watson Farley & Williams. They advised on the €528m financial restructuring of Olivento, Spain’s largest onshore wind portfolio refinancing.

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Changes to renewable energy subsidies in Spain have led to the refinancing of a majority of portfolios in the country during the latter part of 2015. This is crucial for investors to ensure their financial viability in the short- and medium-term of their portfolios, many of which are heavily indebted due to the retrospective cuts.

The main one we have been involved with is the Olivento portfolio, which comprises 14 wind farms totalling 422MW, and is the nation’s largest onshore wind portfolio. The owners have been forced to restructure because of changes that came into effect in the early years of this decade, which resulted in the minimisation of the subsidies available to renewable energy production facilities, including wind farms.

In addition to Olivento, other sector refinancings include those of Tuin Zonne and Renovalia Solar, on which Watson Farley & Williams also advised.

All these restructurings have been implemented as refinancing agreements, as provided by Article 71 BIS of the Spanish Insolvency Law which, amendment by virtue of Royal Decree Law 4/2014, guarantees greater legal security for banks active in the sector. This is helping to re-build confidence in the sector that refinancing agreements can be closed and insolvency proceedings avoided.

Indeed, being documented as a Refinancing Agreement under Article 71 BIS, the transactions benefit from an insolvency shield against clawback actions.

The successful closing of most of these refinancings has been vital in ensuring the viability of the assets in question, which would otherwise have been condemned to facing insolvency proceedings. This has been possible thanks to the banks’ willingness to work towards friendly solutions and their understanding of the problems faced by the portfolios, which clearly demonstrates their confidence in the new regulatory framework.

But while this represents a welcome return to profitability for many sector portfolios, what comes next for all these refinanced assets?

While we don't have a crystal ball, it is clear that the Spanish markets are very active, both in terms of M&A deal flow and of international funds actively looking for in-country opportunities to achieve the critical mass needed to enable them to face future mid-term plans to create a yieldco or sales to institutional investors.

And what about new wind farms? Will the 500MW auction celebrated in December be seen as the starting point for further developments in the sector; or, as critics implied, a political measure launched two months before the general elections?

Regardless of the results of the auction, which have been rather disappointing with just one successful bidder, most believe that future developments will hinge very much on the complexion of the new government, as not all the political parties have the same sensitivities towards renewables.

It is also important to highlight that the Ministry of Industry, Energy & Tourism has recently published an environmental sustainability report for the electricity sector for 2015-2020, which strongly supports renewables to the detriment of gas and coal.

Even though the report is only binding for the transport sector (not generation) the proposed scenario for wind generation estimates this will reach 27.3GW of installed power in 2020 compared with the current 22.9GW, representing growth of 4.4GW.

That would be a great result for the sector if achieved.