The Scottish Low Carbon Investment Conference

"Project finance traditionally funds very large capital projects that incur significant associated costs – which simply is not viable on a small scale. However, our customers are demanding a solution which works at the small scale level. Even so, a bank still needs to manage the risks if it is to lend against small scale projects. You cannot cut corners. This is the challenge which faces banks and their customers. We shall explore the issues and approaches which can be taken to overcome them in our session."

Helen Wade, Director (Project Finance) for National Australia Bank (NAB), the parent company of Clydesdale Bank.

Helen Wade, Director (Project Finance) for NAB, parent company of Clydesdale Bank, is leading a session on Day 1 of the conference on financing small-scale renewable projects.

Q: Why is Clydesdale Bank involved in this area?

A: We are responding to demand from our customers. We have a lot of agricultural clients who are interested in getting involved in this area.

Q: What scale of project are you looking at in the session?

A: Typically around 5MW, so mainly the FITs area. - Usually just one, two or three turbines. Essentially, we are talking about farmers or landowners with a windy hillside that they want to use to build a few turbines and generate power to feed into the grid and so diversify their business.

Q: What are the problems?

A: Unless the customer wants to mortgage a large part of their property to support a renewable energy project – and we have found that most prefer not to - the obvious way to fund this is by project finance which looks just at the project itself. But, project finance while well established for large-scale projects like offshore windfarms and so on, just isn’t designed for small-scale projects. The costs of all the due diligence and advisers and the “bespoke” approach normally used is just too great. So how do you make it work? The banks are lending against future cashflow and we have to be sure these schemes will work. That means the wind has to blow, the project has to be built on time and to budget, the kit has to work and power has to come out and be paid for. If all this doesn't work, we won't get a penny back. We have to find a way to be comfortable with the risk and to make the projects economic.

Q: How have you sought to resolve these difficulties?

A: By taking a partnership approach and by standardisation. We have standard contracts and documentation and automated evaluation of each project - it is all about efficiency. Then we put together a team - a turbine supplier, an operations and maintenance team and a wind expert - who work in close and efficient partnership. It's like building a house - you don't want a plasterer in before the electrician has finished.

Q: What sort of problems have Feed-In Tariffs caused?

A: On the surface, Feed-in Tariffs are great - they guarantee a long-term, government-backed income stream from the power that these small-scale projects feed into the grid. But they have caused a kind of feeding frenzy because everyone wants to get on board - but you cannot just throw up a couple of turbines without looking at the full picture. The approach which we are using seeks to identify key risks and issues at an early stage and enable our customers to work on these.

Q: What do you hope to achieve from the session?

A: We want to give some very practical advice about going down this route. We have brought together some of the specialists which we have been working with, to cover the key aspects of funding and show how this approach of partnership and standardisation can provide a result which works for the bank and our customers. At the end of the day, we hope that the work we have put in will make the funding process easier and more clear-cut when our customers use this service.