Thursday, 17 January 2019

Burgos – Banking a FiT scheme

  • Print
  • Share
  • Save

Related images

  • The Burgos windfarm

Financing for the 150MW Burgos Wind Farm in the Philippines closed in October, a significant achievement by EDC’s project and finance teams. Developers and banks alike will welcome this sign of confidence in the Philippines renewables sector and its feed-in-tariff (FiT) scheme. By Jae Lemin,Herbert Smith Freehills, legal adviser to EDC, and Michael Lock, ANZ, intercreditor agent and mandated lead manager.

To see the full digital edition of the PFI Yearbook 2015, please click here .

To purchase printed copies or a PDF of this report, please email

With a capacity of 150MW, the Burgos wind farm is a notable addition to Energy Development Corporation’s burgeoning renewables portfolio. EDC is already one of the world’s leading geothermal power producers. The Burgos wind farm is EDC’s first greenfield wind project and its largest single investment to-date.

Stretched across 690 hectares in Ilocos Norte on the Philippines remote north-west coast, the wind farm is built for the conditions. Power is generated by fifty Vestas V90-3.0 turbines, which are designed for high wind loads but are also light enough to be transported long distances to the site. A 43km transmission line connects the wind farm’s substation to the Luzon grid’s connection point at Laoag substation.

Table 1

Danish export credit agency Eksport Kredit Fonden (EKF) supported the involvement of turbine manufacturer Vestas by providing a partial credit guarantee for the US dollar tranche. Other features of the project financing are contained in Table 2.

Table 2

Renewable energy in the Philippines

Once operational, the wind farm will power 2m Philippine households and displace 200,000 tons of carbon emissions annually. This is the type of project the Department of Energy (DOE) probably had in mind when it increased the Philippine renewables target to 15,304MW by 2030, a target considered ambitious at the time. The 2008 RE Law, the implementing legislation for Philippine renewables policy, provides emerging renewables developers with a variety of incentives, including:

* A seven-year income tax holiday and a subsequent 10% corporate tax rate;

* VAT exemption;

* Duty-free importation of equipment and machinery;

* Tax exemption for carbon credits; and

* Most importantly for project financiers, a 20-year FiT.

The initial FiT allocations are set out in Table 3. When they were published in 2012, participants in the sector feared that the rates, which are lower than those recommended by the National Renewable Energy Board (NREB), were not sufficient to encourage investment in renewables. The 40% foreign ownership restriction in the renewables sector (which continues to apply) was also thought to be a significant deterrent.

However, those fears have proven to be unfounded. The initial 200MW wind allocation will be fully utilised shortly. Following a recommendation from the NREB in October, participants in the sector are optimistic the wind allocation will be increased, possibly up to 500MW. The DOE has recently announced an increase in the solar allocation from 50MW to 500MW. Given the Philippine FiT rates already compare favourably with other FiT rates throughout Asia, the Philippines renewables sector looks promising for further investment.

Table 3

Philippines FiT scheme

The FiT Rules, set out in the ERC’s Resolution No 16 (2010), regulate the FiT scheme for all renewables in the Philippines. The FiT rate, which adjusts annually to accommodate changes to the Philippines CPI and the value of the peso, passes the generation cost through to consumers in the form of a uniform FiT-All charge. This will begin to appear as a new line item on electricity invoices, as soon as January 2015.

FiT-All charges collected from consumers (as well as from the wholesale electricity spot market) are retained in a FIT-All Fund established by TransCo and maintained by a government financial institution designated as the trustee.

In the Philippines, FiTs are awarded to renewables projects as they reach commercial operation, on a “first come, first served” basis. This means developers need to complete construction and achieve commissioning and electrification expeditiously in order to benefit from the scheme. In October, the certificate required in order to participate in the FiT scheme (known as a Certificate of Endorsement for FiT Eligibility) was issued for the full 150MW capacity of the Burgos wind farm.


There is no power purchase agreement for the Burgos wind farm, which was instead banked on the basis of the Philippines FiT scheme. The Philippines FiT scheme has a number of advantages over a traditional PPA, in that the scheme:

* Provides priority connection to the grid;

* Eliminates the need to enter into separate arrangements with provincial electric co-operatives and distribution utilities, which may not be creditworthy; and

* Allows the additional cost of the FiT to be recovered equally from all consumers connected to the grid.

However, many project financiers in Asia are likely to be more familiar with banking power purchase agreements. Consequently, participants in a project-financing of a FiT scheme will need to consider how it differs from a typical PPA and the extent to which such differences are bankable. Some of the specific issues arising from a FiT scheme (and which were considered in the project financing for the Burgos wind farm) are set out in Table 4.

Table 4

Project financing structure

Questions relating to the bankability of a FiT scheme are ultimately a question relating to the bankability of the scheme’s underlying sovereign risk. This is a risk that international banks are now generally comfortable with in the case of the Philippines, especially when an export credit agency is involved in the financing.

Once that threshold question has been addressed, participants should be in a position to consider the other issues typically arising in renewables financings. The project financing structure adopted for the Burgos wind farm, and a structure that will be familiar to many project financiers, is set out in Figure 1.

Figure 1

A number of the issues addressed during the Burgos financing would be familiar to those experienced with financing projects in the Philippines and Asia more generally. Examples of issues considered by the participants in the Burgos financing, and which are likely to arise under other renewables projects in Asia, are described in Table 5.

Table 5


The Burgos wind farm indicates that international financiers will bank with a substantial tenor an Asian renewables project supported by a FiT scheme, and not a PPA. This is good news for proponents of FiT schemes in the region and renewables projects in general. As Asia’s appetite for additional renewables capacity grows, we expect to see more developers in the sector sounding out their banks for a project financing solution.





  • Print
  • Share
  • Save