The largest ever financing for a renewable energy project in Latin America wasn’t just noteworthy for its size.
The $632 million financing for Babilonia Centro, a 553MW wind plant in Brazil’s Bahia state, stood out for its highly innovative structure, incorporating both corporate and project financing elements in a manner that ultimately got national development bank BNDES, the sole lender, comfortable with the deal. It also featured a tenor of 22 years, unprecedented in the region for the sector.
The total financial package for project – a joint venture between steel giant ArcelorMittal Brasil and Casa dos Ventos, a renewable energy firm – was roughly $800 million, with the debt portion accounting for roughly 80% of the total, says Ivan Hong, CFO at Casa dos Ventos.
There was catch, though. The company began work on the financing package in early 2023, just as Brazil’s financial markets were hit by a series of accounting scandals which roiled credit markets and resulted in debt issuance grinding to a halt.
Borrowers faced limited options, and many turned to national development bank BNDES, historically the largest provider of financing for renewable energy projects in the country. But the bank has become a much more exacting lender than in years past. In the case of Casa dos Ventos, BNDES demanded a number of firm guarantees in order to lend, which the partners were willing to provide.
For starters, ArcelorMittal, which owns 55% of Babilonia Centro, signed a 20-year PPA to ensure a flow of revenues for the wind plant. Partners also offered BNDES a set of offshore guarantees provided by the headquarters of ArcelorMittal, based in Luxemburg, and TotalEnergies Holdings, based in France. TotalEnergies hold a 34% stake at Casa dos Ventos’ generation business.
Ultimately, the strength of the security package was key, in December 2023, to getting the deal closed – especially given the term of the financing and its leverage, features BNDES cites as unique for a renewables project financing in Brazil.
“We tested several formats for the deal, and we received feedback from BNDES,” Hong says. “From our experience, it was the first time that BNDES has shown so much flexibility.”
Alexandre Barcellos, general manager at ArcelorMittal in Brazil, says the project is an important step towards implementing the group’s global decarbonization strategy in the country.
“We will buy 90% of the energy produced by the plant, and what we do not use, we may sell. But it should amount to around 35% of the energy that we will consume by 2030,” Barcellos points out. “This partnership is a perfect match.”
The wind project is already set-up for a future 200 MW solar-hybrid expansion which would add a connecting solar farm to the wind farm’s collecting substation to take advantage of the wind farm’s transmission infrastructure to connect to the national grid.