IFR International - 21.07.2018

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Biomass boost for Japanese project finance

„ JAPAN Growing focus on renewable energy adds to lending opportunities

Japan’s project finance industry is embracing

alternative forms of renewable energy as the

country broadens its energy mix and prioritises

clean fuels.

Ministers unveiled an updated energy policy

earlier this month that calls for renewable

energy to surpass nuclear power generation by

2030, and lenders are reporting more interest

in biomass, which uses organic material to

generate electricity, and other green energy

projects.

“This fiscal year [ending in March] will be the

first year of the biomass era,” said Toshikazu

Tanaka, head of Mizuho’s project finance team

for Japan.

“The number of consultations for financings

suddenly increased this year. I’m seeing a

significant number of sponsors seriously starting

to consider commercialising projects.”

Last month, SMBC completed Japan’s

largest financing for a biomass project, sealing

a ¥37.61bn (US$333m) loan to help Renova’s

Kanda Biomass Energy develop a 75MW plant in

Fukuoka prefecture.

Bankers are also gearing up for billion-

dollar offshore wind power projects, which are

expected to close next year. MUFG is already

advising on two large-scale wind projects.

Lending to renewable energy projects

increased to US$4.2bn in 2017, which was 18.5%

higher than 2016 and the highest figure since a

feed-in tariff (FiT) to promote renewable energy

was established in 2012, according to Thomson

Reuters data.

Renewable project financings have reached

US$1.71bn so far in 2018, and bankers see a strong

pipeline for the rest of the year and into 2019.

“Investors’ appetite is strong for renewable energy

projects,” said Yoko Yanagida, head of power and

infrastructure project financing at MUFG Bank.

Japan is focusing on renewable energy as it de-

emphasises nuclear power in the wake of the March

2011 disaster at the Fukushima Daiichi plant.

Ministers unveiled a new basic energy policy

on July 3, setting goals for the country’s energy

supply to 2030 and presenting scenarios to 2050.

Renewable energy is set to supply 22%–24% of

the country’s energy by 2030, overtaking nuclear

power, which is expected to contribute 20%–22%.

BEYOND SOLAR

Renewable lending in Japan previously focussed on

solar power, but the market is diversifying, with a

focus on biomass and wind projects going forward.

“Some regional lenders have already booked

enough loans for solar power projects, but

because not so many biomass or wind power

deals have come to the market yet, I think there’s

more room for these sectors,” Yanagida added.

The Kanda biomass financing attracted

a range of lenders in syndication, including

regional banks and insurance companies.

“Regional banks and shinkin banks

[cooperatives] are naturally motivated to

participate in local projects, but more regional

banks have started to participate in projects

outside their areas,” said Hikaru Yamada, head

of SMBC’s distribution group.

Biomass projects are increasing this year, as

sponsors take advantage of favourable feed-in tariffs

and more sophisticated supply-chain management,

while the solar power sector’s rates have been cut.

The biomass sector accounted for 17.5% of all

renewable power financings in Japan in the first

half of 2018, up from 8.6% in the same period

last year, and is on track for further growth in

2018.

Solar projects, meanwhile, now make up a

smaller part of the market, falling to 56.5% of

renewable project financings in the first half of

2018 from 63.9% in the same period of 2017,

according to Thomson Reuters data.

MUFG is arranging about ¥250bn of

renewable energy project financings, including

three biomass projects, which are expected to

close by the end of this year.

Other banks are also busy.

“Sponsors aim to close biomass deals by the

end of next March, which has brought us many

consultation opportunities,” said Yuji Fukuda,

head of SMBC’s renewable energy project

finance group.

Financings for conventional energy projects,

meanwhile, declined 32.3% to US$2.5bn in 2017 and

no transactions have been completed so far this year.

Although it is growing, renewable lending

remains a small part of the overall Japanese

loan market. Total syndicated lending increased

4.2% year-on-year to US$124.86bn in the first

half of this year, backed by strong cross-border

M&A activity.

Wakako Sato