Kingston Solar LP broke the record for the highest amount of financing raised by a solar power company by managing to generate $632.97 million in senior secured notes. The bonds will mature in July 2035 and carry an annual interest rate of 3.571%.
The previous record was set by Grand Renewable Solar LP in June 2016, which raised $612.7 million by issuing 19.5 year bonds that had an annual interest rate of 3.926%. Grand Renewable Solar, a joint venture of Samsung Renewable Energy; Clark & Lunn Infrastructure, Connor; and Six Nations of the Grand River (a community of Iroquois Indians belonging to six Native American tribes) operates a 100-megawatt solar power plant in Haldimand County, Ontario. They sell power under a fixed-price purchase agreement, which is valid for 20 years; and so received a BBB rating for their bonds.
Their project was completed in September 2015 and now provides power to 17,000 households in Ontario. It is one of the largest in the country at present.
Kingston Solar’s bonds too received a BBB rating, thanks to the strength of a similar 20-year agreement of power purchase with the Independent Electricity System Operator, which pays $457.30 for every megawatt-hour of electricity. Although this arrangement indicates a degree of financial surety, DBRS, which rated the bonds, noted that there was likely to be ‘module degradation’ over the years and raised concerns about the warranty. The solar panels are supplied by Canadian Solar and inverters provided by SMA.
Kingston Solar’s facility also has a 100-megawatt production capacity, just like the Grand Renewable Solar project. It powers roughly the same number of households as the latter. Interestingly, it started generating power in September 2015, the same as the Haldimand County project. There is another common factor as well – Connor, Clark & Lunn Infrastructure has a stake in Kingston Solar LP as well. This project is spread over 824 acres outside Kingston in Eastern Ontario. It took 14 months to complete, and the company notched up bank debts totaling $492 million in the process.
Making sense of the numbers
Matt O’Brien, President of Connor, Clark & Lunn Infrastructure said that the bonds were purchased by both U.S. and Canadian investors. Most of it will be used to pay off debt. The DBRS rating report also mentions a ‘swap breakup fee’ of $82 million and another $51 million on ‘equity distribution’. Altogether, these add up to $625 million. There is also rent to be paid to the owner of the land for 20 years, leaving the question of how Kingston Solar is going to pay $440 million in interest to those who bought the bonds.
With its initial investment taken care of, Kingston Solar can now focus on making that much money by selling power at the rate of $457.30 per megawatt-hour. It is estimated that the cost of production using solar cells works out to just $125 for the same unit of power, meaning Kingston Solar would make a profit of $332.30. With an installed production capacity of 100 MW, every hour of good daylight means $33,230 of profit. The number of daylight hours required to reach $440 million? 13,241.
Kingston receives 1959 hours of sunlight in a year, so that would mean just 6-7 years. Kingston Solar LP stands to make $846 million in the 13 years after that, when its fixed price contract ends in July 2035. comment