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Refinancing secured for Scottish portfolio of mini hydro schemes

Gilkes Hydro Investments has raised debt to refinance six hydropower plants in the Scottish Highlands. This will be used to enhance existing plants in Gilkes' portfolio or acquire additional assets.

Gilkes Hydro Investments (GHI) has raised £43.8 million (US$ 61 million) in debt to refinance six operational hydropower plants totalling 10.5 MW in the Scottish Highlands.

The loan from Aberdeen Standard Investments (ASI), which includes both an index-linked and conventional tranche, provides low-cost, long term capital that will allow the Cumbria-based group to further develop its renewable energy portfolio, Gilkes Energy disclosed on 18 April. “The funding provided by Aberdeen Standard Investments will allow us to make further investments, either enhancements to our existing portfolio or the acquisition of further high quality renewable energy assets,” Carl Crompton, a director of Gilkes Energy, commented in a company press release.

The six projects were implemented by Gilkes Energy and commissioned over a year to late 2017, to be able to benefit from the UK Government’s feed-in tariff (FiT) programme. The Strathan, Loch an Laoigh and Uisge Dubh projects, which are located on the Attadale Estate near Strathcarron, Wester Ross, in the Western Scottish Highlands, with a combined capacity of 3.5 MW, were commissioned in November 2017, as was the 2 MW Pattack project on the Ardverikie Estate near Loch Laggan in the central Highlands. This plant was expanded by 3 MW in March 2018. The 0.75 MW Kendrum Burn plant at Lochearnhead entered service in December 2016 while the 1.3 MW Ben Glas station, on the Glenfalloch Estate at the north end of Loch Lomond, was commissioned in September 2016.

The funding provided...will allow us to make further investments, either enhacements to our existing portfolio or the aquisition of further high quality renewable energy assets.

Carl Crompton, Gilkes Energy

Gilkes Energy explained that it used a two-phase financing strategy, which allowed it to reduce its overall cost of financing and allow for faster project implementation, by first raising equity from its shareholders to build out its portfolio rapidly within the time constraints of the FiT system and then securing debt refinancing. “This two phase approach is superior to attempting to raise debt-finance for the initial construction phase which would be more expensive and slower,” noted Crompton. “The net result is very low cost finance with interest rate certainty for the long-term. Some of the debt is index linked, which allowed us to drive down overall cost of capital further,” he added.

The UK’s FiT scheme allows two years for a hydro scheme to be built after it is pre-accredited, after which the tariff is lost. The FiT scheme provides a fixed price for a period of 20 years, which is indexed by RPI every year, but varies according to when the project is pre-accredited.

ASI, which is the asset management business of Scottish financial services company Standard Life Aberdeen (SLA), said the funds were raised from Phoenix Life, the Standard Life Investments Secure Income and Cashflow Fund (SICF), and Standard Life Assurance, and would provide the investors with a “long-term reliable income stream, some of which is linked to inflation”. RM Capital, a specialist alternative advisor and asset management business, advised GHI on the debt refinancing.

Gilkes Hydro Investments has developed 17 hydropower schemes totalling 23 MW across Scotland.