Windmills are a familiar sight in La Mancha, the rural region of Spain that lies south-east of Madrid. Cervantes, after all, had Don Quixote tilting at them here in his eponymous seventeenth-century epic. Even so, the giant wind turbines being assembled at Campanario, in the midst of the La Mancha plain, are attracting attention.
The Campanario project is one of Europe’s largest onshore renewable developments to date, with a projected output of 540 Megawatts (MW) and investment in excess of €400m when fully built out. It is, moreover, a hybrid scheme that takes advantage of the area’s long sunny days as well as its high wind speeds: initially, five solar photovoltaic projects of 50MW each, which were completed earlier this year, are being combined with three 50MW wind farm projects, which started commissioning in recent weeks.
That is not all, however. Last year, Spain introduced new permitting rights which allow developers to use the same electricity grid connection for more than one type of renewables technology. The aim is to improve the utilization rate of grid infrastructure, reducing the need for additional expensive power lines and increasing the amount of energy delivered from each grid access point. At Campanario, there are plans for the addition of up to 90MW of solar power to the interconnector put in place for the wind farms; and up to a further 50MW of wind to be channeled to the solar interconnector.
Since grid connections are no snip at upwards of €20m each for large energy projects, this also makes financial sense for developers. More importantly, it should significantly increase efficiency. While there are 8,760 hours in a year, in Spain a solar facility typically produces for just 2,000 hours annually, with wind farms not much better at around 3,000 hours (though this can be higher in places like Brazil). So, it is a good idea to double up, since it is often windy or sunny on different days and within the same day – with particularly sharp differences between daytime and nighttime.
And there is still more to Campanario. In the medium term, there are plans to add a 20MW electrolyzer to produce green hydrogen through the electrolysis of water, powered by the onsite renewable energy. While it is a fact that using renewables to produce electricity directly is a faster and cheaper way to reduce carbon emissions, there are times of high wind and solar activity when the local utility cannot take all the output. Such ‘curtailed’ energy, which would ordinarily go to waste, can instead be used to produce hydrogen, and this can then help decarbonize industrial processes, heat and transport.
Creating value, striking a balance
The scale and ambition of the Campanario project is transformational both for the local area and for its developer, Elawan Energy -- the Spanish company that is already amongst the largest independent renewable power producers in Europe.
It is also very important for Elawan’s new owner ORIX, not only due to the development’s sheer size but as an example of the strategic thinking that ORIX brings to the table: “When our partners see the industrial experience and commercial approach we contribute to a project, they understand that we are not just a financial investor but a creator of value”, says David Lane, a Director in ORIX’s European Energy & Eco Services investment team in London and an Elawan board member.
Having said that, ORIX is also helping on the purely financial side as well. The PV farms at Campanario were financed in November 2020, funded with €92mm of project financing provided by a consortium of Spanish lenders including Banco Sabadell, Bankia, Abanca and Banco Pichincha for the initial solar installation; and in October 2021 Elawan completed a €94mm financing for the initial wind farm installation led by Sabadell, Santander and SMBC Bank EU AG.
Both financings are notable: the solar financing is the largest project merchant financing (in other words, where the energy output has not been pre-sold to a customer) yet in Spain. The Campanario Wind project was the first project financing to take place following ORIX investment, and ORIX brought SMBC Bank EU AG and Elawan together, leveraging its connections to deliver a low cost and highly efficient financing for Elawan. SMBC Bank EU AG’s participation has created a new business relationship that will hopefully grow with the business across future projects and new markets.
This will only enhance what already promises to be an attractive financial return from the project. The majority of the wind energy has been pre-contracted to the Spanish government for the next decade. But given Elawan’s expertise in procurement, construction and operation, Mr Lane says the company has been able to offer Spain one of the lowest fixed-rate tariffs in Europe for wind energy, at €25 per MWh – a saving of 80% versus today’s market prices, while still an attractive return for the business. “Campanario is amongst the lowest-cost onshore wind farms ever built in Europe, providing affordable electricity to consumers and delivering long-term returns to Elawan,” he adds. “It is this balance that Elawan and ORIX always seek.”
A long courtship
Despite their common aims, it took time for the two companies to come together. ORIX had been investing in renewables for over a decade, to start with mostly in Japan where ORIX has developed, built and operate an integrated renewable energy business with 930MW of solar and 20MW across other technologies, and gradually taking stakes in international companies. These include Ormat, the world’s only vertically integrated geothermal company in 2017, Greenko, a leading Indian renewable energy company in 2021, and Gravis, a UK-based alternative asset manager which specializes in infrastructure investments, including renewable energy assets and real estate, also in 2021.
In 2018, ORIX opened an office in London, recruited a high-quality team of engineers and investment professionals and relocated Hidetake Takahashi, now the Head of its entire Energy & Eco Services division, to the UK. This team spent three years scouring Europe from north to south and east to west, looking not just to acquire renewable energy assets but a proper platform on which to base future growth.
One of the targets it looked at early on was Elawan, which had been founded in 2008 by Dionisio Fernandez, a Spaniard who cut his teeth at the renewables unit of Portugal’s EDP before setting up as an entrepreneur in his home country.
By 2019, the two companies were in talks and, with some delays caused by the pandemic, had hammered out a deal by Christmas Eve 2020 under which ORIX acquired an 80% holding in Elawan, with Mr Fernandez and Spain’s ACEK Group, controlled by the Riberas family, continuing to own the remainder.
Though the cost, at approaching $1 billion, was more than ORIX had originally envisaged, here, finally, was the platform it had been looking for. Elawan not only knew how to develop, finance, construct, operate and maintain wind and solar (and hydropower) facilities; it had strong relationships with both its suppliers and its utility customers; and it had a pipeline of tangible opportunities.
Moreover, its global ambitions matched those of its new parent. Elawan was already active in six European countries (Spain, France, Turkey, Belgium, Poland and Romania), as well as Brazil and Mexico, and the US; and it was seeking to expand into new ones. To date, Elawan owns and operates over 1,100MW of renewable energy projects, has a further 840MW under construction and more than 6,000MW in development.
Raw material for the world
As for the future? Let’s just say that ORIX has identified electrification alongside digitalization as the two meta trends reshaping our world. “Electricity is a basic building block for economic activity,” argues Mr Lane. “And renewable electricity, in particular, provides energy independence for countries around the world utilizing abundant wind or sun; is sustainable; and is already starting to lower the cost of electricity and increase the availability of power for consumers. These are all social goods, as well as good business.” For example, the challenges faced in European electricity markets due to rising prices trigged by a scarcity of natural gas add strong economic and energy independence arguments to the environmental credentials of renewable energy.
In practical terms, this means ORIX and its considerable balance sheet stand ready to fund Elawan’s plans, with some €700m of capital expenditure planned this year. New projects are coming thick and fast, including, most recently, two solar farms in Texas totaling 147MW that are the company’s first US developments for several years and nine new solar projects in Spain totaling 440MW, where Elawan recently completed its largest ever project financing at €250m.
This is just the sort of investment that would have taken much longer or simply not happened without backing from ORIX, Elawan’s founder, CEO and shareholder, Mr Fernandez points out. His management team, he argues, is highly experienced, has been together for a decade and has overcome political and regulatory challenges in many different markets. As a result, Elawan has the bandwidth to accelerate its growth. All it needed was a strategic backer with the financial resources and a similar, 30-year investment horizon.
“I want to be the owner and operator of energy-producing assets all over the world,” Mr Fernandez says. His new parent is helping him achieve that and, so far, he reports, while “more eyes” are looking at every potential project, being part of a larger group is not slowing Elawan down.
For ORIX, significant upfront investment was always the intention given its targets to deliver an additional 3,500MW of renewable energy from across its global businesses between 2022 and 2025 -- the immediate returns are balanced against the considerable longer-term growth and return opportunities from renewable energy. There are tweaks to improve efficiency, of course, such as accelerating the sale of maturing facilities in order to redeploy capital into new projects. There will also be issues to overcome, for example how to recycle solar panels and wind turbines at the end of their lives. But with a young fleet in operation, Elawan has more than two decades to solve this.
Meanwhile, the strategic direction is clear: the world requires more electricity every year and very soon almost all of it will have to be green, driven by Net Zero commitments across the globe. Scaling up renewables is one of the fastest and most cost-effective ways to do so; and that makes Elawan and ORIX part of the solution.
