Understanding the Financial Landscape of Wind Energy

Understanding the Financial Landscape of Wind Energy
April 14, 2025 6 mins

Understanding the Financial Landscape of Wind Energy

Understanding the Financial Landscape of Wind Energy

Investment in both onshore and offshore wind power is not only fundamental to our energy security strategy but also delivering wider social and economic benefits through the creation of jobs and investments in local communities around the world.

Key Takeaways
  1. Financing wind farms requires substantial capital investment, necessitating a combination of equity and debt financing.
  2. It’s important to carefully assess risks and implement strategies to mitigate them, with insurance and a diversification of investment portfolios.
  3. From a risk assessment perspective, insurance, credit and surety solutions can be a cost-efficient way to cover start-up delays, business interruption, third-party liabilities and cyber exposures enabling preferential contracts and showcasing investment opportunities.

Investors have been drawn to the wind power market by the growing demand for renewable energy, government incentives, and their own environmental, social, and governance (ESG) concerns. The sector’s appeal is also strengthened by an excellent track record of performance, with stable returns and low default rates.

Financing Options

Financing wind farms requires substantial capital investment, necessitating a combination of equity and debt financing. Options include bank loans, bonds, Government grants and subsidies and Power Purchase Agreements (PPAs).

Project Financing

Project financing is a popular method involving the creation of a special purpose vehicle (SPV) that isolates the project's financial risk from the developer's other activities. The SPV borrows money based on the project's expected cash flows rather than creditworthiness and allows for flexibility whilst reducing financial risks.

Special Purpose Vehicles (SPVs) can secure finance across the whole lifecycle of a project and ensure adequate protections are in place to help transfer risk and finance future projects.

Bridge Loans

Bridge loans provide short-term financing to cover gaps between the initial investment and the availability of long-term funding. These loans are typically used during the early stages of project development when immediate capital is required to get the project off the ground. Once long-term financing is secured, the bridge loan is repaid, allowing the project to continue its development.

Green Bonds

Innovative financing solutions, such as green bonds are emerging as viable options for wind farm projects. Green bonds are specifically designed to fund environmentally friendly projects, attracting investors who are socially responsible and committed to sustainability.

Private Equity and Institutional Investors

Private equity firms and institutional investors, such as pension funds, are increasingly investing in wind energy projects attracted by the stable, long-term returns that wind farms can offer. By providing capital in exchange for equity, they enable large-scale projects to go ahead with a shared financial burden.

Transferring Risk to Accelerate Growth

From a risk assessment perspective, insurance can also be a more cost-efficient way to cover everything from start-up delays and business interruption to third-party liabilities and cyber exposures. By understanding and mitigating risks, more preferential contracts can often be achieved.

Credit solutions secure receivables, unlock capital and grow trade. These linked credit and insurance tools play an essential role at every stage of a wind project life cycle, helping to reduce credit exposure throughout the lifetime of a transaction.

Quote icon

The Basel III rules, aimed to strengthen the regulation of banks, has increased the cost of guarantees – making the insurance market more competitive.

Ruggero Nicodemo
Surety Leader EMEA, Aon

Revolving Credit Facilities

Revolving credit facilities, loans to borrow, repay, and re-borrow funds up to a specified limit, are being used more widely to offer up flexibility where projects have fluctuating capital needs during phases of development. Access to funds is available when needed, without having to negotiate new loans.

Credit Insurance – Payables and Receivables

Capacity in the insurance market can provide credit insurance to allow the supply of goods on open account trade terms and with trade receivables – the credit insurance enables growth with access to receivables finance whilst protecting against customer default.

Surety Bonds

Surety bonds are a critical component in the financing of wind farms. They act as a financial guarantee that the developer will fulfil their contractual obligations, such as completing the project on time and within budget. If the developer fails to meet these obligations, the surety bond ensures that the project can continue without financial loss to the stakeholders.

There are several types of surety bonds commonly used in wind farm projects that can use the insurance market to replace Bank Guarantees or cash collateral to free up working capital.

  • Performance Bonds
    These bonds guarantee that the developer will complete the project as specified in the contract.
  • Payment Bonds
    Payment bonds ensure that the developer will pay all subcontractors, suppliers, and labourers involved in the project.
  • Maintenance Bonds
    These bonds guarantee that the developer will maintain the project after completion, ensuring it meets performance standards.
  • Restoration/ Decommissioning Bonds
    Whilst the requirement may not be for some time in the future, developers often need to provide security to the land owner or regulator, that they will make good at the project end.
  • Equity Contribution Bonds
    Where developers are funding projects, perhaps in Joint Ventures, there can be requirements to guarantee the equity that will be injected.

To secure surety bonds, developers must undergo a rigorous underwriting process where their financial stability, project feasibility, and track record are assessed. Risks are evaluated to determine the bond premium and by securing surety bonds, assurance is provided that the project will be completed successfully.

Political Risk Cover is available to protect against confiscation, expropriation, nationalisation and deprivation of assets and can protect the rights of assets if there’s an inability to repatriate a dividend or loan - ensuring no loss to the equity in an investment.

Advantages of Surety

Organisations need to provide guarantees to satisfy conditions in contracts and financial obligations. Surety solutions offer advantages over bank guarantees and escrow arrangements. They free up cash, preserve bank capacity and support business resilience and financial growth objectives. They’re innovative, flexible and have become a trusted tool that can be implemented in both volatile and strong market cycles. Surety bonds guarantee obligations within underlying contracts that mitigate third party risks. As insurers better understand risk exposures they can provide the security to free up cash as they don’t require cash deposits or charges – a level of security often requested by banks.

Despite the availability of various financing options, wind farm projects are not without financial risks. Market fluctuations, regulatory changes, and unforeseen environmental impacts can affect the project's profitability and viability. It’s important to carefully assess risks and implement strategies to mitigate them, with insurance and a diversification of investment portfolios.

Quote icon

Collaboration and knowledge-sharing between developers, manufacturers and the insurance sector is critical to the industry’s growth to ensure that risks and the associated costs are fully understood and insurable.

Mark Potter
Power and Renewables Industry Practice Leader, Europe, the Middle East and Africa

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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