Post-Recession Energy Demand Could Favor Coal
Source: PennEnergy, David Wagman (7/12/09)
". . .lending for coal plants will likely resume once clarity is reached on the carbon issue."
Credit markets are reopening for high quality projects, said J. Anthony Sprow, chairman and CEO of Dahlgren Group. Risk tolerance depends on how much power output is covered by long-term contracts; the willingness of engineering, procurement and construction (EPC) firms to shoulder risk; and carbon pass-through mechanisms. For projects $750 million in size and smaller banks might be willing to take a position as high as 30%, or around $125 million. Project size sweet spots lie between $300 and $400 million. For projects larger than $750 million, borrowers need to "lean heavily" on their relationship banks. And it's "unlikely" a consortium of banks could be put together for $1 billion in financing, he said. One recent project that large required 100 banks and "a lot of muscle'' to put together.
Sprow said lending for coal plants will likely resume once clarity is reached on the carbon issue. At a minimum, projects need a pass-through clause for the cost of carbon.