Barclays – finance developments

Niall McInerney, Infrastructure and Structured Finance, Barclays Corporate, provides an insight into the investment opportunities and challenges that exist in the evolving electricity market:

In 2007, the electricity market in Northern Ireland joined forces with its counterpart in the Republic of Ireland to form the Single Electricity Market (SEM).

The SEM as a young dynamic market already faces a number of challenges, notably regulatory change driven by both local and European authorities. The UK Government’s current Electricity Market Reform (EMR) proposal, involving the creation of a carbon price floor, is something which Northern Ireland must give due consideration to, so as not to disadvantage Northern Irish generation vis-à-vis RoI generation in the SEM.

EU issues such as greater cross-border integration of markets, due by 2014, and the implementation of environmental legislation, namely, the Industrial Emissions Directive, will also impact on a number of existing generators.

Moving forward, it is important that the Executive and the Northern Ireland Authority for Utility Regulation (NIAUR) continue to work closely with Department of Energy and Climate Change (DECC), Department of Enterprise, Trade and Investment (DETI) and the SEM regulators in the Republic to identify clear proposals around the implementation of the Electricity Market Reform. This will help to create a stable regulatory framework for both equity and debt investors. Providing such confidence to investors will assist the government in achieving its 2020 renewables targets.

Given the complex operating environment faced by energy based companies, it is vital that they choose a banking partner who understands the market, has strong recent experience and is abreast of pending market developments.

Barclays has recently funded key transactions in the energy market, cementing its position as a market leader in the sector.

In September 2011, Barclays Corporate refinanced Kilroot Power Station in Carrickfergus with an innovative £38 million funding arrangement. One of the largest non-gas generators in the market, the station is an essential tool to assist the market operator in managing system demand and security. The financing incorporated sophisticated solutions for FX and carbon allowances and involves Barclays transacting all of Kilroot’s operational banking going forward.

In relation to grid infrastructure, Barclays is a leading funding partner of the system operators. In 2009, we provided acquisition finance facilities to EirGrid to fund its acquisition of SONI. In 2010, we arranged finance for EirGrid to construct and operate the €600 million East-West Interconnector between Ireland and Wales.

Barclays is a key funder in renewable energy, having financed over 400MW of large scale wind generation. In 2010, we arranged finance for the largest development wind farm transaction in Northern Ireland. The 20MW Screggagh wind farm in County Tyrone will provide power to over 10,000 homes.

Barclays is actively funding offshore transmission networks in Britain which are required to facilitate the build-out of off-shore wind generation and we look forward to the upcoming tenders in Northern Ireland.

As a leading corporate and investment bank, we also have the capability to raise finance in the capital markets for clients, opening up alterative funding sources. Within the last few years Barclays has raised corporate bonds for ESB (which owns the NIE’s transmission and distribution network) and Bord Gáis (which owns Firmus), In addition, we arranged finance for the Scottish Northern Ireland Gas and Belfast Gas pipelines, whilst also providing liquidity lines for the Moyle interconnector.

The Barclays team has substantial knowledge of the energy sectors across the island of Ireland and is able use this expertise and experience to structure innovative banking solutions that meet client’s needs. Our recent deals in the energy sector are good examples of the type of strategic and sophisticated transactions we are supporting despite difficult market conditions. It serves as a clear indication that Barclays is open for business for quality transactions within the energy sector.

To find out more contact Niall McInerney, Associate Director Infrastructure and Structured Finance, Barclays Corporate, on 028 9088 2929 or email niall.mcinerney@barclays.com