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Hudson Ranch 1: Build then bond

EnergySource, a consortium of Catalyst REnewables, Hannon Armstrong and GeoGlobal Energy, closed the debt financing for the $401.3 million Hudson Ranch I geothermal power project on 13 May 2010. The project is progressing well and on budget with drilling underway on the third production well.

As the first utility-scale US geothermal construction financing since the 1980s to close with commercial bank lenders, the deal had to overcome a number of challenges. “The first hurdle was the timing,” says Brian Harenza, senior vice-president for project finance at Hannon Armstrong. “We approached the market in the summer of 2009, when markets were still volatile. Secondly, commercial banks were focused on existing customers, and seemed to place and emphasis on certain sectors such as wind. And EnergySource was a new customer.”

Given the need for expensive production well drilling, geothermal plants have high upfront costs. Potential banks were therefore comforted with the fact that tow of the three production wells were drilled before bank financing, though less enamored by the lank of an EPC contract. “We obtained permits for the project in 2007 and at that time the EPC market was blowing out,” adds Harenza. “It was hard to get anyone to answer the phone, or when we did get a response it was with ridiculous prancing for the wrap.”

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