Signing a Project Funding Agreement –

TOKYO, May 23, 2022 — (JCN Newswire) — Hokkaido Electric Power Company (Hokuden) and Mitsubishi Corporation (MC) are pleased to announce the establishment of a new joint venture in November 2021 which will be dedicated to hydroelectric power generation . The company, Donan Hydroelectric LLC (Donan Hydro), will be headquartered in Hakodate City, Hokkaido Prefecture. Along with the establishment of the new joint venture, Hokuden and MC have also agreed to form a hydropower alliance that will serve the Donan area of ​​Hokkaido. Our alliance will begin with Hokuden replacing five existing power plants in the southern prefecture of Hokkaido in stages, with Donan Hydro managing their operations thereafter. The five plants that will be replaced are all located in the Donan area. Among them, four are directly owned by Hokuden (Nanae Power Station, Isoyagawa Daiichi Power Station, Isoyagawa Daini Power Station and Ainumanai Hydropower Station) and one is owned by Hokuden’s subsidiary, Eco Energy Corporation, Ltd. (Ono power station). (Excerpt from joint press release October 2021)

To help fund the operations of the alliance, Hokuden and MC have entered into a Project Finance (PF)* agreement with North Pacific Bank and Sumitomo Mitsui Trust Bank, Limited. The agreement was signed in March this year. Hydropower requires a lot of infrastructure, including dams, waterways, generators, and substations. Securing the rights to install and operate this infrastructure means obtaining the necessary permits and approvals, red tape that tends to prevent developers from convincing banks that businesses are viable. For this reason, FP schemes for hydropower projects have been few and far between.

Hokuden and MC have engaged in numerous discussions with financial institutions, during which we have been able to leverage our respective hydro businesses and PF’s expertise to demonstrate how solid our alliance objectives are. The banks were impressed with our business plan and agreed to provide additional financing through this PF agreement. The plan is for Donan Hydro to lease existing waterways and other facilities owned by Hokuden. Only aging facilities will be replaced once they are decommissioned, and Donan Hydro’s power generation operations will begin thereafter. Hokuden’s role in our alliance will be to apply all of its expertise in the construction, maintenance and operation of hydroelectric facilities to the replacement works. He will also be responsible for ensuring that we stay in close communication with local communities and for maintaining the new facilities once they are built. which covers projects here in Japan and around the world. This know-how will be used both to ensure effective management of Donan Hydro and its activities, and to oversee its contracts, FP financing operations, etc.

MC and Hokuden are committed to taking advantage of energy resources produced in Japan. Recognizing its value in the context of renewable energy, we will strive to optimize the hydroelectricity produced by the precious water resources of the Donan region and do our part to help Japan achieve carbon neutrality.

*Project financing method based on projected cash flows and secured by all project assets. The PF differs from other financing mechanisms in that it generally involves the creation of a special purpose entity for each project in order to protect the project’s investors from any risk other than the loss of their investments. Because lenders (banks) incur additional risk in PF schemes, they tend to have very strict criteria for approving companies applying for this type of financing.

Recipient of the request:
Mitsubishi Company

Source: Mitsubishi Corporation

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