Financing Offshore wind farms. Financing offshore wind farms: How banks view risks and what they can do

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David Wade
5 years ago
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1 Financing Offshore wind farms Financing offshore wind farms: How banks view risks and what they can do

2 How do you get there?

3 Risk overview in phases Development phase Construction phase Operational phase No project! No permits No tariff / PPA No contracts Not enough money Delay and cost overruns Scope gaps Contractor delays Adverse weather risk Mitigation cascade Lost revenue Lower availability Higher O&M cost Lower prices Less wind Project management Detailed planning Committed sponsors Project coordination Solid contracts (LDs) Contingency budget Insurance Project management LT O&M contract Turbine manufacturer commitment

4 Development risk not a bank risk

5 Development risk not a bank risk Regulatory framework & permits are your problem You need all permits You need the economics to work before any financing can be considered

(think vessel daily rates) are the biggest risks Interfaces

6 Construction risk contractor delays They can cost a fortune Incidents with knock-on effects and open-ended liabilities (think vessel daily rates) are the biggest risks Interfaces with sub-contractors! The ability to deal with delays is key

7 Construction risks key mitigants Key risks Scope gaps Contractor caused delays Adverse weather/ Force majeure Key mitigants Adequate project management Imagining the worst exercises Scope demarcation matrix Lessons learned register Realistic planning As few critical path items as possible Guarantees and LDs Slack in planning Slack in planning Conservative workable days assumptions Contingency Budget Insurance

Nothing that cannot be solved: the question is «who pays?

8 Operating risk - performance Technology / serial defects Serial defects do happen! Teething problems do happen! Nothing that cannot be solved: the question is «who pays?» Manufacturer LT commitment and warranties are key mitigants

offtakers - Higher cover ratios Price risk is expensive to finance!

9 Operating risk - revenues Price and wind risk Merchant risk possible if: - No volume risk (curtailment, etc) - No balancing cost - Existence of high enough floor price - Strong offtakers - Higher cover ratios Price risk is expensive to finance! Wind risk is statistical risk -> DSCR Offshore wind easier to assess (no need for met mast on site!) Wake effects are significant

10 Operational risks key mitigants Key risks Availability/technology Key mitigants LT full service O&M contracts Guarantees with high LD caps from turbine manufacturer! O&M cost Wind Electricity Price LT full service O&M contracts Detailed O&M methodology Well defined insurance Wind studies by reputable parties Supportive regulatory framework PPA to transfer residual risks Long term certainty

11 But, the real problem is Banks are copycats It s safer to make the same mistake as the others than a «new» one Offshore wind lacks precedents (and offers no multi-million dollar bonuses) New risks to be brought to banks incrementally only!

Thus some lessons learned for the financing What is important

offshore construction risk) Experience matters (don t reinvent

structures) Focus on getting it done (a closed deal is better

12 Thus some lessons learned for the financing What is important Precedents matter (don t push for merchant risk AND leverage AND offshore construction risk) Experience matters (don t reinvent the wheel: hire people with experience and use already-tested structures) Focus on getting it done (a closed deal is better than a good deal) You can always refinance later Or choose well who you work with!

13 A few words about us GG principals intimately involved in all offshore wind farms to have been project financed to date ( no deal done without us!) We know all the turbine manufacturers and their contracts, banks & advisors, the key bottlenecks, and the mistakes made (so far ) GG is advising several offshore wind farm projects today. We expect to be involved in 2 closings this year. 9 people in continental Europe, 3 being hired, more to come (including here in North America, if demand confirms its potential!)

14 Contact details Jérôme Guillet Niels Jongste

15 Financing Offshore wind farms Annex: The Belwind example

16 The Belwind example Financed despite serious obstacles A bankrupt developer Banks in chaos (or worse) A tight turbine market and yet - a 550M financing

17 The Belwind example A landmark transaction Closed 24 July 2009 First non recourse offshore deal since the crisis Same structure (or better) as before the crisis Multiple awards How did we do it?

18 Contingencies We plan for the worst and fund it Realistic downside scenarios identified and budgeted (by Lenders Engineer) Money to cover such worst cases available on FC and under control of the banks It works!

19 Availability guarantees Vestas committed to make its turbines work Stringent due diligence to check that past problems were solved correctly Direct negotiations of terms of warranties Detailed discussion of O&M methodology Early involvement Trust built with Vestas

20 How the funding commitments were built Leverage is possible Equity ca. 20% Senior debt can reach 70% 70:30 is market standard But pure equity WILL be required not just federal money

21 How the funding commitments were built Public support via EIB Funding up to 50% of cost Risk up to EUR 300M Pari passu with banks

22 How the funding commitments were built Offshore s best weapon: EKF support Up to EUR 200M Very pragmatic approach Linked to Danish export content (Vestas or Siemens - or LM Glasfiber)

Tidal financing Lessons from offshore wind

Tidal financing Lessons from offshore wind Ocean Energy Europe - 22 November 2016 Clément Weber A specialist advisory boutique focused on renewable energy We get deals done Deep roots in renewable energy