Windenergie Windenergie projectenprojecten

Juridische planning,Juridische planning,documentatie en documentatie en

financieringfinanciering

Weero KosterWeero Koster16 mei 201316 mei 2013

Enter: project financingEnter: project financing• New projectNew project

• Ringfenced through SPVRingfenced through SPV

• High leveraging/gearingHigh leveraging/gearing

• Non-recourse or limited recourseNon-recourse or limited recourse

• Future cash-flows service interest and debt Future cash-flows service interest and debt repayment (rather than value assets)repayment (rather than value assets)

• Main security is SPV’s contracts, licenses, Main security is SPV’s contracts, licenses, permits, concessions, reports, studiespermits, concessions, reports, studies

Project financing: why ?Project financing: why ?• Leverage: higher ROELeverage: higher ROE

• Tax benefitsTax benefits

• Off-balance-sheet finacingOff-balance-sheet finacing

• Increased borrowing capacityIncreased borrowing capacity

• Risk limitationRisk limitation

• Risk sharing/ JV’sRisk sharing/ JV’s

• Long-term financeLong-term finance

• Enhanced creditEnhanced credit

Project financing Project financing consequencesconsequences

• Lenders have no ‘upside’Lenders have no ‘upside’

• Have to protect against ‘downside’ riskHave to protect against ‘downside’ risk

• High level attention to mitigating and High level attention to mitigating and allocating project risksallocating project risks

• Not mitigating and allocating risks properly Not mitigating and allocating risks properly leads to renegotiation of contracts, higher leads to renegotiation of contracts, higher costs, higher provisions & reserves, lower costs, higher provisions & reserves, lower cash-flow and lower IRR cash-flow and lower IRR

• Legal planning & documentation should Legal planning & documentation should take project finance requirement lenders take project finance requirement lenders into account from the start of the projectinto account from the start of the project

8 main project risks8 main project risks• Commercial viability (market, competition)Commercial viability (market, competition)

• Completion risk (site, permits, contractor, Completion risk (site, permits, contractor, cost overruns, revenue during construction, cost overruns, revenue during construction, delay in completion, inadequate delay in completion, inadequate performance on completion, third-parties performance on completion, third-parties and interface)and interface)

• Environmental risk (pollution, permits and Environmental risk (pollution, permits and changes)changes)

• Operating risk (technology, operation Operating risk (technology, operation management and costs, availability, management and costs, availability, maintenance, performance degradation)maintenance, performance degradation)

8 main project risks8 main project risks

• Revenue risk (volume, price)Revenue risk (volume, price)

• Force Majeure risk (delay, physical Force Majeure risk (delay, physical damage, political, uninsurable events)damage, political, uninsurable events)

• Financial risk (inflation, interest rates, Financial risk (inflation, interest rates, exchange rates,)exchange rates,)

• Political risk (currency, expropriation, Political risk (currency, expropriation, disturbance, change-in-law/ subsidies)disturbance, change-in-law/ subsidies)

Project main project risksProject main project risks• Contract mismatch (take-over, COD, pre-Contract mismatch (take-over, COD, pre-

completion costs and revenues, delays, cost completion costs and revenues, delays, cost overruns, force majeure, change in law, overruns, force majeure, change in law, receipt and payment of monies),receipt and payment of monies),

leading to:leading to:

• Sponsor support (contingent equity, cost Sponsor support (contingent equity, cost overrrun guarantee, completion guarantee, overrrun guarantee, completion guarantee, payment subordination, clawback payment subordination, clawback guarantee,cash deficiency guarantee) guarantee,cash deficiency guarantee)

Project main project risksProject main project risks

• Due diligence & IdentificationDue diligence & Identification

• Allocation to project parties under Project Allocation to project parties under Project ContractsContracts

• Quantification & Mitigation of remaining Quantification & Mitigation of remaining riskrisk

Project financing wind: Project financing wind: main documentsmain documents

• SPV constitutive documents sponsors & equity SPV constitutive documents sponsors & equity providersproviders

• Permits & licensesPermits & licenses

• SiteleasesSiteleases

• Construction ContractsConstruction Contracts

• Grid Realisation and Connection & Transport Grid Realisation and Connection & Transport AgreementAgreement

• Power Purchase AgreementPower Purchase Agreement

• Operation & Maintenance AgreementOperation & Maintenance Agreement

• Insurance packageInsurance package

• Financing: Facility, Direct and Intercreditor Financing: Facility, Direct and Intercreditor AgreementsAgreements

SPVSPV

Corporate entity Establishment General features

V.o.f.Partnership

• no formal requirements• partnership agreement is advisable

• all partners can in principle represent the partnership• joint and several liability• separate capital

CVLimited Partnership

• no formal requirements• Partnership agreement is advisable

• special form of V.o.f.• joint and several liability• but limited partners: only limited liability

BVPrivate limited company

• Notarial deed • Declaration of no objections (to be abolished)• Minimum capital requirements: EUR 18.000• Registration trade register

• separate legal entity and own capital• tradable shares• board members can in principle represent the company individually• limited liability• possibility or obligation to set up Supervisory board

NVPublic limited company

• Notarial deed • Declaration of no objections (to be abolished)• Minimum capital requirements: EUR 45.000• Registration trade register

• separate legal entity and own capital• tradable shares• board members can in principle represent the company individually• limited liability• possibility or obligation to set up Supervisory board

SPV issuesSPV issues• Feasibility studies (site surveys, wind Feasibility studies (site surveys, wind

studies)studies)

• Legal form and personalityLegal form and personality

• Limited liabilityLimited liability

• Tax treatmentTax treatment

• JV and development issuesJV and development issues

• Project management and controlProject management and control

• Revenue allocation and distributionRevenue allocation and distribution

Risk allocationRisk allocation• Commercial viability risk (market, competition)Commercial viability risk (market, competition)

• Permitting & subsidy riskPermitting & subsidy risk

• Some Operating risk (operation management and Some Operating risk (operation management and costs) costs)

• Some Force Majeure risk (uninsurable events)Some Force Majeure risk (uninsurable events)

• Political risk (currency, expropriation, disturbance, Political risk (currency, expropriation, disturbance, change-in-law)change-in-law)

• Contract mismatch risk (take-over, COD, pre-Contract mismatch risk (take-over, COD, pre-completion costs and revenues, delays, cost completion costs and revenues, delays, cost overruns, force majeure, change in law, receipt and overruns, force majeure, change in law, receipt and payment of monies),payment of monies),

Siteownership & Siteownership & leaselease

Title to land Title to panels or turbines

Agreements Issues

Ownership SPV • Land purchase agreement• Notarial deed

Strongest title to land and installations.

Superficies(Opstal)

SPV • Agreement of superficies• Notarial deed • Agreements other users

Ownership of the land is not transferred. SPV is only granted title to the constructions build on the land

Land lease(Erfpacht)

Land owner • Agreement of Land Lease• Notarial deed• Agreements other users

Title to both the land and the turbines shall belong to the owner of the land. SPV is only granted an exclusive right to use the property

Servitude(erfdienstbaarheid)

• Agreement servitude• Notarial deed• Agreements other users

Servitudes can be vested to the benefit of another plot of land. For example right of access (overpad).

Site issuesSite issues• Legal formLegal form

• Long-term availability, use and accessLong-term availability, use and access

• Fixed-costsFixed-costs

• Restrictions on useRestrictions on use

• Environmental issuesEnvironmental issues

• Possibility to grant security and transferPossibility to grant security and transfer

Risk allocationRisk allocation• Some Completion risk (site, permits, cost Some Completion risk (site, permits, cost

overruns, third-parties and interface)overruns, third-parties and interface)

• Some Environmental risk (pollution, Some Environmental risk (pollution, permits and changes) permits and changes)

• Some Operating risk (operation costs, Some Operating risk (operation costs, availability, maintenance)availability, maintenance)

Forms of Construction Forms of Construction ContractsContracts

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General applicationGeneral application• Yellow Book: design/build contract Yellow Book: design/build contract

electrical/mechanical works, including plant electrical/mechanical works, including plant supply and construction works; allocation of risk supply and construction works; allocation of risk on basis of insurability, project management on basis of insurability, project management principles and ability to foresee and mitigateprinciples and ability to foresee and mitigate

• Silver Book: fixed-price, date-certain, lump-sum Silver Book: fixed-price, date-certain, lump-sum turn-key contract:turn-key contract:• Shift of risks to Contractor: design and executionShift of risks to Contractor: design and execution

• Little risk of price increase (but higher price) or delay Little risk of price increase (but higher price) or delay for Employerfor Employer

General risk profile: Shift of General risk profile: Shift of risksrisks

• Employer’s Engineer is Employer’s Employer’s Engineer is Employer’s RepresentativeRepresentative

• Employer’s ‘determinations’Employer’s ‘determinations’

• Setting Out responsibility ContractorSetting Out responsibility Contractor

• (No) Unforeseeable difficulties & verification/ (No) Unforeseeable difficulties & verification/ interpretation of Employer data (incl. sub-interpretation of Employer data (incl. sub-surface, hydrological and Employer surface, hydrological and Employer Requirements)Requirements)

• General design obligations, design error: General design obligations, design error: Contractor fully responsible for design and Contractor fully responsible for design and design coordination (including Employer design)design coordination (including Employer design)

Shift of risks, cont’dShift of risks, cont’d• No extension of Time for Completion No extension of Time for Completion

for:for:

• exceptionally adverse climatic conditions exceptionally adverse climatic conditions (except FM) (except FM)

• unforeseeable shortages in personnel or unforeseeable shortages in personnel or goods by epidemic or government actionsgoods by epidemic or government actions

• Errors in Employer’s RequirementsErrors in Employer’s Requirements

• Setting OutSetting Out

• Unforeseeable physical conditionsUnforeseeable physical conditions

Shift

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• Employer’s Risk

Employer’s Risk excludes:excludes:• Use of works by

Use of works by Employer,Employer,• Design of works by

Design of works by Employer’s personnel,

Employer’s personnel,• Unforeseeable operation

Unforeseeable operation

of forces of nature

of forces of nature

Price & quality Price & quality protection:protection:

• Fixed price lump sum payments against schedule of Fixed price lump sum payments against schedule of payments & Performance Certificatepayments & Performance Certificate

• Robust security package: advance payment bond, Robust security package: advance payment bond, performance bond, retention of moneyLiquidated performance bond, retention of moneyLiquidated

• Liquidated Damages for delay (10 – 20 %, > ?)Liquidated Damages for delay (10 – 20 %, > ?)

• Defects liability period (>2 yrs)Defects liability period (>2 yrs)

• Warranty bond after Taking Over (> 2yrs) Warranty bond after Taking Over (> 2yrs)

• Liquidated Damages for performance (10 – 20 %, Liquidated Damages for performance (10 – 20 %, > ?)> ?)

Risk AllocationRisk Allocation• Main Completion Risk in EPC contract Main Completion Risk in EPC contract

(contractor, cost overruns, revenue during (contractor, cost overruns, revenue during construction, delay in completion, inadequate construction, delay in completion, inadequate performance on completion), Some Force performance on completion), Some Force Majeure risk Majeure risk

• Limited scope for Contractor claims for Limited scope for Contractor claims for time/money; Contractor will:time/money; Contractor will:• Price these risks, so increase initial Contract SumPrice these risks, so increase initial Contract Sum

• Do extensive due diligence to mitigate, leading to Do extensive due diligence to mitigate, leading to delay in executiondelay in execution

Operation & Maintenance Operation & Maintenance ContractContract

Creditworthy, experienced Operator: Creditworthy, experienced Operator: turbine supplier ? turbine supplier ?

Can the Operator be replaced ?Can the Operator be replaced ?

What is ‘Operation” ? Scope of workWhat is ‘Operation” ? Scope of work

Agreed upon performance criteria at Agreed upon performance criteria at fixed/ predictable OPEXfixed/ predictable OPEX

Operation & Maintenance Operation & Maintenance ContractContract

Increased OPEX through latent defects/ new Increased OPEX through latent defects/ new technology: typically defects warranty ends technology: typically defects warranty ends after 2-5 yearsafter 2-5 years

Performance guarantees with LD’s: Performance guarantees with LD’s: Availability, power curve, soundAvailability, power curve, sound

cover variety of costs, but also PPA damages ?cover variety of costs, but also PPA damages ?

but usually low caps. What if operator cannot be but usually low caps. What if operator cannot be replaced ?replaced ?

Operation & Maintenance Operation & Maintenance ContractContract What is the maintenance standard ?What is the maintenance standard ?

Does maintenance include replacement of Does maintenance include replacement of ‘Components”: blades, nacelle, tower, gearbox ?‘Components”: blades, nacelle, tower, gearbox ?

Is maintenance work warranted for design, Is maintenance work warranted for design, materials, workmanship ? Serial defects ?materials, workmanship ? Serial defects ?

Is there access to the site for components ?Is there access to the site for components ? Is there an on-site stock and what’s in it ?Is there an on-site stock and what’s in it ? How long will spares remain available ?How long will spares remain available ? Condition of the Works at the end of the Condition of the Works at the end of the

maintenance term ? Testing ?maintenance term ? Testing ?

Risk AllocationRisk Allocation

• Main Operating risk (technology, Main Operating risk (technology, operation management and costs, operation management and costs, availability, maintenance, availability, maintenance, performance degradation) performance degradation)

• Some Political risk (change-in-law)Some Political risk (change-in-law)

Power Purchase Power Purchase AgreementAgreement CP’s & milestonesCP’s & milestones

Delay in COD, testing, early production (at opex + price ?)Delay in COD, testing, early production (at opex + price ?)

Failure to construct or achieve nameplate capacityFailure to construct or achieve nameplate capacity

Approval by purchaser of project doc’s, e.g. pass-Approval by purchaser of project doc’s, e.g. pass-through OPEX or CAPEX overrunsthrough OPEX or CAPEX overruns

Price linkeage to subsidiesPrice linkeage to subsidies Operation of plant/ curtailmentOperation of plant/ curtailment Take-or-pay is not an absoluteTake-or-pay is not an absolute Delivery point, connection & transportDelivery point, connection & transport Long-term income securityLong-term income security

Risk AllocationRisk Allocation

• Main Revenue risk (volume, price) Main Revenue risk (volume, price)

• Some Operating risk (operation Some Operating risk (operation management and costs, availability, management and costs, availability, maintenance,) maintenance,)

• Some Political risk (change-in-law)Some Political risk (change-in-law)

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