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CONFIDENTIAL
OFFSHORE WIND PROJECT FINANCING: LESSONS LEARNT, BANKABILITY AND IRR OPTIMISATION
May 2019
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SG IN OFFSHORE WIND
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SG - A LEADING ENERGY PROJECT FINANCE GROUP WITH FOCUS ON OFFSHORE WIND
GLOBAL LEADER IN OFFSHORE WIND DEBT AND EQUITY ADVISORY, AND DEBT ARRANGING
• One of the most awarded energy financing teams in the market, with strong commitment and expertise in advising and financing energy infrastructure assets worldwide
• Solid experience in renewable energy transactions across different geographies and different technologies, including the most innovative ones such as carbon capture & storage, solar CSP and offshore wind
• SG has a clear renewable energy and dedicated offshore strategy and has played leading roles in structuring and financing
• Expertise in all active offshore jurisdictions
▶ SG’s advisory and lending success isbased on a “One-Stop-Shop” forclients
▶ SG supports the projects where weact as financial advisor, with eitheran underwriting or a large-ticketsenior lending
Refinancing of Northwind (216 MW) and C-Power(325 MW), Belgium, 2017
Deutsche Bucht (252 MW), Butendiek (288 MW),refinancing of Trianel (200 MW), Germany, 2017
Merkur (396 MW), Germany, 2016
Rentel (309 MW) and Norther (370 MW), Belgium, 2016
Beatrice (588 MW), UK, 2016
Lincs (270MW), UK Green Investment Lyle’s 31% stake financing, UK, 2017
Dunkerque (750MW), Le Tréport (500MW) and Noirmoutier (500MW), France, Ongoing
Confidential floating wind project, Ongoing
Borssele III and IV (700 MW), Netherlands, 2017
Borssele I and II, Netherlands, 2016
Kriegers Flak (600 MW), adviser to a bidder, Denmark, 2016
London Array (CDPQ’s 25% financing), UK, 2017
Dudgeon (402 MW), UK, 2016
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SeaMade (487 MW), Belgium, 2018
Merkur Refinancing (396 MW), Germany, 2018
Northwester 2 (219 MW), refinancing of Belwind (165 MW) and Nobelwind (165 MW), Belgium, 2018
Hornsea 1 (1.2 GW), Moray East (1.1 GW), refinancing of Galloper (336 MW), UK, 2018
RECENT DEALS IN EUROPE SINCE 2016
Debt & M&A Advisor to Enbridge on the acquisition of a 50% stake in offshore wind projects owned by EDF EN and Dong Energy, France, 2017
Debt & M&A Advisor for the CTG’s acquisition of equity in a 3-asset portfolio of offshore development projects, Europe, 2017
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GLOBAL ADVISOR OF THE YEAR
GLOBAL PROJECT FINANCE ADVISER RANKINGS –2018
SOCIETE GENERALE 2018 DEAL AWARDS FOR ENERGY FINANCE
Europe Bank of the Year
2015 PFI
Global Adviser of the Year
2016 PFI
Europe Bank of the Year
2017 PFI
#2 Best Arranger of
Project Finance
Loans
2017 GLOBALCAPITAL
SIGNIFICANT BANKING AWARDS
SG CIB has topped the Global Project Finance Adviser league table with 9.5% of the market share.
#1
Rank Financial Adviser Vol USDm Deals %share
1 Societe Generale 21,934 12 9.5%
2 EY 17,402 48 7.5%
3 KPMG 13,971 20 6.0%
4 Macquarie 13,315 31 5.8%
5 Royal Bank of Canada 12,331 11 5.3%
6 MUFG 10,942 14 4.7%
7 Santander 10,710 32 4.6%
8 HSBC 8,194 5 3.5%
9 SMBC 7,639 9 3.3%
10 Rothschild 7,149 9 3.1%
TOTAL 231,372 443 100%
Source: IJGlobal –Global Project Finance Volume by Financial Adviser –2018
SG HAS A LONGSTANDING AND WELL ESTABLISHED TRACK RECORD OF PROVIDING FINANCIAL ADVISORY SERVICES AND ARRANGING DEBT FORTHE POWER SECTOR
• Moray East Offshore Wind Farm (UK)Project FinancingEUR 2,600,000,000Deal of the Year (PFI)
• Formosa 1 Offshore Wind Farm (Taiwan)Project FinancingNTD 18,700,000,000Deal of the Year (PFI)
• Nachtigal Hydroelectric (Cameroon)Project FinancingEUR 1,200,000,000Deal of the Year (PFI)
• Hornsea 1 Offshore Wind Farm (UK)Project FinancingGBP 3,364,000,000Deal of the Year (PFI)
• Borssele III & IV Offshore Wind Farm (the Netherlands)Project FinancingEUR 1,260,000,000Deal of the Year (PFI)
• Trans Adriatic Pipeline (Europe)Project FinancingEUR 3,764,600,000Deal of the Year (PFI)
Global Advisor of the Year
2018 PFI
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LESSONS LEARNT
Back testing on construction risk
Despite multi-contracting, only one project experienced cost overruns exceeding contingencies
Most of the projects built on time and on budget
Trend towards a reduced number of construction contracts but no full EPC wrap
Operation
Wind yield: current refinancings at COD + X years demonstrate supportive wind yields, with a number of projects in line
with P50
Development of yield-based availability warranties
Sponsors In-house O&M vs. Turbine Supplier – fight for cash flows?
Issues Encountered
Weak sub-contractors - major delays and cost overruns
Leading edge erosion
Cables more prone to incidents than expected
Focus on Certification
More leeway, more and more flexibility to treat as a conditions subsequent after financial close
Sky is the limit?
Technology keeps evolving – 12 MW turbines?
A very positive track-record but technological challenges ahead and offshore wind risks remain complex to assess
WHAT WE HAVE LEARNT (1/2)
Our various advisory roles, in particular for tenders, have put us at the heart of tariff optimisation
Capex and Opex remain in our experience the main drivers to bring the tariff down
Then come, at a secondary level, other price reduction drivers such as financing cost – all IRR optimisations
make a difference
A new world without subsidies – yes or no? and how to get there?
WHAT WE HAVE LEARNT (2/2)
TARIFF REDUCTION IN EUR / MWH
CAPEX DECREASE
OPEX DECREASE
INCREASED AVAILABILITY
INCREASED WIND YIELD ASSUMPTIONS
PPA DISCOUNT
FINANCING
IRR TOLERANCE
BASE CASE
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BANKABILITYCONSIDERATIONS
A number of options available
No standard structure – depends on sponsors key IRR objectives and regulatory framework
KEY CREDIT AND STRUCTURING CONSIDERATIONS
Contingencies
Optimize hedging
strategyGearing
Tenor post
completion
Refinancing at
COD or when de-
risked
Mezzanine debt No MRA
Equity injectionDistribution
efficiency
Reduction of debt
cost
LCs instead of
cash reserves,
DSRF instead of
DSRA
DSCR Sizing
Optimisation of the capital structure – Radar screen
Layout
optimisation
Subordinated
Payments
Payment deferrals /
Payment curve
Installation
schedule
SynergiesLong lead itemsImprove Px yield
uncertainly
Reduce
unavailability in
base case
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BANKABILITY FOR FLOATING PROJECTS
Technology
Access to near shore deep waters (to make OFW possible) or far shore (to access strong wind resource)
More competitive installation costs (at port, less vessels) and O&M costs (maintenance at port)
Coupled design and interface between the turbine and the foundation
Can we talk about agnostic technologies?
Contractual consequences on the TSA and SMA
Potential carve outs of the availability warranty and of the power curve warranty etc.
Risks not covered by contractors
Failure of the mooring system during operation
Impact on cabling etc
Design and Certification
Back to a conservative certification approach?
Wind yield assessment
Use of a floating lidar?
Impact of buoyancy compared to fixed OFW and usual technical due diligence issues for fixed-bottom OFW
Increased interface risk
Preliminary conclusions – Floating offshore wind is at an early stage but definitely promising and heading to bankability
FLOATING OFFSHORE WIND
Cédric ChatelDirectorEnergy Finance & Advisory
Hong Kong
Tel: +852 6078 0773
cedric.chatel@sgcib.com
THANK YOU
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