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European Offshore Wind, Stockholm, 15 September 2009
Jérôme Guillet
Financing offshore wind farms: what can be done – the Belwind exemple
22
Offshore wind finance
Present and future trends
Offshore wind was hit especially hard by the crisis
Underlying risks are increasingly well understood
Belwind is providing a welcome precedent
33
Offshore wind finance
Present and future trends
2006: Q7 Dexia Joint Arranger2007: C-Power Dexia Sole Arranger2009: Belwind Dexia Joint Arranger
44
Dexia is a market leader
…with a wide geographic diversification
Dexia has the most diversified wind portfolio of any bank in the sector, spanning 15 countries on 5 continents
55
Dexia leads the way in offshore wind
A 100% market share
Q7 inauguration,June 2008
66
Dexia leads the way in offshore wind
A 100% market share
Above: August 2008Left: May 2009
77
The crisis has hit offshorewind especially hard
… and at the worst possible moment
A nascent sector, with few precedents
Banks re-focusing on select clients, countries and sectors Risk aversion leading to abandoning less understood sectors Few banks have a precedent to use for internal approval
Large deals needed with no syndication market Multi-hundred million euro/sterling transactions contemplated Club deals are rather impractical when 10+ banks needed Universe of commercial banks is limited, so competition for those banks active in the sector is strong
88
Banks with experience
of offshore limited recourse finance are still relatively rare
• Dexia Arranger Lender Advisor Ongoing Mandate• Rabobank Arranger Lender Advisor Ongoing Mandate• BNP Paribas / Fortis Arranger Lender Ongoing Mandate• ASN Bank Arranger Lender• BoTM Lender Advisor Ongoing Mandate• HSH Lender Advisor Ongoing Mandate• SocGen Lender Advisor Ongoing Mandate• NIBC Lender Ongoing Mandate• KBC Lender• Unicredit / HVB Advisor Ongoing Mandate• KfW-IPEX Advisor Ongoing Mandate• RBC Advisor• Nord LB Advisor Ongoing Mandate• LBBW Advisor Ongoing Mandate
99
Underlying risks
…are well understood
Regulatory risk
Workable framework in most countries with offshore resourceStrong political supportClear message the offshore is vital for energy policy, climate policy and, today, jobs policies.
Price & volume riskNo price risk in countries with feed-in tariffs (largest markets)Green certificate mechanisms or ROCs provide a significant fraction or price-risk-free revenues in several countriesResidual merchant risk can be accepted in some markets (UK, Benelux) under prudent assumptions and with appropriate hedging mechanisms
1010
Underlying risks
…are understood
Construction management and coordination
Two industries not used to working togetherProjects are more complex than onshore and require management and planning skills absent in the wind industryProjects very large compared to size of sponsors (other than utilities) and manufacturers Weather uncertainty creates additional risk
Nothing that cannot be solved by engineers!
1111
Underlying risks
…are understood
Long term O&M
Combination of miore aggressive environment, higher loads and much more challenging access to turbines
Experience & track record is building upProcedures & industrial base are being establishedRedundancy and preventative maintenance can help with the issue of weather-related lack of access to turbines
Conservative planning and budgets add to cost
1212
The offshore wind check list
(or – what you need to worry about before you talk to the banks)
Who’s providing the vessels & cranes to build the wind farm? Who’s providing the vessels & cranes to operate the wind farm? What’s the name of the vessels? What’s the name of substitute vessels you could use? Who’s paying for the vessel & cranes if there’s bad weather? How long is the Defect Liability Period? When does it start? What’s the availability guarantee like? What are the exclusions? What are the caps on liability? How long do you need to get the cable? The transformer station? Are interfaces defined in the same way in the various contracts? Who’s coordinating the construction? Did he negotiate the contracts? Does he know them by heart? Does he understand how and why the bankers care about these things?
And, the most important…Has the client already thought about these questions?
1313
What can be done?
Belwind!
1414
Belwind: a brief history
Project concession to Econcern in April 2006
Explicit choice to work with people and firms that did the earlier offshore deals
Long term, multi-project framework with the contractors
Banks involved since April 2008
EIB involved in discussions long before crisis
A transaction planned well in advance
1515
Belwind debt
the main terms
1616
3 offshore wind deals
the regulatory framework
Q7 C-Power Belwind
Country Netherlands Belgium Belgium
Regulatory support - investment
Accelerated depreciation(150% of
investment)
Grid Subsidy(EUR 25M)
Grid Subsidy(EUR 25M)
Regulatory support - production
Green certificates
97 EUR/MWh(10 years)
Green Certificates
107 EUR/MWh (20 years)
Green Certificates
107 EUR/MWh (20 years)
Electricity sales Market Market Market
1717
3 offshore wind deals
the technology and contracts
Q7 C-Power Belwind
Size 120 MW 30 MW 165 MW
Turbine Vestas V80 Repower 5M Vestas V90
Distance from shore
23 km 27 km 46 km
Water depth 19-24m 15-24m 15-37m
Net P50 capacity factor
39.4% 43.4% (6 turbines) 37.2%
BOP Contractor Van Oord DEME / Fabricom Van Oord
Number of contracts
2 3 2
Operator Vestas Repower Vestas
Initial O&M Contract
5 years + 5 10 years 5 years + 5
1818
3 offshore wind deals
the debt amounts
Q7 C-Power Belwind
Base Case Budget
383 M 153 M 619 M
(in MEUR/MW) 3.200 5.100 3.750
Mezzanine, Subsidies & early generation
145 M38%
32 M21%
89 M14%
Senior Debt (base)
188 M 95 M 426 M
(as a % of base investment)
49% 62% 70%
Contingent Budget Contingent debtContingent equity
60M30 M (50%)
30 M
16 M11 M (70%)
5 M
80M56 M (70%)
24 M
Sponsor Equity 50 M 26 M 104 M
(as a % of base case)
13% 17% 17%
1919
3 offshore wind deals
the debt terms
Q7 C-Power Belwind
Debt Sizing 1.35 DSCR @p90
1.30 DSCR @p90
1.50 DSCR @p50
Debt:Equity limit
50:50 70:30 70:30
Maturity 11y 16.5y 16.5y
Margins (commercial)
125-225pb 110-190bp 300-350bp
“Commercial” debt
148 M / 218 M 116 M / 116 M 120 M / 482 M
as % of senior debt 68% 100% 25%
IFI / ECA EKF EKF & EIB
Arranging period
03/2005 – 10/2006
06/2006 – 05/2007
04/2008 – 07/2009
Syndication 3 banks 3 banks tbd
2020
3-way negotiations are key
Don’t negotiate the turbines without the banks!
The turbine manufacturers welcome bank involvement in contract negotiations, and all parties benefit.
2121
Belwind: some lessons
It IS a precedent. That’s good per se for bankers
Framework to take construction risk (and punchlist to be taken into account) stabilised
The EIB and EKF agreed to take risk pari passu with commercial banks, and validated the existing structure, making it a market standard
Bankruptcy is not an obstacle!
The financial crisis is not an obstacle!
How it is a useful precedent
2222
What will get done
several projects are expected to be financed in the next 12 months
Boreas/Centrica (BoTM financial advisor, Dexia technical bank)Up to GBP 400 M in bank debtCommercial bank club deal
Merwind/Blackstone (Dexia and KfW financial advisors)Up to EUR 800M in bank debt
undisclosed (Dexia as Arranger)Around EUR 150M in bank debt
C-Power 2 (Dexia as Agent of phase 1)Up to EUR 700M in bank debt
2323
2006: Q7 Dexia Joint Arranger2007: C-Power Dexia Sole Arranger2009: Belwind Dexia Joint Arranger
Bewlind: some lessons
(focus on the right thing on the picture)
2424
European Offshore Wind, Stockholm, 15 September 2009
Jérôme Guillet
Financing offshore wind farms: what can be done – the Belwind exemple