European Offshore Wind, Stockholm, 15 September 2009

Jérôme Guillet

Financing offshore wind farms: what can be done – the Belwind exemple

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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

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Offshore wind finance

Present and future trends

2006: Q7 Dexia Joint Arranger2007: C-Power Dexia Sole Arranger2009: Belwind Dexia Joint Arranger

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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

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Dexia leads the way in offshore wind

A 100% market share

Q7 inauguration,June 2008

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Dexia leads the way in offshore wind

A 100% market share

Above: August 2008Left: May 2009

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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

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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

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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

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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!

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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

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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?

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What can be done?

Belwind!

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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

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Belwind debt

the main terms

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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

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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

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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%

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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.

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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

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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

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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)

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European Offshore Wind, Stockholm, 15 September 2009

Jérôme Guillet

Financing offshore wind farms: what can be done – the Belwind exemple