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

Financing offshore wind farms: what can be done – the Belwind exemple. Jérôme Guillet. European Offshore Wind, Stockholm, 15 September 2009. Offshore wind finance. Present and future trends. Offshore wind was hit especially hard by the crisis

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

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  1. Financing offshore wind farms: what can be done – the Belwind exemple Jérôme Guillet European Offshore Wind, Stockholm, 15 September 2009

  2. 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

  3. Offshore wind finance Present and future trends 2006: Q7 Dexia Joint Arranger 2007: C-Power Dexia Sole Arranger 2009: Belwind Dexia Joint Arranger

  4. 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

  5. Dexia leads the way in offshore wind A 100% market share Q7 inauguration, June 2008

  6. Dexia leads the way in offshore wind A 100% market share Above: August 2008 Left: May 2009

  7. 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

  8. 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

  9. Underlying risks …are well understood • Regulatory risk • Workable framework in most countries with offshore resource • Strong political support • Clear message the offshore is vital for energy policy, climate policy and, today, jobs policies. • Price & volume risk • No 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 countries • Residual merchant risk can be accepted in some markets (UK, Benelux) under prudent assumptions and with appropriate hedging mechanisms

  10. Underlying risks …are understood • Construction management and coordination • Two industries not used to working together • Projects are more complex than onshore and require management and planning skills absent in the wind industry • Projects very large compared to size of sponsors (other than utilities) and manufacturers • Weather uncertainty creates additional risk • Nothing that cannot be solved by engineers!

  11. 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 up • Procedures & industrial base are being established • Redundancy and preventative maintenance can help with the issue of weather-related lack of access to turbines • Conservative planning and budgets add to cost

  12. 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?

  13. What can be done? Belwind!

  14. Belwind: a brief history A transaction planned well in advance • 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

  15. Belwind debt the main terms

  16. 3 offshore wind deals the regulatory framework

  17. 3 offshore wind deals the technology and contracts

  18. 3 offshore wind deals the debt amounts

  19. 3 offshore wind deals the debt terms

  20. 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.

  21. Belwind: some lessons How it is a useful precedent • 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!

  22. 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 debt • Commercial 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

  23. Bewlind: some lessons (focus on the right thing on the picture) 2006: Q7 Dexia Joint Arranger 2007: C-Power Dexia Sole Arranger 2009: Belwind Dexia Joint Arranger

  24. Financing offshore wind farms: what can be done – the Belwind exemple Jérôme Guillet European Offshore Wind, Stockholm, 15 September 2009

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