Project Finance for Renewable Energy
“Jordan Renewables” workshop
in conjunction with EDAMA
Four Seasons Hotel, Amman.
Ind...
Limited Recourse and Non Recourse
Financing – Terms used interchangeably
• What is it?
“The financing of the development o...
Financing – Possible routes
• Limited/Non recourse debt for greenfield projects
• What is limited recourse
• The “full sco...
Project Finance Structure
Shareholders
SPV
Landlord
Offtaker
Subcontractors Subcontractors Subcontractors
Banks
Direct Agr...
Key elements of bankability of wind
projects
Property and planning
• Option for lease and lease
• Term of lease
• Certainty of rental and other costs - RPI
• Terminati...
Energy Yield
• Wind/Solar Data
• Correlation
• P50/P90 – debt sizing
Debt to Equity
• History of developer
• Site
• Funding shortfalls
• Contingent equity
• Change of control
Grid Connection
• Date of connection
• Capacity
• Land rights
• Remedies
Technology
• Turbine supplier/Panel Supplier
• Warranties
• O&M
• Currency risk
PPA
• Term
• Contract Price
• Price adjustments
• Change in law
• Counterparty risk
• Security arrangements
Construction
• Longstop date
• Assumed completion date
• Liquidated damages
• Collateral warranties
• Interface issues – m...
Operational
• O&M agreement
• Project management agreement
• Availability guarantees (95%-97%)
• Debt service reserve
• Ma...
Bank Protections
• Security structure
• Intercreditor issues
• Distributions and distribution conditions
• Reporting requi...
Lender – Sponsor Friction points
• How intrusive is the due diligence?
• Review of interfaces, sub-contracts, logistics an...
PF or not to PF (1)
• It helps improve risk discipline for the project
• More external eyes on contracts, interfaces and d...
PF or not to PF (2)
• It needs to be an early decision by investors
• A lot of the value from project finance discipline c...
Eversheds Clean Energy and Renewables Sector
Indraj Mangat, Partner, Banking
Eversheds
+44 776 741 1508
indrajmangat@evers...
© EVERSHEDS LLP 2013. Eversheds LLP is a limited liability partnership.
Upcoming SlideShare
Loading in …5
×

Project finance "Jordan Renewables" Workshop, hosted by EDAMA, Amman. 16th May 2013

1,582 views

Published on

Project finance presentation delivered at the "Jordan Renewables" Workshop, hosted by EDAMA and Eversheds.
Held at the Four Seasons Hotel, Amman, Jordan
16th May 2013

Published in: Business, Economy & Finance
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,582
On SlideShare
0
From Embeds
0
Number of Embeds
1,124
Actions
Shares
0
Downloads
9
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Project finance "Jordan Renewables" Workshop, hosted by EDAMA, Amman. 16th May 2013

  1. 1. Project Finance for Renewable Energy “Jordan Renewables” workshop in conjunction with EDAMA Four Seasons Hotel, Amman. Indraj Mangat, Partner, Banking Eversheds LLP 16th May 2013
  2. 2. Limited Recourse and Non Recourse Financing – Terms used interchangeably • What is it? “The financing of the development or exploitation of a right, natural resource or other asset where the bulk of the financing is to be provided by way of debt and is to be repaid principally out of the asset being financed and its revenues.” • Key features
  3. 3. Financing – Possible routes • Limited/Non recourse debt for greenfield projects • What is limited recourse • The “full scope “project finance version, allowing significantly lower equity commitments • It is available, but requires to go through a specific discipline • Subject to rating agencies perception • Limited/Non recourse refinancing of operational projects • Available now that more projects are actually operational and have good track records • Simpler than greenfield as all construction contractual & management issues have been resolved • May take the form at some point of portfolio refinancings (and allow for sale of minority stakes in these as well) • Sale of minority stakes in projects, pre- or post-completion • Allows to recycle capital invested in existing projects into new ones without loss of operational control • Recent transactions have shown there is appetite from many types of investors for these assets • Most interested investors to date prefer to avoid construction risk, but that will change • Allows capture of value through long term O&M arrangements or PPAs
  4. 4. Project Finance Structure Shareholders SPV Landlord Offtaker Subcontractors Subcontractors Subcontractors Banks Direct Agreements and Assignments Security (Debenture) Limited Recourse Facility Leases
  5. 5. Key elements of bankability of wind projects
  6. 6. Property and planning • Option for lease and lease • Term of lease • Certainty of rental and other costs - RPI • Termination rights • Direct Agreement • Grid Connection - wayleaves • Site access roads • Adjacent rights - restrictions
  7. 7. Energy Yield • Wind/Solar Data • Correlation • P50/P90 – debt sizing
  8. 8. Debt to Equity • History of developer • Site • Funding shortfalls • Contingent equity • Change of control
  9. 9. Grid Connection • Date of connection • Capacity • Land rights • Remedies
  10. 10. Technology • Turbine supplier/Panel Supplier • Warranties • O&M • Currency risk
  11. 11. PPA • Term • Contract Price • Price adjustments • Change in law • Counterparty risk • Security arrangements
  12. 12. Construction • Longstop date • Assumed completion date • Liquidated damages • Collateral warranties • Interface issues – multi-contracting • Insurance and title transfer
  13. 13. Operational • O&M agreement • Project management agreement • Availability guarantees (95%-97%) • Debt service reserve • Maintenance reserve • Monitoring
  14. 14. Bank Protections • Security structure • Intercreditor issues • Distributions and distribution conditions • Reporting requirements • Accounts and project revenue control • Insurance • Hedging agreements
  15. 15. Lender – Sponsor Friction points • How intrusive is the due diligence? • Review of interfaces, sub-contracts, logistics and project management – irrespective of contractual structure • Review of technology, supply chain, quality control processes, key personnel, sub-contractor creditworthiness • How involved are the banks (or relevant advisors) in contract negotiation? • Requirement for a number of PF-standard clauses • More explicit warranty and interface language • Decision on number of contracts • Responsibility for vessels • Parent company guarantees or performance bonds • How strict are the financial covenants? • Detailed information – and at times, validation of decisions • Share retention clauses • Debt: Equity 70:30 • Equity Upfront • Consecutive O&M assumptions • What are the terms and conditions for long term O&M? • Tenor, scope, liability, fixed price, counterparty • Options to exit after a few years
  16. 16. PF or not to PF (1) • It helps improve risk discipline for the project • More external eyes on contracts, interfaces and detailed project structure • Specific focus by banks and their advisors on potential downside scenarios • Project can “work” on a stand-alone basis (which makes it easier to sell) • It can help investors – and contractors! • Blame the Bank • Less zero-sum negotiations • It’s really limited/non-recourse • Banks take construction risk on the basis of the contracts and committed contingency mechanisms • While sponsor involvement is valued, banks evaluate deals with no expectation of additional cash in • Pricing will come down
  17. 17. PF or not to PF (2) • It needs to be an early decision by investors • A lot of the value from project finance discipline comes at an early stage, when choosing the contractual structure and negotiating the relevant contracts • The good news is that a lot of that work can be done without involving large banking groups, by using a small number of specialised advisors • It requires experienced advisors • Bring in at your side entities which have credibility as lenders’ advisors and ask them to look at the project from the perspective of lenders • Good, legal, financial and technical advisors are indispensable • Pre-packaging a deal that banks will accept • Investors and contractors need to be committed to it • Counterparties will accept to incorporate banks’ requirements in their commercial offers only if they really believe that the project will not happen without external financing • Take into account the feedback from specialised advisors
  18. 18. Eversheds Clean Energy and Renewables Sector Indraj Mangat, Partner, Banking Eversheds +44 776 741 1508 indrajmangat@eversheds.com Key contacts Michelle T Davies, Partner, Energy Eversheds +44 292 047 7553 michelletdavies@eversheds.com http://cleanenergyblog.eversheds.com/ Follow: EvershedsCleanEnergy @EvershedsEnergy
  19. 19. © EVERSHEDS LLP 2013. Eversheds LLP is a limited liability partnership.

×