Wind power projects
Construction and O&M
Weero Koster
25 April 2013
Typical turbine structure
Typical PF Structure
PUBLIC ENTITY

SPONSOR
EQUITY

INSURERS

CONCESSION
CONTRACT

THIRD PARTY
EQUITY
INVESTORS

SPV
INVES...
EPC Structure
Where does EPC fit in?
Owner
assumes
risk
Construction
Management

RISK SPECTRUM

Traditional

Design &
Buil...
Forms of Contract

5
General application

•

Yellow Book: design/build contract
electrical/mechanical works, including plant supply
and constru...
General risk profile: Shift of
• Employer’s Engineer is Employer’s risks
•
•
•
•

Representative
Employer’s ‘determination...
Shift of risks, cont’d
•

No extension of Time for Completion for:

•

exceptionally adverse climatic conditions
(except F...
Sh ift
o f r is
ks ,
c on t’
d

•

Emp
loyer
’s Ris
exclu
k
des:
•

Use
of wo
rks b
• Desi
y Em
gn o
ploy
f wor
Emp
er,
ks...
General risk profile:
key employer issues
•
•
•
•
•

Contractor fully responsible for design and design
coordination (incl...
Payment & security:
key employer issues
•
•
•
•
•

Fixed price lump sum payments against schedule of
payments & Performanc...
P rog
ram m
key e
e/de
m pl o
lay:
yer is
sue s

•

Liqu
idate
d Da
dela
m ag
y (10
es f o
– 20
• Limit
r
%, >
ed r i
?)
g...
Testing and defects,
insurance: key employer
issues
•
•
•
•
•
•

Suitable testing regime
Employer technical advisors to se...
Permits, change in law,
FM: key employer issues
• Employer planning, environmental/
•
•
•

Contractor construction and tra...
EPC Construction
contracting: key features
Turnkey-, date certain-, fixed price-, Engineering, Procurement
& Construction...
Construction contracting


Main risks:
 Experience, reputation, resources, credit Contractor











Increas...
Construction contracting


Customary issues:
 What are the ‘Works’ ? WTG’s, SCADA, foundations, crane
hardstands, roads,...
Operation & Maintenance
contracting
 Issues similar to EPC contract






Creditworthy, experienced Operator: turbin...
Operation & Maintenance
contracting
 What is the maintenance standard ?








Does maintenance include replaceme...
Power Purchase Agreements
 Linchpin energy project financing




Financing & operating agreement
Linkage with EPC/O&M
...
Main linkages EPC, O&M
and PPA













Approval project contracts
CP’s & Milestone schedule
Testing proce...
Wind power epc o&m  april 2013
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Wind power epc o&m april 2013

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Wind power epc o&m april 2013

  1. 1. Wind power projects Construction and O&M Weero Koster 25 April 2013
  2. 2. Typical turbine structure
  3. 3. Typical PF Structure PUBLIC ENTITY SPONSOR EQUITY INSURERS CONCESSION CONTRACT THIRD PARTY EQUITY INVESTORS SPV INVESTORS MEZZANINE FUNDERS SENIOR FUNDERS (BANK/BOND) SURPLUS REAL ESTATE DISPOSAL CONSTRUCTION SUBCONTRACTOR 1 OPERATION & MAINTENANCE EQUIPMENT SUPPLY SUBCONTRACTOR 3 DEVELOPER BONDS & GUARANTEES DESIGNERS DUE DILIGENCE ADVISER 1 SURETIES & GUARANTORS DUE DILIGENCE ADVISER 3 DUE DILIGENCE ADVISER 2 3 SUBCONTRACTOR 2
  4. 4. EPC Structure Where does EPC fit in? Owner assumes risk Construction Management RISK SPECTRUM Traditional Design & Build Contractor retains risk LSTK/ EPC Except as otherwise stated in the Contract: a) the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Works; b) by signing the Contract, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works; and c) the Contract Price shall – Engineering Procurement and Construction EPC not be adjusted to take account of any unforeseen difficulties or costs. LSTK – Lump Sum Turnkey 4
  5. 5. Forms of Contract 5
  6. 6. General application • Yellow Book: design/build contract electrical/mechanical works, including plant supply and construction works; allocation of risk on basis of insurability, project management principles and ability to foresee and mitigate • Silver Book: fixed-price, date-certain, lump-sum turnkey contract: • • Little risk of price increase (but higher price) or delay for Employer Shift of risks to Contractor: design and execution
  7. 7. General risk profile: Shift of • Employer’s Engineer is Employer’s risks • • • • Representative Employer’s ‘determinations’ Setting Out (No) Unforeseeable difficulties & verification/ interpretation of Employer data (incl. sub-surface, hydrological and Employer Requirements) General design obligations, design error
  8. 8. Shift of risks, cont’d • No extension of Time for Completion for: • exceptionally adverse climatic conditions (except FM) • unforeseeable shortages in personnel or goods by epidemic or government actions • • • Errors in Employer’s Requirements Setting Out Unforeseeable physical conditions
  9. 9. Sh ift o f r is ks , c on t’ d • Emp loyer ’s Ris exclu k des: • Use of wo rks b • Desi y Em gn o ploy f wor Emp er, ks by loyer ’s pe • Unfo rson rese nel, eabl of f o e op rces erati o f na on ture
  10. 10. General risk profile: key employer issues • • • • • Contractor fully responsible for design and design coordination (including Employer design) Full ground condition risk to Contractor Employer to retain influence over project Right to Variations Limited scope for Contractor claims for time/money; Contractor will: • • Price these risks, so increase initial Contract Sum Do extensive due diligence to mitigate, leading to delay in execution
  11. 11. Payment & security: key employer issues • • • • • Fixed price lump sum payments against schedule of payments & Performance Certificate Long payment period No claim for additional time or money for e.g. Variations/innovations, ‘in country” Force Majeure, Unforeseen ground conditions, setting out or discovery of fossils Robust security package: advance payment bond, performance bond, retention of money Warranty bond after Taking Over (> 2yrs)
  12. 12. P rog ram m key e e/de m pl o lay: yer is sue s • Liqu idate d Da dela m ag y (10 es f o – 20 • Limit r %, > ed r i ?) g exte nsion hts for Com of T i me f pleti or on • Susp ensio entit n by l es C E mp ontra exte loyer n s i on ctor of tim e/ co sts
  13. 13. Testing and defects, insurance: key employer issues • • • • • • Suitable testing regime Employer technical advisors to set performance/reliability standards and regime for testing/ performance guarantee levels Liquidated Damages for performance (10 – 20 %, > ?) Defects liability period (1 – 2 yrs): default is 1 yr Liability cap, sub-caps and ‘carve-outs’ Project specific insurance provisions; all insurance monies go in separate insurance proceeds account for benefit Employer
  14. 14. Permits, change in law, FM: key employer issues • Employer planning, environmental/ • • • Contractor construction and transport: permit schedule Change in law after contract signing/ in force, EH&S developments Exhaustive FM list ? Location of FM, “in country” FM: costs in addition to EOT ?
  15. 15. EPC Construction contracting: key features Turnkey-, date certain-, fixed price-, Engineering, Procurement & Construction (EPC) contract Including Start-up, Testing & Commissioning Bonus payment Detailed scope of work (Employer’s requirements) Performance testing & guarantees LD’s for delay & performance Assurances of creditworthiness
  16. 16. Construction contracting  Main risks:  Experience, reputation, resources, credit Contractor          Increase in construction costs Delay in completion Performance Force majeure (& contractual co-ordination/ resurrection) Building materials: steel Construction related facilities Raw materials & utilities Coordination with employer/ other contractors IP rights/ escrows
  17. 17. Construction contracting  Customary issues:  What are the ‘Works’ ? WTG’s, SCADA, foundations, crane hardstands, roads, cables, substation, FCU ?  Partial and deemed take over      Are all ‘Defects’ created equal ? Serial defects ? How are measurements done ? SCADA, cup anemometers, metmast, Lidar ? How is green and grey metering doen ? By whom ? Grid connection interface Site risks (nature, archeology, fossils, ordinance, boulders, excess/polluted water)
  18. 18. Operation & Maintenance contracting  Issues similar to EPC contract      Creditworthy, experienced Operator: turbine supplier ?  Performance guarantees with LD’s: Can the Operator be replaced ? What is ‘Operation” ? Scope of work Agreed upon performance criteria at fixed/ predictable OPEX Increased OPEX through latent defects/ new technology: typically defects warranty ends after 2-5 years    Availability, power curve, sound cover variety of costs, but also PPA damages ? but usually low caps. What if operator cannot be replaced ?
  19. 19. Operation & Maintenance contracting  What is the maintenance standard ?        Does maintenance include replacement of ‘Components”: blades, nacelle, tower, gearbox ? Balance of Plant ? Is maintenance work warranted for design, materials, workmanship ? Serial defects ? Is there access to the site for components ? Is there an on-site stock and what’s in it ? How long will spares remain available ? Condition of the Works at the end of the maintenance term ? Testing ?
  20. 20. Power Purchase Agreements  Linchpin energy project financing    Financing & operating agreement Linkage with EPC/O&M CP’s & milestones   Delay in COD, testing, early production (at opex + price ?) Failure to construct or acheive nameplate capacity  Approval by purchaser of project doc’s, e.g. pass-through OPEX   Take-or-pay is not an absolute Delivery point, connection & transport
  21. 21. Main linkages EPC, O&M and PPA             Approval project contracts CP’s & Milestone schedule Testing procedures & take pver Delay LD’s up to COD Nameplate capacity, defects- & performance LD’s Early production revenues Capacity and energy payments Delivery point & connection, metering Term & termination Third party sales, RFR’s Force Majeure Change in law IN SHORT: EVERYTHING !

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