The document discusses project finance for renewable energy, specifically focusing on limited recourse and non-recourse financing arrangements in the context of greenfield and operational projects. It highlights key financing structures, terms, and considerations for stakeholders such as banks, investors, and contractors while emphasizing the importance of experienced advisors in navigating these financial frameworks. Additionally, it outlines the various factors affecting bankability and the operational aspects of project financing.

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. 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. 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. Project Finance Structure
Shareholders
SPV
Landlord
Offtaker
Subcontractors Subcontractors Subcontractors
Banks
Direct Agreements
and Assignments
Security (Debenture)
Limited Recourse Facility
Leases

5. Key elements of bankability of wind
projects

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. Energy Yield
• Wind/Solar Data
• Correlation
• P50/P90 – debt sizing

8. Debt to Equity
• History of developer
• Site
• Funding shortfalls
• Contingent equity
• Change of control

9. Grid Connection
• Date of connection
• Capacity
• Land rights
• Remedies

10. Technology
• Turbine supplier/Panel Supplier
• Warranties
• O&M
• Currency risk

11. PPA
• Term
• Contract Price
• Price adjustments
• Change in law
• Counterparty risk
• Security arrangements

12. Construction
• Longstop date
• Assumed completion date
• Liquidated damages
• Collateral warranties
• Interface issues – multi-contracting
• Insurance and title transfer

13. Operational
• O&M agreement
• Project management agreement
• Availability guarantees (95%-97%)
• Debt service reserve
• Maintenance reserve
• Monitoring

14. Bank Protections
• Security structure
• Intercreditor issues
• Distributions and distribution conditions
• Reporting requirements
• Accounts and project revenue control
• Insurance
• Hedging agreements

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. 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. 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. 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. © EVERSHEDS LLP 2013. Eversheds LLP is a limited liability partnership.