Slides from the second afternoon panel session at the Eversheds event: Attracting and Maintaining Institutional Investment in Renewable Energy - 2nd July 2012

1. Institutional Investment Workshop:
“Credit Issues Surrounding Offshore Wind Project Financing”
Michael Wilkins
Managing Director
Infrastructure Finance
Standard & Poor’s
July 2, 2012
Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
Copyright © 2011 Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved.

2. Agenda
• S&P's Energy Sector Ratings & Outlook
• Strong Growth of Global Offshore Wind Power Provides Investment Opportunities
• Funding Sources - Increasing Availability of Single Asset Project Financing
• Investment Barriers
• Favourable Regulations Are The Key To Increasing Investment
Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s.
2.

3. S&P’s Energy Sector Ratings
Europe, Middle-East, Africa (EMEA) Utilities Long-term Ratings Distribution
Dec-08 Dec-09 Dec-10 Dec-11 Apr-12
30
25
20
15
10
5
0
AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC
© Standard & Poor's 2012
• Weakened financial risk profiles due to high investment levels
• More challenging and uncertain operating environment and weak economic fundamentals
• And sovereign-induced ratings pressure
• However, sector ratings remains largely investment grade

4. S&P’s Energy Sector Outlook Distribution
Europe, Middle-East, Africa (EMEA) Utilities Outlook Distribution
Dec-08 Dec-09 Dec-10 Dec-11 Apr-12
80
70
60
50
40
30
20
10
0
Watch Neg Negative Stable Positive Watch Pos Developing Watch Dev
© Standard & Poor's 2012
• Mainly driven by stabilization in outlook for regulated entities (non-GIIPS) and negative transition of many
unregulated entities in recent years (i.e. downgrade + stable outlook)
• However, still a fairly high share of negative outlooks, indicating near to medium-term pressure on utility ratings
– Weaker macro-economic environment could accelerate downgrade activity
– Sovereign downgrades likely to continue to be a factor

5. Strong Growth of Global Offshore Wind Power Provides Investment Opportunities
• Countries are increasingly relying on offshore wind power
• Factors behind industry’s growth:
 Fuel Diversification
 Climate change mitigation
 More recently, job creation

6. Funding Sources - Increasing Availability of Single Asset Project Financing
To date, most European wind projects sponsored by utilities and funded on their balance sheets
However, recent developments likely to change the investment climate:
• Electricity Market Reform (ERM) in the UK likely to increase off-balance sheet funding by utilities
• Projects under construction begin to attract private investor attraction
E.g. The €1.5bn Meerwind project in Germany, developed by Blackstone Group L.P.
• Nonrecourse debt financed exclusively with loans and participation from state lending org. or
multilateral
E.g. The €5bn support scheme from German state-owned KfW Bankengruppe to Meerwind
and €280m from KfW and €500m from EIB to Global Tech 1 project
• Basel III provisions could restrict bank lending to projects with the strongest credit quality and
short tenors only.

7. Investment Barriers
Wind Resource
Regulation Capital Structure
Investment Risks
Technology Operation
& Design & Maintenance
Construction Interconnection

8. Favourable Regulations Are Key To Increasing Investment
* Offshore wind and most renewable energy projects owe their existence to regulatory support
* Diverse incentive policies effective in attracting offshore wind projects to the U.K., Germany, and
Denmark but not yet in the U.S.
Determining sustainability of support schemes:
• Size: We view FITs and other incentives that are • Control mechanisms: The absence of caps on
considerably above market cost to be at the installed capacity allows for uncontrolled growth,
greatest risk of cutbacks, especially in times of which then translates into subsidy payments that
economic stress and budgetary controls may be too high
• Affordability: Countries in which subsidies • Grid management: Ineffective management of
represent a higher proportion of GDP are the most the electricity grid may increase the cost of back-
at risk of regulatory changes up energy supplies considerably

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9.

10. WindForce
2012
–
Offshore
financing
Recent
trends
in
the
financing
of
offshore
wind
farms
Bremen
–
28
June
2012
Dr
Jérôme
Guillet

11. Recent
trends
in
the
financing
of
offshore
wind
farms
Table
of
contents
1. The
project
finance
market
for
offshore
wind
2. Selected
equity
transacGons
in
offshore
wind
3. What’s
the
best
route?
Confidential

12. Green
Giraffe
Energy
Bankers
is
a
specialist
advisory
bouEque
focused
on
renewable
energy
We
have
an
unparalleled
track
record
in
successfully
closing
deals
for
our
clients
• 18
professionals
in
London
(UK),
Utrecht
(NL)
and
Paris
(FR)
Completed
advisory
missions
for
over
2,000
MW
of
proposed
capacity
• Project
&
structured
finance,
M&A,
legal
&
contracGng
experGse
Bankability evaluation of
a
Acquisition of
a
stake in an Tendering strategy of
Non-­‐recourse refinancing Evaluation
of
a
potential Evaluation
of
a
stake in a
10%
stake in the
Gwynt y
offshore
wind
farm turbine
manufacturer on
of
a
solar PV
portfolio stake in an offshore
wind
solar PV
project
Môr offshore
wind
farm offshore
wind
project farm
• Priority
given
to
a
limited
number
of
clients
576
MW Undisclosed Undisclosed 24
MW 210
MW 8
MW
Highland
Group
Advisor
to
C-­‐Power
to
UK North America Europe Spain
Holdings
Germany France
raise
project
finance
debt
2010 2011 2011 2011 2011 2011
325
MW
Bid
for a
49%
stake in the
Acquisition of
a
stake in an Financial
advisory
Financial
advisory
Acquisition of
a
stake in Evaluation
of
a
stake in the
Gunfleet Sands
offshore
offshore
wind
farm services -­‐ offshore
wind services
– state
waters
solar PV
portfolio Belwind offshore
wind
wind
farm offshore
wind
project farm
172
MW Undisclosed Undisclosed 25
MW 41
MW 165
MW
UK
2011
Europe
2011
US
2012
US
2012
Italy
2012
Belgium
2012
Belgium
2010
Our
clients
trust
us
on
a
wide
variety
of
long
term
missions
across
Europe
and
North
America
Non-­‐recourse financing Non-­‐recourse financing of
Non-­‐recourse financing of
Non-­‐recourse financing of
the
Gemini
offshore
wind
of
25%
stake in
Walney the
Northwind offshore
the
Gode Wind
2
offshore
farms
offshore
wind
farm wind
farm wind
farm
Advisor
to
WindMW
to
216
MW 252
MW
600
MW 92
MW
raise
project
finance
debt
288
MW
The
Netherlands UK Belgium Germany
Non-­‐recourse
financing
of
Non-­‐recourse financing of
Non-­‐recourse financing Non-­‐recourse financing of
the
Cape
Wind
offshore
an onshore wind
farm and sale
of
a
portfolio
of
the
Block
Island offshore
wind
farm solar PV
assets wind
farm
468
MW Undisclosed 16
MW 30
MW
Blackstone
is
“Financial
Sponsor
of
the
Year”
Germany
2011
US Europe France US
Confidential

13. Recent
trends
in
the
financing
of
offshore
wind
farms
Table
of
contents
1. The
project
finance
market
for
offshore
wind
2. Selected
equity
transacGons
in
offshore
wind
3. What’s
the
best
route?
Confidential

14. 1.
The
project
finance
market
for
offshore
wind
–
how
big
is
it?
Currently
operaGonal
projects
Offshore
wind
project
finance
trends
Source:
GGEB
A
European
story
A
massive
need
for
capital,
and
thus
for
PF
• Total
of
3,813
MW
installed
capacity
as
of
end-­‐2011
• Projects
under
construcGon
see
commiged
investments
of
EUR
15
billion
over
the
next
2-­‐3
years.
• UK
(2,094
MW)
and
Denmark
(857
MW)
are
sGll
the
market
leaders
• Around
30%
of
the
near
term
pipeline
has
been
project
financed
(compared
• 866
MW
connected
in
2011,
afer
883
MW
in
2010
and
577
MW
in
2009
–
the
to
10%
in
the
early
years)
first
3
years
of
industrial-­‐scale
acGvity
• Total
investment
of
EUR
80
billion
or
more
is
expected
over
the
decade
• Significant
pipeline
of
offshore
wind
projects
beyond
2012
with
18
wind
• Developers,
and
to
an
increasing
extent
uGliGes,
will
need
to
rely
on
PF
to
farms
(over
5,000
MW)
currently
under
construcGon
and
over
18,000
MW
fund
that
investment
pipeline
fully
consented
Confidential

15. 1.
The
project
finance
market
for
offshore
wind
–
the
overall
context
A
wild
ride
Typical
project
finance
Leverage
Maturity
Pricing
Maximum
condiGons
-­‐
offshore
post-­‐compleGon
underwriGng
2006-­‐2007
60:40
10
years
150-­‐200
bp
50-­‐100
M
2009
70:30
15
years
300
bp
30-­‐50
M
2010-­‐2011
65:35
15
years
250-­‐300
bp
50-­‐75
M
Current
market
70:30
10
years
275-­‐375
bp
30-­‐50
M
• Banks
are
refocusing
–
again
-­‐
on
known
clients,
core
countries
and
strategic
sectors
of
acGvity
• The
good
news
is
that
offshore
wind
is
unambiguously
“strategic”
for
many
banks
today
• Countries
where
offshore
wind
is
developing
are
seen
as
“safe”
and
core
for
most
banks
(Germany,
Benelux,
UK)
• Margins
are
shooEng
up
again
• This
reflects
an
increase
in
the
banks’
cost
of
funding
rather
than
an
increase
in
the
cost
of
risk
• The
underlying
long
term
cost
of
money
is
falling
(in
a
mirror
image),
so
the
overall
cost
of
debt
has
not
increased
that
much
• Structures
are
currently
less
aggressive
(raGos,
maturity,
covenants)
than
in
2011
Confidential

16. 1.
The
project
finance
market
for
offshore
wind
–
past
deals
Early
deals
–
4
transacGons
just
before
and
afer
the
financial
crisis
• Q7
(also
known
as
Princes
Amalia)
(2006,
the
Netherlands,
120
MW,
Vestas
V80,
EUR
219
M
financing)
• The
very
first
deal
–
set
a
number
of
precedents
(debt
sizing
principles,
mulG-­‐contract
construcGon
risk
taken
via
heavy
due
diligence
and
conGngent
funding,
10-­‐year
O&M
package)
• 3
MLAs,
3
addiGonal
banks,
plus
key
support
from
EKF
• C-­‐Power
phase
1
(2007,
Belgium,
30
MW,
Repower
5M,
EUR
126
M
financing)
• ConsolidaGon
deal
–
a
more
aggressive
version
of
the
Q7
structure
(longer
tenor,
some
merchant
risk)
• Confirms
that
new
turbines,
even
very
large
ones,
are
bankable
• 1
MLA,
3
addiGonal
banks,
no
mulGlateral
• Belwind
phase
1
(2009,
Belgium,
165
MW,
Vestas
V90,
EUR
544
M
financing)
• First
deal
post-­‐financial
crisis
–
allowed
to
confirm
that
the
early
structures
were
sound
(construcGon
risk,
some
merchant
risk)
while
increasing
the
size
thanks
to
heavy
mulGlateral
involvement
• 3
MLAs,
EIB
and
EKF,
no
syndicaGon
–
heralded
the
“club
deal”
period
• Boreas
(2009,
UK,
194
MW
offshore,
Siemens
3.6-­‐107,
GBP
340
M
financing)
• First
UK
deal,
with
a
large
number
of
banks
(14
altogether)
• No
construcGon
risk,
but
funding
under
the
UK
ROC
regime,
with
some
merchant
risk
Confidential

17. 1.
The
project
finance
market
for
offshore
wind
–
past
deals
Early
deals
–
Pioneers-­‐precedent-­‐setng,
but
with
a
small
number
of
players
• Successful
structures
–
and
really
non
recourse!
• DD
+
ConGngent
mechanism
structure
to
bear
construcGon
risk
validated
in
subsequent
deals
• ConstrucGon
risk
with
mulG-­‐contract
structure
validated
and
repeated
• Repeated
with
several
different
turbines,
sponsors
and
regulatory
regimes
• All
early
projects
built
within
agreed
budget
and
Gmetable,
and
now
operaGng
to
full
saGsfacGon
• A
fairly
small
number
of
players
involved
• Only
a
small
number
of
insGtuGons
actually
took
construcGon
risk
• Heavy
reliance
on
a
small
number
of
mulGlaterals
(EKF,
EIB)
• The
same
advisors
and
people
in
almost
every
deal
• A
difficult
market
context
• No
syndicaGon
market
for
what
are
fairly
large
deals
–
thus
a
need
for
*everybody*
on
each
deal
• Lack
of
precedents
at
a
Gme
banks
were
retreaGng
to
favored
clients
and
familiar
risks
Confidential

18. 1.
The
project
finance
market
for
offshore
wind
–
past
deals
2010-­‐2011
–
the
market
maturing
• C-­‐Power
phase
2
(2010,
Belgium,
325
MW,
Repower
6M,
EUR
913
M
financing)
• Aggressive
structure
building
on
exisGng
precedents
(18
year
financing,
70:30
leverage,
mulG-­‐contracGng
construcGon
strategy
with
conGngency
structure,
use
of
a
6MW
turbine)
• 7
MLAs,
EKF,
Euler-­‐Hermes,
EIB
• Borkum
West
2
(2010,
Germany,
200
MW,
Areva
M5000,
EUR
510
M
financing)
• First
deal
in
Germany,
and
first
deal
with
(relaGvely
recent)
Areva
5MW
turbines;
building
on
precedents
(construcGon
risk
with
conGngency
structure)
but
slightly
less
aggressive
terms
(leverage)
• 4
MLAs,
7
addiGonal
banks,
EIB
and
NRW
• Meerwind
(2011,
Germany,
288
MW,
Siemens
3.6
MW-­‐120,
EUR
884
M
financing)
• First
transacGon
with
construcGon
risk
for
Siemens
turbines,
first
with
a
private
equity
investor,
and
first
under
the
new
KfW
offshore
wind
programme
• 7
MLAs
(including
London-­‐based
banks),
EKF,
KfW
• Globaltech
1
(2011,
Germany,
400
MW,
Areva
M5000,
EUR
1047
M
financing)
• First
deal
for
a
400
MW
wind
farm
and
beyond
EUR
1
bn,
supported
by
the
KfW
programme
• 4
MLAs,
12
addiGonal
banks
(including
several
newcomers
to
offshore),
EIB,
KfW
• BalEc
1
(2011,
Germany,
48
MW,
Siemens
2.3
MW,
EUR
138
M
financing)
• 3
commercial
banks
&
EIB
in
post-­‐compleGon
refinancing
of
the
first
German
commercial
wind
farm
Confidential

19. 1.
The
project
finance
market
for
offshore
wind
–
past
deals
The
banking
market
is
there
if
the
transacGons
are
well
structured
• It
is
possible
to
close
billion-­‐euro
transacEons
• 4
billion-­‐euro-­‐scale
deals
in
one
year,
including
2
in
Germany
in
the
exact
same
Gme
frame
• More
than
30
banks
are
now
acGve,
and
more
than
20
have
construcGon
risk
exposure
• A
number
of
different
public
financing
insGtuGons
can
be
tapped
–
none
is
indispensable
• A
consensus
is
slowly
emerging
on
how
to
structure
deals
• MulG-­‐contracGng
structures
with
a
small
number
of
counterparGes
(2-­‐7)
and
strong
due
diligence
• Early
involvement
of
banks
or
bank
advisors
in
contractual
negoGaGons,
with
input
and
control
on
specific
issues
(warranty
exclusions,
LD
caps,
interface
definiGon
&
matrix,
availability
of
vessels
and
other
criGcal
path
equipment,
project
management,
shareholding
retenGon
clauses)
• Debt
sizing
rules
and
underlying
operaGonal
assumpGons
are
becoming
more
consistent
across
deals
• Specific
focus
on
appropriate
long
term
O&M
arrangements
There
is
enough
money
for
good
projects
• Non
recourse
finance
requires
a
specific
discipline
and
approach
to
project
risks
• Sponsors
which
cannot
or
do
not
want
to
follow
that
discipline
will
not
raise
non
recourse
debt
Confidential

20. 1.
The
project
finance
market
for
offshore
wind
–
recent
deals
2012
-­‐
Recent
deal
acGvity
has
been
centered
on
the
UK
Gunfleet
Sands
(2012,
UK,
86
MW
(Marubeni’s
50%),
Siemens
3.6MW,
GBP
158
M
financing)
• First
non-­‐recourse
financing
of
a
minority
stake
in
an
offshore
project
• Confirmed
appeGte
of
Japanese
insGtuGons
for
the
sector
(NEXI
risk,
funded
by
SMBC
and
Mizuho)
Lincs
(2012,
UK,
270
MW,
Siemens
3.6MW,
GBP
425
M
commercial
financing)
• First
non-­‐recourse
financing
including
construcGon
risk
in
the
UK
• Largest
amount
of
commercial
bank
risk
to
date
OFTO
transacEons
• Robin
Rigg
(2011,
180
MW,
Transmission
Capital
Partners,
GBP
65
M)
• Gunfleet
Sands
(2011,
172
MW
Transmission
Capital
Partners,
GBP
49
M)
• Barrow
(2011,
90
MW,
Transmission
Capital
Partners,
GBP
34
M)
• Walney
1
(2011,
184
MW,
Macquarie-­‐Barclays
Infra
Fund,
GBP
105
M)
Markets
are
sEll
open
–
including
for
15
year
deals
The
proporEon
of
offshore
wind
investment
being
financed
is
actually
increasing,
despite
the
gloom
11

21. 1.
The
project
finance
market
for
offshore
wind
–
recent
deals
2012
-­‐
Recent
deal
acGvity
has
been
centered
on
the
UK
Gunfleet
Sands
(2012,
UK,
86
MW
(Marubeni’s
50%),
Siemens
3.6MW,
GBP
158
M
financing)
• First
non-­‐recourse
financing
of
a
minority
stake
in
an
offshore
project
• Confirmed
appeGte
of
Japanese
insGtuGons
for
the
sector
(NEXI
risk,
funded
by
SMBC
and
Mizuho)
Lincs
(2012,
UK,
270
MW,
Siemens
3.6MW,
GBP
425
M
commercial
financing)
• First
non-­‐recourse
financing
including
construcGon
risk
in
the
UK
• Largest
amount
of
commercial
bank
risk
to
date
OFTO
transacEons
• Robin
Rigg
(2011,
180
MW,
Transmission
Capital
Partners,
GBP
65
M)
• Gunfleet
Sands
(2011,
172
MW
Transmission
Capital
Partners,
GBP
49
M)
• Barrow
(2011,
90
MW,
Transmission
Capital
Partners,
GBP
34
M)
• Walney
1
(2011,
184
MW,
Macquarie-­‐Barclays
Infra
Fund,
GBP
105
M)
Markets
are
sEll
open
–
including
for
15
year
deals
The
proporEon
of
offshore
wind
investment
being
financed
is
actually
increasing,
despite
the
gloom
12

22. 1.
The
project
finance
market
for
offshore
wind
–
some
diverging
trends
Market
segments
–
A
geographical
split
Market
segments
–
2
corporate
splits
• The
UK
market
• UEliEes
vs
IPPs
• Long
delays
on
potenGal
deals
and
no
construcGon
risk
• UGliGes
did
not
really
need
project
finance
(whereas
taken
unGl
Lincs
(parGal
construcGon
risk)
IPPs
did
and
had
to
accept
market
terms)
• Large
gap
between
expectaGons
of
(uGlity)
investors
and
• Project
finance
is
seen
as
more
complex,
more
what
the
market
was
willing
to
do
expensive,
and
more
Gme-­‐consuming
–
and
not
really
• Bad
image
of
PF
generated
by
focus
of
banks
on
relaGvely
non-­‐recourse
(at
least
in
the
eyes
of
the
raGng
agencies)
minor
technical
glitches
(ie
grouGng
issues)
• Project
finance
requirements
for
early
deals
were
seen
• A
lot
of
side
acGvity
on
the
OFTO
refinancing
side
as
especially
annoying
by
uGliGes
(intrusive
due
diligence,
desire
by
banks
to
influence
contractual
structure)
and
generally
incompaGble
with
their
own
way
of
miGgaGng
project
risks
• The
conEnental
market
• Large
scale
transacGons
with
construcGon
risk
have
• Investors
looking
for
money
vs
higher
IRRs
become
a
regular
occurrence
• Amongst
investors
going
the
project
finance
route,
not
• Increasing
number
of
banks
and
sponsors
with
the
right
everybody
has
the
same
objecGves
or
the
same
ability
experience
and
track
record
to
negoGate
terms
with
banks
• Range
of
commercial
terms
is
widening,
as
actors
seek
• Some
investors
have
successfully
obtained
more
favorable
terms
from
the
banking
market
–
notably
different
objecGves:
leverage
and
pricing
• Raising
funds
• As
the
market
broadens,
investors
will
increasingly
be
• Increasing
leverage
and
returns
able
to
extract
more
compeGGve
terms
–
if
they
have
• ConstrucGon
period
remains
“hard
work”
the
right
project
and
market
approach
Confidential

23. 1.
The
project
finance
market
for
offshore
wind
–
the
contractual
structures
PF
transacGons
are
always
heavily
contracted
Equity
Debt
Major
contracts
include:
Sponsor(s)
Lenders
• permits,
licenses,
authorisaGons,
etc…
Dividends
Debt
Service
• construcGon/supply
contracts
O
&
M
Project
Electricity
Payments
Company
Support/
• electricity
sales
contracts
(and,
if
WarranEes
applicable,
green
cerGficates
/
RO
Turbine
Power
contracts)
Marine
construcEon
Supply
Electricity
Purchaser
ConstrucEon
Deliveries
Contracts
• O&M
contracts
Electrical
Works
Licenses
ObligaEon
to
buy
renewable
CerEficaEon
that
electricity
• financing
documents
FoundaEons
producEon
is
“renewable”
Tariff
for
such
electricity
Regulatory
ConstrucEon
AuthoriEes
permits
Wind
and
offshore
wind
in
parEcular
are
quintessenEal
examples
of
comprehensive
contractual
structures
Confidential

24. 1.
The
project
finance
market
for
offshore
wind
–
risk
analysis
Offshore
wind
adds
new
risks
to
tradiGonal
PF
risks
• Regulatory
/
poliEcal
risk
–
no
to
permitng
risk,
yes
to
(some)
regulatory
change
risk
• Price
/
market
risk
–
no
to
volume
risk,
yes
to
(some)
price
risk
• Counterparty
risk
–
increasing
agenGon
as
projects
grow
in
size
• Technology
risk
–
core
risk,
but
banks
have
shown
willingness
to
bank
new
turbines
• Wind
risk
–
easier
offshore
than
onshore;
wake
effect
is
key
worry
• ConstrucEon
risk
–
sGll
the
toughest
risk
(mulG-­‐contracGng),
not
done
in
London
market
yet
• OperaEng
risk
–
taken
on
the
basis
of
long
term
O&M
agreements
with
WTG
manufacturers
Oops,
ovality!
Offshore
wind
is
one
of
the
most
complex
industries
to
be
project-­‐financed
Confidential

25. Recent
trends
in
the
financing
of
offshore
wind
farms
Table
of
contents
1. The
project
finance
market
for
offshore
wind
2. Selected
equity
transacEons
in
offshore
wind
3. What’s
the
best
route?
Confidential

26. 2.
Selected
equity
transacEons
in
offshore
wind
Notable
equity
transacGons
in
recent
years
• Gode
Wind
1
(2007,
DE,
80
turbines,
90%
sold
by
PNE
Wind
to
Econcern)
• Sale
of
a
permiged
project
to
an
investor
explicitly
focusing
on
non
recourse
financing
• Project
purchased
back
by
PNE
Wind
following
bankruptcy
of
Econcern
• Boreas
(2009,
UK,
194
MW,
Siemens
3.6
MW,
50%
sold
by
Centrica
to
TCW)
• Poryolio
(which
also
included
a
36
MW
onshore
wind
farm)
sold
as
fully
operaGonal
assets
• TransacGon
simultaneous
with
financial
close
of
a
long
term
non
recourse
refinancing
of
the
poryolio
• Walney
(2010,
UK,
367
MW,
Siemens
3.6
MW,
24.8%
sold
by
DONG
to
PGGM/Ampere)
• TransacGon
closed
before
final
construcGon
of
the
project
(which
was
already
well
under
way)
• Deal
includes
compleGon
commitments
by
DONG
• First
equity
sale
to
a
pension
fund
• TransacGon
designed
from
the
start
to
allow
for
refinancing
of
the
minority
stake
(sGll
pending)
• Nysted
(2010,
DK,
166
MW,
Bonus
2.3
MW,
50%
sold
by
DONG
to
PensionDanmark)
• TransacGon
amount
of
EUR
94M,
valuing
the
project
at
1.15
MEUR/MW
• One
of
the
first
offshore
wind
projects,
with
a
10
year
track
record
• Show
uGliGes
are
willing
to
take
long
term
O&M
risk
on
the
basis
of
a
good
track
record
17

27. 2.
Selected
equity
transacEons
in
offshore
wind
Major
equity
transacGons
in
recent
years
• Anholt
(2011,
DK,
400
MW,
Siemens
3.6
MW,
50%
sold
by
DONG
to
PensionDanmark
&
PKA)
• TransacGon
closed
before
construcGon
started
• DONG
provides
a
15
year
O&M
contract
and
a
compleGon
guarantee
• At
DKK
6
billion
(EUR
805
M
–
4.03
MEUR/MW)
it
is
the
largest
equity
transacGon
to
date
in
the
market
• Nördlicher
Grund
(2011,
DE,
80
turbines,
100%
sold
by
Eolia
to
Blackstone)
• Announced
on
the
same
day
as
Blackstone
closed
the
financing
of
Meerwind
• Project
sold
with
permits
but
an
otherwise
early
stage
of
development
• Demonstrates
appeGte
of
some
financial
investors
for
full
development
risk
• Gunfleet
Sands
(2011,
UK,
172
MW,
Siemens
3.6
MW,
50%
sold
by
DONG
to
Marubeni)
• TransacGon
announced
at
at
GBP
200
M
(EUR
230
M),
ie
a
price
of
2.65
MEUR/MW
• Project
sold
afer
compleGon
• TransacGon
confirms
growing
interest
in
offshore
wind
from
Japanese
investors
• Borkum
Riffgrund
(2011,
DE,
277
MW,
Siemens
3.6
MW,
100%
sold
by
EK
to
DONG;
50%
then
sold
to
Lego)
• Purchase
of
permiged
project
by
DONG
at
EUR
30
M,
ie
EUR
0.9
MEUR
/MW
• Sale
of
50%
to
private
investor
at
DKK
4,700
M
(EUR
630
M
-­‐
4.66
MEUR/MW)
shows
development
premium
18

28. 2.
Selected
equity
transacEons
in
offshore
wind
–
some
lessons
The
investor
market
is
there
(also)
if
the
transacGons
are
well
structured
• A
wider
range
of
investors
beyond
uEliEes
than
people
assume
• Infrastructure
funds
and
pensions
funds
(PensionDanmark,
TCW,
PGGM)
• Private
equity
groups
(Blackstone,
etc)
• CorporaGons
with
specific
strategies
(LEGO,
Colruyt,
Marubeni)
• ….
And
many
more
sniffing
around
the
sector
• ValuaEons
are
actually
relaEvely
consistent
• Permiged
projects
–
development
cost
+
premium
@
200kEUR/MW
• Contracted
projects
–
construcGon
cost
@
3.5MEUR/MW
unlevered
(or
1.2
MEUR/MW
levered)
• OperaGonal
projects
–
linked
to
regulatory
framework
and
IRR
target
of
investors
(8-­‐10%)
• Trade
off
between
construcEon
risk
and
returns
now
closely
examined
• As
more
assets
are
operaGonal,
the
universe
of
investors
grows
and
IRR
targets
are
going
down
• A
number
of
investors
are
now
looking
to
take
construcGon
risk
to
improve
returns
(to
double
digits)
• A
“bankable”
deal
is
also
one
which
many
investors
can
find
agracGve
Confidential

29. Recent
trends
in
the
financing
of
offshore
wind
farms
Table
of
contents
1. The
project
finance
market
for
offshore
wind
2. Selected
equity
transacGons
in
offshore
wind
3. What’s
the
best
route?
Confidential

30. 3.
What’s
the
best
route?
Banks
focus
on
interfaces
between
key
tasks
as
much
as
those
between
contracts
Several
completely
different
industries
Sponsor(s)
Lenders
• Turbine
manufacture
Due
• FoundaGon
/
steelwork
supplies
diligence
Project
• Electricals
management
O
&
M
Project
• Cabling
Company
Interfaces
Support/
• Marine
construcGon
work
WarranEes
Turbine
Marine
construcEon
• No
obvious
general
contractor
Supply
ConstrucEon
Contracts
And
yet
banks
do
take
construcEon
risk
Electrical
Works
Direct
agreements
• Focus
on
project
management
FoundaEons
• Focus
on
key
interfaces
• Understanding
of
criGcal
path
items
Regulatory
ConstrucEon
AuthoriEes
• Heavy
involvement
in
contract
negoGaGon
permits
The
higher
risks
borne
by
the
banks
impose
different
development
and
contractual
approaches
Confidential

31. 3.
What’s
the
best
route?
How
raGng
agencies
look
at
non-­‐recourse
debt
for
offshore
wind
remains
a
contenGous
isue
• RaEngs
agencies
have
a
negaEve
view
on
non-­‐recourse
debt
• They
consider
that
uGliGes
will
not
walk
away
from
a
strategic
project
and
thus
debt
is
not
really
non-­‐recourse
• In
countries
where
power
is
sold
to
the
market,
uGliGes
which
provide
PPAs
are
considered
to
have
a
long
term
liability
under
the
project
and
this
is
counted
against
them
by
raGngs
agencies
• Finally,
certain
uGliGes
have
covenants
in
their
corporate
credit
faciliGes
which
prevent
them
from
doing
project
finance
if
they
control
the
project
(and
uGliGes
typically
prefer
to
control
projects)
• UEliEes
have
gone
toward
equity
soluEons
• Use
of
UJVs
or
IJVs
which
allow
pro
rata
consolidaGon
of
project
equity
• Sale
of
minority
stakes
(up
to
49.9%)
in
projects
• This
comes
in
addiEon
to
the
other
perceived
issues
of
non
recourse
debt
• More
expensive
• Intrusive
involvement
of
mulGple
external
parGes
• No
results
(UK
market
percepGon)
Confidential

32. 3.
What’s
the
best
route?
There
are
actually
plenty
of
routes
open
• Non
recourse
debt
for
greenfield
projects
• The
“full
scope
“project
finance
version,
allowing
significantly
lower
equity
commitments
• It
is
available,
but
requires
to
go
through
a
specific
discipline
• Subject
to
raGng
agencies
percepGon
(as
discussed
separately)
• Non
recourse
refinancing
of
operaEonal
projects
• Available
now
that
more
projects
are
actually
operaGonal
and
have
good
track
records
• Simpler
than
greenfield
as
all
construcGon
contractual
&
management
issues
have
been
resolved
• May
take
the
form
at
some
point
of
poryolio
refinancings
(and
allow
for
sale
of
minority
stakes
in
these
as
well)
• Sale
of
minority
stakes
in
projects,
pre-­‐
or
post-­‐compleEon
• Allows
to
recycle
capital
invested
in
exisGng
projects
into
new
ones
without
loss
of
operaGonal
control
• Recent
transacGons
have
shown
there
is
appeGte
from
many
types
of
investors
for
these
assets
• Most
interested
investors
to
date
prefer
to
avoid
construcGon
risk,
but
that
will
change
• Allows
capture
of
value
through
long
term
O&M
arrangements
or
PPAs
Confidential

33. 3.
What’s
the
best
route?
The
coming
fights
between
lenders,
investors
and
contractors
• How
intrusive
is
the
due
diligence?
• Review
of
interfaces,
sub-­‐contracts,
logisGcs
and
project
management
–
irrespecGve
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
negoEaEon?
• 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
informaGon
–
and
at
Gmes,
validaGon
of
decisions
• Share
retenGon
clauses
• Debt
sizing
principles
• What
are
the
terms
and
condiEons
for
long
term
O&M?
• Tenor,
scope,
liability,
fixed
price,
counterparty
• OpGons
to
exit
afer
a
few
years
Confidential

34. 3.
What’s
the
best
route?
Project
finance
for
offshore
wind
is
not
just
about
leverage
• 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
potenGal
downside
scenarios
• Project
can
“work”
on
a
stand-­‐alone
basis
(which
makes
it
easier
to
sell)
• It
can
help
investors
–
and
contractors!
–
obtain
more
favorable
contractual
terms
• Using
banks
as
a
“bad
cop”
can
be
useful
in
contractual
negoGaGons
(true
for
both
investors
and
contractors!)
• 3-­‐way
negoGaGons
can
allow
you
to
get
away
from
zero-­‐sum
negoGaGons
• It’s
really
non-­‐recourse
• Banks
take
construcGon
risk
on
the
basis
of
the
contracts
and
commiged
conGngency
mechanisms
• While
sponsor
involvement
is
valued,
banks
evaluate
deals
with
no
expectaGon
of
addiGonal
cash
in
• It’s
no
longer
so
expensive
• Recent
deals
have
seen
overall
cost
of
>15-­‐year
debt
at
6%
Confidential

35. 3.
What’s
the
best
route?
You
cannot
improvise
a
project
finance
deal
• 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
negoGaGng
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
enGGes
which
have
credibility
as
lenders’
advisors
and
ask
them
to
look
at
the
project
from
the
perspecGve
of
lenders
• Technical
advisors
(Mog,
Sgurr)
are
indispensable
• We
believe
we
can
also
bring
value
in
pre-­‐packaging
a
deal
that
banks
will
accept
• Investors
and
contractors
need
to
be
commiked
to
it
• CounterparGes
will
accept
to
incorporate
banks’
requirements
in
their
commercial
offers
only
if
they
really
believe
that
the
project
will
not
happen
without
external
financing
• Do
take
into
account
the
feedback
from
specialised
advisors,
otherwise
it
won’t
work
Confidential

36. Where
to
reach
us
Paris
Utrecht
8
rue
d’Uzès,
75002
Paris
Maliebaan
92,
3581
CX
Utrecht
tel:
+
331
4221
3663
tel:
+
31
30
820
0334
email:
fr@green-­‐giraffe.eu
email:
nl@green-­‐giraffe.eu
London
hgp://www.green-­‐giraffe.eu
133
Houndsditch,
London
EC3A
7BX
tel:
+4475
5400
0828
email:
uk@green-­‐giraffe.eu
27

37. Debt Finance and the role of development banks
Amit Dewan
Managing Director, Project Finance
+44 (0) 20 78261672
Amit.Dewan@unicredit.eu

38. European Project Finance League Table Analysis: 2012 - YTD
5,000,000 11
4,500,000
2
4,000,000
16
3,500,000
Deal Value (EUR)
2
3,000,000 1
13
2,500,000
2,000,000
1,500,000 2
16
1,000,000
500,000 1 1 1 1 2 1 1
0
ia
y
d
d
n
m
e
ay
l
ce
y
an
s
lic
ga
al
an
ai
an
m
in
ar
an
nd
iu
an
rw
It
Sp
b
st
do
ra
lg
rtu
nl
el
lg
rm
pu
la
ki
Fr
No
Uk
Ir
Bu
Fi
ng
Be
er
Po
be
Re
Ge
th
Ki
Uz
Ne
ak
d
ite
ov
Un
Sl
Source: Dealogic ProjectWare, 20th ofJune 2012

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3