Offshore wind Options for non-recourse financing All photos from Gunnar Britse – windpowerphotos.com Offshore wind Options for non-recourse financing 1. Some Info on Dexia 2. Offshore wind: prospects and risks 3. Finding solutions: the Q7 and C-Power deals 4. Notable structural features of Q7 and C-Power Offshore wind Options for non-recourse financing 1. Some Info on Dexia 2. Offshore wind: prospects and risks 3. Finding solutions: the Q7 and C-Power deals 4. Notable structural features of Q7 and C-Power Offshore wind Dexia Group Options for non-recourse financing A top credit standing in the banking sector Ratings: Dexia Group AA / Aa2 • Dexia is in the top third of the Euronext 100 index and Dexia Municipal Agency AAA / Aaa / AAA is listed on three European F.S.A. AAA / Aaa / AAA stock exchanges (Paris, Balance Sheet Dexia Group EUR 567 billion Brussels, Luxembourg). F.S.A. Insured Portfolio USD 365 billion Net Income EUR 2.75 billion • Dexia is the world leader Tier 1 Ratio 9.8% in Public Finance with a R.O.E. 23.1% total market share of 17% in Europe and of 25% in the Stock market capitalization EUR 24.8 billion United States. (all as of 31 December 2006) 4 Offshore wind Dexia – Renewable Energy Options for non-recourse financing Recent References EDF EN Portugal Noble BBWP C-Power La Madagascona Wind farm portfolio NY wind portfolio Wind farm portfolio Offshore wind farm PV solar Portugal USA Worldwide Belgium Spain EUR 257 M USD 266 M EUR 1,031 M EUR 106 M EUR 183 M Mandated Mandated Mandated Mandated Mandated Lead Arranger Lead Arranger Lead Arranger Lead Arranger Lead Arranger 2007 2007 2007 2007 2006 Andasol Q7 San Juan Mesa Buffalo Gap 2 Fruges II Thermal solar Offshore wind farm Wind farm Wind farm Wind farm Spain The Netherlands USA USA France EUR 274 M EUR 218 M USD 30 M USD 330 M EUR 48 M Mandated Mandated Mandated Mandated Mandated Lead Arranger Lead Arranger Lead Arranger Lead Arranger Lead Arranger 2006 2006 2007 2006 2007 5 Offshore wind Dexia – Renewable Energy Options for non-recourse financing A strong commitment to the sector Dexia has the capability to act as arranger of renewable energy projects of any amount, including pools of projects, Arranging & with an underwriting of up to EUR 500 M. Underwriting Dexia is able to offer customised services in Renewable Energy, including project finance, cross-border lease, securitization and mezzanine finance. Dexia has extensive knowledge of the regulatory Knowledge of environments of most European countries and the US regulatory framework which are essential to structure Renewable Energy projects. and players Dexia is familiar with the major players of the sector (sponsors, constructors, consultants). Dexia’s portfolio presently includes over 60 projects in Experience in 13 Renewable Energy, spread over 13 countries and 4 different countries continents. Dexia has lead arranged 43 projects during the last five years for an aggregate commitment amount now reaching EUR 2,000 M. 6 Offshore wind Dexia Project Finance Options for non-recourse financing Wind Energy References (2006-2007) Dexia was chosen in 2003, 2004 and 2005 as « Renewable Arranger of the Year » • 13 different countries (and regulatory regimes) by Infrastructure Journal. • 43 Lead Arranger Mandates over the past 5 years • Approx. EUR 2,000 M on our books 7 Offshore wind Options for non-recourse financing 1. Some Info on Dexia 2. Offshore wind: prospects and risks 3. Finding solutions: the Q7 and C-Power deals 4. Notable structural features of Q7 and C-Power Offshore wind Offshore Wind – Prospects and risks Options for non-recourse financing From pioneers to heavy industry 919MW offshore wind capacity is currently installed in Europe over 25 projects and 436 turbines, essentially in Denmark (46%), the UK ( 3 4 % ) a n d t h e Netherlands (14%). A massive construction boom is expected from 2 0 0 9 , w i t h a b o v e 1,000MW to be installed each year, with Germany and the UK in the lead. 9 Offshore wind Offshore Wind – prospects and risks Options for non-recourse financing An industry close to “full” competitiveness 10 Offshore wind Offshore Wind – prospects and risks Options for non-recourse financing Some major risks have hampered development Regulatory risk Offshore wind is still more expensive and the regulatory framework that supports onshore wind is usually not sufficient to support that additional cost In particular, the cost of the long distance connection to the grid, and how it was borne, became a major obstacle. Offshore projects are more complex and require more Construction risk coordination and project management than onshore players usually had. The very different risks and parties involved (in particular turbine manufacturers and offshore contractors) has meant an unwillingness to provide wrapped EPC contracts Long term O&M risk The harsher environment and the requirement for special vessels for both minor and major maintenance creates uncertainty as to the overall long term operating costs. 11 Offshore wind Offshore Wind – prospects and risks Options for non-recourse financing These risks are now being addressed Regulatory risk New remunerations structures have been put in place specifically for offshore wind projects (UK, Germany, etc) Connection issues are increasingly being resolved by passing on the obligation to the network operator and the cost to the consumers. Construction is going ahead on a split contract basis, with Construction risk developers beefing up strongly their management teams. Construction risks are getting better understood as experience builds up and large industrial players familiar with the offshore industry get involved. Long term O&M risk O&M risk (or, more generally, availability risk) is seen as the most sensitive, but ways are found to mitigate it. 12 Offshore wind Offshore Wind – prospects and risks Options for non-recourse financing Regulatory / permitting risk … is Equity risk Banks will NOT take any permitting risk; Projects can only be financed on a fully-developed, fully permitted basis, and with a clear understanding of the applicable regulatory framework; Banks will accept regulatory change risk, but need an existing legal framework that makes the projects economically viable to start with. Formal confirmation by legal advisors that all permits, … and translates into licenses, authorisations, etc… (including for the Due Diligence connection to the grid) have been obtained and are in requirements force; In particular, confirmation that the price support mechanisms (access to feed-in tariffs, purchase of green certificates, etc…) have been validly obtained by the project. 13 Offshore wind Offshore Wind – prospects and risks Options for non-recourse financing Construction risk … appears Construction involves of combination of well-known increasingly technical and technological risks acceptable For the wind industry, it is the scale (relative to the size of players), and the added need for contractor and sub- contractor coordination and management which creates new challenges Banks will accept construction risk, but need the confirmation that both budgets and schedules are realistic, and that interface risk is well managed. … and translates into Design, engineering, management and planning must be Due Diligence and sound – and validated by independent engineers. contractual Interfaces must be identified and responsibilities allocated. requirements Worst case scenarios must be described, and budgeted for – again, by the independent technical expert. The commitments of each party must be explicit and clear. 14 Offshore wind Offshore Wind – prospects and risks Options for non-recourse financing O&M risk … is the core project The economic viability of the project hinges on its ability to risk generate enough revenues for a long enough period to cover the high initial investment costs – whether they are financed by debt or equity. There is no track record yet of long term operation of turbines at sea, and well known significant “teething problems” on some early projects. … but can be mitigated Long term operational procedures should be defined and via conservative priced) conservatively, including definition of requirements assumptions and for spare parts, vessels and cranes for both scheduled strong Due Diligence and unscheduled interventions – all to be validated by independent engineers. Comprehensive – and long enough - turbine availability warranties should be provided, backed by “serious” financial penalties. Banks are looking for measurable risk rather than absence of risk. 15 Offshore wind Options for non-recourse financing 1. Some Info on Dexia 2. Offshore wind: prospects and risks 3. Finding solutions: the Q7 and C-Power deals 4. Notable structural features of Q7 and C-Power Offshore wind Finding solutions: the Q7 and C-Power deals Options for non-recourse financing Two non recourse deals closed in the past year Q7 (The Netherlands) 120 MW project (60 Vestas V-80 turbines) Closed 25/10/2006 EUR 383 M investment Rabobank, Dexia, EKF 2 separate construction contracts (Vestas & Van Oord) EUR 219 M LT debt Revenues from sale of electricity (PPA) plus green EUR 160 M ST debt certificates @97 EUR/MWh for 10 years under Dutch law) Long term O&M by Vestas Sponsors ENECO (50%) and Econcern/EIH (50%) Construction underway, scheduled in early 2008. C-Power (Belgium) 30 MW project (6 Repower 5MW turbines) Closed 23/05/2007 EUR 152 M investment Dexia (& Rabo for mezz) 3 separate construction contracts (Repower,