Legal Structuring for Renewable Energy Projects James Snape, Partner Energy Projects and Construction

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Introduction When we talk about structuring we actually mean financing Fundamental to achieving financing is managing risk Level of perceived risk determines whether project is funded, and at what cost – how long is it likely to be before the project is commissioned and generates revenue to service debt and start to pay returns to investors? Is the revenue stream assured? Profile of financing risk – typically peaks as project is commissioned (time, effort, funds advanced, and fees expended)

Managing risk To successfully structure a renewable energy project need to appropriately allocate and manage the risks What are key risks in renewable energy transactions?

Planning & Consents Public objections, particularly re wind/waste to energy involving incineration Government and Statutory body objections – level now falling Choose best location not solely from technical perspective Hearts and minds campaigns Government preference for one scheme per site approach for offshore wind

Connection risk Excessively high cost of connection? Delay to commissioning due to failure to reach timely conclusion of negotiations on connection and access to transmission/distribution system – implications for revenue streams (CfD/ROCs/RHI) Choose best location not solely from technical perspective

Construction risk Construction offshore generally possible only during summer Technology risk is it proven? Substantial delay to commissioning possible if window of opportunity missed – implications for revenue streams/subsidies EPC Contractor to wrap risks? Flow down of risks with liquidated and performance damages for delays and reduced performance Insurance to cover all construction risks including delay in start up/loss of revenue

Revenue stream once operational Electricity – Grid or Private Wire? Heat Biogas Waste/RDF Subsidies or Subsidy Free? LECs Capital allowances Need long term contracts with credit worthy counterparties or insurance/security

Price uncertainty of electricity Weather – affects demand (and for certain renewables, generation) and may be mitigated by Weather derivatives (allow hedging against unseasonable conditions altering forecast demand) Vertical integration of generation and supply Storage Correlation between demand and output of some renewables Overcapacity Unforeseen events Mitigated by Long-term fixed price contracts EMR and the Capacity market Appropriate drafting in contracts to protect against changes in subsidies

Key factors to deliver a successful financing Consider the need and timing for external resources/advice Verification of available resource on client team Identify and manage key project risks Careful structuring of the contractual arrangements Early attention to planning, consents and connections Land issues need to be addressed including access Approach to lending institutions – preparation is key Information memorandum Financial analysis and modelling “Project Management” of the development process

Principal Financing Scenarios On balance sheet Limited recourse project financing Co-Development with a financially strong partner

Current trends in financing renewable energy projects Diversification of Sponsors Move away from traditional generators/utilities (Aviva, Copenhagen Infrastructure Partners, Equitix, John Laing, Dalmore, Octopus, Mainstream) IRR of 10-18% attractive to investors Merchant Waste and Biomass Plants Shift to merchant plants Competitive Financing Terms (debt) 120-300 bps above LIBOR 10-20 commercial banks in market Infrastructure Funds Institutional Lenders (L&G, M&G, Aviva)

Kemsley EfW Project 43MW Facility to supply electricity to the grid and heat to adjacent DS Smith Paper Mill Developed by Wheelabrator £340 million capex 500,000 tonnes per annum merchant waste supply from multiple national waste suppliers £300 million of debt from club of banks including GIB, BTMU, SMBC, Investec and Natixis First waste project supported by CfD via 1st auction round EPC provided by CNIM and Clugston Operational 2019 (est)

Hoddesdon WtE Project Hoddeson Advanced technology gasification plant in Hertfordshire Gasification plant utilising Refuse Derived Fuel (RDF) Developed by AssetGen partners £60 million 10 Mw/e output qualifying for ROCs GIB And Foresight Group provided a £30 million investment Waste supplied by Biffa and Powerday (est. 90,000 tonnes p.a) EPC provided by Bouygues E&S UK limited

Port Clarence Biomass Project Biomass/Waste Wood Project 40MW/e Biomass/waste wood project in Stockton on Tees Sponsor Eco2 and Temporis Capital sold to Glennmont Partners after Financial Close £160 million Capex Deutsche Bank and Danske Bank supported by EKF (Danish Credit Export Agency) 20 year long-term supply agreement with Stobart Biomass Group who are to provide 250,000 tonnes of biomass (waste wood) per annum EPC – Babcock Wilcox Volund O&M – Babcock Wilcox Volund

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