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

2. CMS – An overview of our firm

3. CMS Offices

4. CMS Sector Expertise

5. 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)

6. 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?

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

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

14. 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)
bps above LIBOR
10-20 commercial banks in market
Infrastructure Funds
Institutional Lenders (L&G, M&G, Aviva)

15. 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)

16. 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

17. 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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