Tendering of new offshore wind parks in the Netherlands 12 June 2015 - PowerPoint PPT Presentation

Tendering of new offshore wind parks in the Netherlands 12 June 2015 David Orobio de Castro, Ingmar de Groot

Contents 1. Introduction 2. Regulatory framework in a nutshell 3. SDE+ subsidy 4. Tender planning and risk allocation 5. Infrastructure tenders 6. Comparison between infrastructure and offshore wind park tenders Tendering of the new offshore wind parks 2

1. Introduction  Netherlands: long tradition in wind power. Recent projects include:  Egmond aan Zee (completed: 2006) 108 MW  Prinses Amalia (completed: 2008) 120 MW  Luchterduinen (completed: 2015) 129 MW  Gemini (completed: 2017) 600 MW  New investments due in the Netherlands. Dutch Energy Agreement:  2015-2019: 5 x 700 MW (10 x 350 MW)  Target: 40% cost reduction through efficiency  State to commission the building of an offshore grid  Novelty:  State determines location and prepares spatial planning  Competitive tendering for subsidy and right to build and operate windpark Tendering of the new offshore wind parks 3

2. Regulatory framework in a nutshell  Site decision ( Kavelbesluit )  locations for the offshore windparks  location-specific requirements for construction and operation of the windparks  Wind permit ( Windvergunning )  based on site decision  to be granted only to the winner of the subsidy tender  provides the exclusive right to build and operate the wind park  SDE+ subsidy (S timuleringsregeling Duurzame Energieproductie )  subsidy per kilowatt-hour actually delivered to the grid  term: 15+1 year  mechanism to balance out peaks in energy production  Other legislation, including Water Decree ( Waterbesluit ) Tendering of the new offshore wind parks 4

3. SDE+ subsidy (i) Tendering of the new offshore wind parks 5

3. SDE+ subsidy (ii)  No prequalification  Pursuant to its most recent annual report, the applicants’ equity capital ( eigen vermogen ) must be at least 10 % of the total investment cost of the wind park  Subsidy applications:  must be submitted before the later of (a) 31 March 2016 ; and (b) the fifth Thursday following the date the Regulation on Offshore Wind Energy 2015 entered into force  may be filed for Borssele I, Borssele II and/or Borssele I + II  must be between 351 MW (minus capacity of smallest turbine) and 380 MW  must be below the maximum tender amount set by the government Tendering of the new offshore wind parks 6

2. SDE+ subsidy (iii)  Pursuant to letter by Minister of Economic Affairs to House of Representatives (dated 19 May 2015):  Relevant amounts for Borssele I and II (i.e. the sites that will be put to tender in 2015)  maximum tender amount: 12.4 ct/kWh  base electricity price: 2.9 ct/kWh  Maximum tender amounts for other windpark zones (i.e. the sites that will be put to tender in 2016-2019)  Borssele (2016): 11.975 ct/kWh  South Holland Coast (2017): 10.75 ct/kWh  South Holland Coast (2018): 10.325 ct/kWh  North Holland Coast (2019): 10.0 ct/kWh Tendering of the new offshore wind parks 7

3. SDE+ subsidy (iv)  Subsidy grant will be subject to the condition precedent that the preferred bidder:  provides a € 10 mln bank guarantee; and  enters into Realisation Agreement: • obligation to commence operation of the windpark within 5 years from the date of the subsidy grant • obligation to provide a € 35 mln bank guarantee • penalties if windpark does not become operational in time • if site decision is amended post-appointment of preferred bidder, the latter may cancel the subsidy grant without incurring a penalty • preferred bidder to waive any claims in connection with the research reports (i.e. site data) provided by the State • commencement of construction before site decision has become irrevocable: applicants’ risk Tendering of the new offshore wind parks 8

3. SDE+ subsidy (v)  Evaluation of the tender (pass or fail): is it sufficiently feasible?  applicant’s equity capital  probability of timely construction  economic feasibility: base case  technical feasibility: no requirements specified (Minister expects that the required bank guarantees will result in the submission of serious applications only)  Lowest price wins Tendering of the new offshore wind parks 9

3. SDE+ subsidy (vi) Risk Comment Inefficient from a market’s perspective. No prequalification 10% equity capital requirement is not a proper indicator of the The applicant’s equity capital applicant’s financial solidity. Unclear how equity capital must be calculated in case of a group company or joint venture. Furthermore, joint ventures are generally formed for a specific tender and will not yet have any annual report at the time of the application. A period of 4 months is too short, let alone a period of 5 weeks. Application period Minister: time limits are feasible because the applicants will already have important project information at their disposal (e.g. seabed surveys). Opens the door to offer a low tender amount for opportunistic No support letters from financiers reasons. required; short application period; only sanction if preferred tenderer withdraws is € 10 mln penalty Tendering of the new offshore wind parks 10

4. Tender planning and risk allocation (i) 2015 Q1/Q2 Draft SDE+ subsidy decision open for consultation Q2 Draft site decisions regarding Borssele I and II open for consultation Q3 Draft site decisions formally filed for public inspection Q4 Publication of (i) SDE+ subsidy decision and (ii) site decisions Q4 Anticipated start SDE+ subsidy tender 2016 Q1 Application for SDE+ subsidy up to 31 March 2016 or 5 weeks from entry into force of the Regulation on Offshore Wind Energy 2015 Q2 Appointment winner of the subsidy tender  Borssele tender: interested parties should participate in the consultation on the draft SDE+ subsidy decision and the draft site decisions. Consultation to start in 2nd or 3rd quarter of 2015. Tendering of the new offshore wind parks 11

4. Tender planning and risk allocation (ii)  Allocation of major risks Risk Comment Legislation is being prepared. The State will provide for compensation to operator of Offshore grid is not ready when the windpark in case of delays. Compensation to include loss of income up to a certain windpark is ready level. Site decision should be irrevocable when bids are made. However, in the Borssele Site decision is suspended or nullified tender this will probably not be the case. Objections may lead to a change in requirements. This may necessitate a change to the bid. Wind permit and subsidy grant: normal appeal procedures apply. Risk of delays in case Wind permit or SDE+ subsidy grant is of appeals against outcome of the tender by losing bidders. suspended or nullified Reports will be prepared at the instruction of the State. The State's current position is Site data (geology, geomorphology, that it will not accept liability for errors / incompleteness in these reports. archaeology, wind) incorrect UXO's (unexploded ordnance) The presence of UXO’s may cause substantial delay. Pursuant to desktop studies, this risk is limited. The State will not commission any further investigations. Tendering of the new offshore wind parks 12

4. Tender planning and risk allocation (iii)  Allocation of major risks Risk Comment Security over wind permit, subsidy? New legislation provides that both the wind permit and subsidy are transferable, subject to consent from the Minister. Hence, both the wind permit and subsidy can be pledged ( verpand ) if the Minister cooperates. Any delay (or aggregate of delays) is at the expense and risk of the preferred bidder, Obligation to commence operation regardless of the cause. within 5-6 years The penalty for a late start of operation Additional interest and the reduction of the subsidy period provide sufficient incentive of the windpark amounts to € 2.5 mln to start operation of the windpark in good time. There’s no use in adding a penalty. per month, capped at € 25 mln* Distribution of risks Risks not dealt with include: • Changes to the site decision • Changes in law • Force majeure * We expect the legislator to increase the penalty for late start of the operation to € 3.5 mln per month with a maximum of € 35 mln. Tendering of the new offshore wind parks 13

5. Infrastructure tenders (i)  Dutch infrastructure and accommodation projects (PPP/DBFM(O)):  to date: the Dutch government has tendered over 20 projects (total value over € 6 bn)  recent projects include:  Zaanstad prison PPP project ( € 210 M)  A12 roads PPP project ( € 120 M)  SAA A9 PPP roads project ( € 600 M)  IJmuiden Sea locks PPP project ( € 850 M)  until 2020: 19 projects in pipeline Tendering of the new offshore wind parks 14

5. Infrastructure tenders (ii) Authority equity Shareholders Contractor (“SPV”) Bank subordinated debt bank debt Shareholders Subcontractor (“DBMO - CO”) Parent Company Guarantees Contract structure ‘non -recourse ’ or ‘ limited recours ’ financing Tendering of the new offshore wind parks 15

5. Infrastructure tenders (iii)  Characteristics of non-recourse or limited recourse financing:  financing and repayment of loans solely based on (future) cash flow of the project  lenders have no other recourse than the assets of the project company  Risk allocation is of the essence Bank Debt y = € Construction Exploitation X = t Tendering of the new offshore wind parks 16