Key Bankability Issues for Offshore Wind Projects and How to Mitigate Them
(Room Garuda 10A, 1st Floor)
19 Sep 18
11:30 AM
-
1:00 PM
Tracks:
TRACK B - Finance & Investment
Offshore wind is growing in Asia, as governments seek new ways to meet energy demand. However, bankability remains a significant constraint. This paper looks at some key bankability issues that have plagued offshore wind, and how sponsors can mitigate them to achieve successful project financed projects. We first ask what bankability means and what makes a bankable project. This analysis shows bankability affects all aspects of the project (not only financial, but also technical and legal). We then assess some key bankability issues, including: • Contracting structure: why some earlier structures (e.g. EPC wrap and multi-contract) have not been bankable. We argue the way forward is the "bundling" approach – a model which has been successfully project financed. • Wind variability: a key concern for lenders, as wind risk sits with the project company. Newer risk transfer solutions include parametric wind insurance and hedging of wind energy resource risk. • Offtake arrangements: lenders will focus on subsidies (FIT/green certificates), price under the PPA (fixed or "route to market"), tenor (sufficient to support project debt), and the identity and credit rating of the offtaker. • Grid Connection: if the project cannot transmit power to the grid, it cannot generate revenue. This is a key bankability risk, particularly if the project sponsors does not control the grid connection. • Foreign Currency risk: a FIT in local currency with financing in USD/EUR creates currency risk. This is a larger problem for offshore wind (cf. onshore or solar) due to high capex and long lead times. • Technology: if a larger, less proven design is selected, completion risk and operations and maintenance risk increases. Damages under supplier warranties may not cover financing costs of delay or supply interruption. We conclude that for sponsors that can strategically mitigate these risks, offshore wind has a bright, bankable future in Asia.