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in Wind Energy Projects Leveraging a New Financial Product to - - PowerPoint PPT Presentation

Jan 12, 2023 361 likes •689 views

Presenting a live 90-minute webinar with interactive Q&A Structuring Proxy Revenue Swaps in Wind Energy Projects Leveraging a New Financial Product to Mitigate Energy Price Risk and Wind Resource Uncertainty TUESDAY, MAY 23, 2017 1pm

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Presenting a live 90-minute webinar with interactive Q&A

Structuring Proxy Revenue Swaps in Wind Energy Projects

Leveraging a New Financial Product to Mitigate Energy Price Risk and Wind Resource Uncertainty

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, MAY 23, 2017

Robert Eberhardt, Partner, Chadbourne & Parke, New York John J. Leonti, Partner, Troutman Sanders, New York and San Francisco

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Proxy Revenue Swaps in Renewable Energy Projects

Rob Eberhardt, Chadbourne & Parke LLP John Leonti, Troutman Sanders LLP Strafford CLE Webinar May 23, 2017

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Agenda

Proxy Revenue Swap Basics Sample Calculation Commercial Issues Legal Issues

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Proxy Revenue Swap Basics

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What is a Proxy Revenue Swap?

  • New risk management tool for the wind energy industry
  • Swap of fixed annual payment for floating revenues of a wind

project (driven by the hourly wind resource and power prices)

  • Hedge providers are participants in weather risk market looking for

weather-derived exposure not correlated with other financial markets

  • Merchant power price risks and wind resource risks both

transferred in an integrated derivative contract

  • Tenors of up to 10 years long enough to support project financing,

including tax equity

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Proxy Revenue Swaps Signed in 2016

Project Market Sponsor Lender Tax Equity Hedge Provider Back-to-Back Price Hedge Provider Calculation Agent Bloom (KS) SPP Capital Power Corp. N/A Goldman Sachs Allianz Risk Transfer / Nephila Capital Microsoft Corporation REsurety Old Settler (TX) ERCOT Apex Clean Energy Deutsche Bank JPMorgan (lead) Allianz Risk Transfer / Nephila Capital Confidential REsurety Not Public (OK) SPP Not Public N/A N/A Allianz Risk Transfer / Nephila Capital Confidential REsurety 9

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Comparison of Offtake Contracts: Price

Power Purchase Agreement Fixed Volume Price Swap (“Bank Hedge”) Corporate / “Virtual” PPA Proxy Revenue Swap Project’s Counterparty Utility Commodities Merchant (Financial/Strategic) Corporation Weather Risk Investor Physical vs Financial Physical Physical Financial Financial Product Energy and RECs Energy plus potentially RECs Energy and RECs Energy plus potentially RECs Unit Price Fixed Fixed Fixed Effectively Varies by Volume Settlement Point Project Node Trading Hub Project Node or Trading Hub Trading Hub Price Basis Risk No Yes (but includes Tracking Account) Depends on Settlement Point / Shared Risk Yes Market Sales? No Yes Yes Yes 10

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Comparison of Offtake Contracts: Volume

Power Purchase Agreement Fixed Volume Price Swap (“Bank Hedge”) Corporate / “Virtual” PPA Proxy Revenue Swap Project’s Counterparty Utility Commodities Merchant (Financial/Strategic) Corporation Weather Risk Investor Physical vs Financial Physical Physical Financial Financial Revenue Based

  • n Wind

Production? Yes Yes Yes No Revenue Based

  • n Availability?

Yes Yes Yes Yes Revenue Based

  • n Efficiency?

Yes Yes Yes Yes Fixed Delivery Obligations None Hourly Delivery Obligations (P99) None None Minimum Delivery Obligations Annual Minimum Production None Annual Minimum Availability None 11

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Sample Calculation

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Assumptions and Data

Assumptions Fixed in Contract at Closing Data Collected for Each Settlement Interval Fixed Payment (in $) Detailed (10 minute) Turbine-Specific Wind Data from Project SCADA Number of Wind Turbines in Project (e.g. 100) Wind Data from Permanent Met Towner Power Curve Other Meteorological Data Project Operational Efficiency (e.g. 90%) Market Prices at Hub Published by ISO Contracted Fraction Production Data (both Turbine-Specific and at Project Meter) 13

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Power Curve

Wind Speed (m/s) Output (kw) 4 100 6 300 8 900 10 1800 14 2500 16 2500 20 2500 24 2500 14

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Wind Data

DATE TIME WTG 1 WTG 2 WTG 3 … WTG 49 WTG 50 01.01.2018 0:00 15.5 16.5 16.1 … 16.6 15.2 01.01.2018 0:10 15.5 16.5 16.2 … 16.7 15.2 01.01.2018 0:20 15.7 16.6 16.2 … 16.7 15.1 01.01.2018 0:30 15.6 16.6 16.1 … 16.7 15 01.01.2018 0:40 15.7 16.7 16 … 16.7 15.1 … … … … … … … … 01.01.2018 23:40 10.1 12.4 14.4 … 10.2 11.6 01.01.2018 23:50 10.2 12.2 14.2 … 10.3 11.7 01.02.2018 0:00 10.2 12.2 14.3 … 10.3 11.7 … … … … … … … … 04.30.2018 23:20 16.4 17.9 16.2 … 18.3 17.1 04.30.2018 23:30 16.5 17.8 16.4 … 18.3 17 04.30.2018 23:40 16.6 17.9 16.4 … 18.4 16.9 04.30.2018 23:50 16.6 18 16.4 … 18.4 16.9

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Proxy Revenue Calculation

  • Power Curve-Derived Generation: Energy (in MWh) for a wind

turbine during a Calculation Interval (e.g. 10 minute period) estimated based on: Power Curve and Measured Wind Speed at Turbine

  • Proxy Generation: Sum for all wind turbines during each

Calculation Interval of: Power Curve-Derived Generation x Expected Operational Efficiency

  • Proxy Revenue: Sum for each Calculation Interval during the

Settlement Period (e.g. 3 months) of: Proxy Generation x Day-Ahead Hub Energy Price

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Two-Way Settlement

Wind Project Hedge Provider

Settlement Amount

If Proxy Revenue > Fixed Payment High winds, high prices, or a combination during settlement period

Wind Project Hedge Provider

Settlement Amount

If Proxy Revenue < Fixed Payment Low winds, low prices, or a combination during settlement period

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Project Receives Merchant Revenues

Wind Project Hedge Provider

Settlement Amount

Market

Merchant Revenue

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The Calculation Agent

  • Responsible for Preparing Settlement Reports
  • Performs Specified Power Curve Adjustments
  • Assesses Data Quality and Excludes Invalid Data
  • Proposes Calculation Methods for Unspecified Circumstances
  • Identifies Operational Losses (e.g., Availability, Performance,

Operational Losses)

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Commercial Issues

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Fees

  • Upfront Structuring Fee to Hedge Provider
  • Annual Fee to Hedge Provider
  • Service Fees for Calculation and Reporting Services

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Hedge Provider Credit Support

  • Critical for Project Financing
  • Public Credit Ratings (S&P, Moody’s, Fitch, A.M. Best)
  • Possibility of Downgrade Protection

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Project Credit Support

  • Cash or Letter of Credit of Fixed Amounts
  • Issuing Bank Downgrade Protection
  • Parent Guarantees
  • Possibility of Liens on Project Assets
  • Negative Covenants

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Adjustments and Partial Termination

  • As-Built Conditions Inconsistent With Assumptions
  • Casualty / Condemnation
  • Wake Impacts of Neighboring Projects

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Legal Issues

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Documentation

  • ISDA Documentation
  • Confirmation
  • Master Agreement
  • Schedule
  • Credit Support Annex
  • Departures from ISDA Master Agreement Standard Terms, e.g.
  • Cure Periods
  • Cross-Acceleration (not Cross-Default)
  • No Credit Event Upon Merger
  • Calculation Services Agreement with Calculation Agent

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Project Company Covenants

  • Customary Limits for Special-Purpose Project Companies, e.g.
  • Indebtedness and Liens
  • Other Commodity Hedges
  • Asset Sales
  • Investments
  • Insurance / Casualty Events
  • Operation and Maintenance of Anemometers on Permanent Met

Towers and Each Nacelle

  • Replace Unreliable Anemometers

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Additional Termination Events

  • Failure to Achieve Commercial Operations by Guaranteed Date
  • Breach of Negative Covenants (No Cure)
  • Abandonment

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Bankruptcy Issues

  • Parties Agree that Safe Harbor Provisions Apply
  • Termination / Liquidation Permitted
  • Setoffs / Netting Permitted
  • Certain Pre-Petition Transfers Not Subject to Avoidance

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Dodd-Frank Requirements

  • Commercial End-User Exception to Mandatory Clearing /

Exchange-Trading Requirements

  • Real-Time Reporting Rules (CFTC Rules Part 43)
  • Swap Data Reporting (SDR) Rules (CFTC Rules Part 45)
  • Who is the Reporting Party? (Often the Project Company.)
  • Possibility of Reporting Service Agreement

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Thank You

Rob Eberhardt Chadbourne & Parke LLP reerhardt@chadbourne.com John Leonti Troutman Sanders LLP john.leonti@troutmansanders.com

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