Innovation in Corporate Renewable PPAs Webinar on 19th December, - - PowerPoint PPT Presentation

Innovation in Corporate Renewable PPAs

Webinar on 19th December, 3pm CET

Agenda for today

Lucy Hunt, Renewable Energy Associate, WBCSD

Accelerating the adoption of corporate renewable Power Purchase Agreements

2 Andrew Hedges, Partner, Norton Rose Fulbright Followed by Q&A

Corporate PPAs – types, risks and common approaches

3 Marjella de Vries, Vice President Project Finance, Rabobank Followed by Q&A

A lender’s view on Corporate PPAs

4 Bruce Douglas, Coordinator, RE-Source Platform

Welcome and introduction to the RE-Source Platform

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Questions & Answers - Instructions

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RE-Source Platform

• Influence EU and national renewable energy and energy market

legislation to advance corporate sourcing

• Raise awareness and educate all stakeholders on the advantages of

corporate sourcing renewable energy.

• Provide business opportunities: connecting corporate renewable

energy buyers and sellers

“Move from 100 buyers to 100,000”

#100to100k

RE-Source Platform

0.1 0.1 0.2 0.2 0.2 0.1 0.2 0.2 0.3 0.2 0.5 0.5 0.1 0.2 0.4 0.3 1.0 0.2 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Annual volume (GW) Denmark United Kingdom Germany Netherlands Sweden Belgium Finland Italy Iceland Norway Ireland 0.2 0.5 0.8 1.1 1.1 0.1 1.9

Official data partner:

Annual PPA volumes in Europe

Over 100 organisations call on policy makers to:

• Remove barriers
• Provide clarity on Guarantees of Origin
• Encourage cross-border transactions
• Enable a wide variety of models

#100to100k RE-Source Declaration

Task Forces

• 1. Policy and lobbying:
• National Energy and Climate Plans (NECPs)
• Market Design
• Implementation of RED II
• 2. Simplification and innovation of transactions
• 3. Cross border PPAs
• 4. Heating, cooling and transport

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Title with 2 lines of text Image background

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Accelerating the adoption of corporate renewable Power Purchase Agreements

Lucy Hunt, Renewable Energy Associate, WBCSD

Who we are

WBCSD is a global, CEO-led organization of 200 forward thinking businesses working together to accelerate the transition to a sustainable world. World Business Council for Sustainable Development

Our mission is to accelerate the transition to a sustainable world by making more sustainable business more successful. Our vision is to create a world where more than nine billion people are all living well and within the boundaries of our planet, by 2050. GLOBAL

Our 200 members span across the globe and all economic sectors. We have 60+ Global Network partners who engage with sustainable business at a national level.

MARKET-DRIVEN

We consider sustainable development as a strategic business opportunity. We strive to make more member companies more competitive.

CEO-LED

WBCSD is oriented towards collective action and led by our member company CEOs.

UNIQUE BUSINESSPLATFORM

Our members enjoy access to a diverse business community across sectors and a safe space to exchange ideas, know - how and information with

• peers. Together, we develop business solutions

to global challenges that no single company can tackle alone.

The REscale project

Leading companies representing the full renewable supply chain are working together on solutions to accelerate the deployment of renewables beyond average growth and transition to a low- carbon electricity system. Renewable energy is reliable and increasingly competitive and we believe that 3.5 TW of capacity can be deployed before 2025.

Ambition Action

REscale: Corporate Renewable PPA Forum

Corporate Renewable PPA Forum The Forum increases understanding and use of corporate renewable PPAs – globally.

Regulators and policy makers Lawyers, accounting firms, investors Buyers incl. energy-intensive industry Renewable developers / utilities

Global topical deep-dives:

Multi-technology PPAs, Cross-border PPAs

Country deep-dives:

India, Argentina, EU, Brazil

Communication work

The Forum’s activities: The Forum consists of:

Read more: https://www.wbcsd.org/Programs/Climate-and-Energy/Energy/REscale/Corporate- renewable-power-purchase-agreements-PPAs

Innovation in PPA structures

Main PPA structures used today Main features & risks in selected markets Challenges & innovative market developments 1 2 3

The objective of the guidance is to help power-purchasing companies overcome challenges and set up innovative, successful renewable PPAs. The publication is aimed at energy procurement and sustainability teams.

Contact

Lucy Hunt

Associate, REscale hunt@wbcsd.org Mobile: +41 (0)79 5115 039 Main: +41 (0)22 839 3105

Corporate PPAs – types, risks and common approaches

Andrew Hedges Andrew.hedges@nortonrosefulbright.com Norton Rose Fulbright LLP 19 December 2018

Basis for views…

• Long history with corporate PPAs
• Teams in US, Australia, UK, Netherlands, France, Germany, Italy

involved in current work on corporate PPAs

– Australian team just launched Guide to Corporate Power Purchase Agreements: Helping energy buyers to make the most of the growing renewable energy opportunity - with Energetics Australia in partnership with WWF’s Renewable Energy Buyers Forum

• Innovative deals:

– UK subsidy free corporate PPA using new physically sleeved approach – Synthetic PPA for subsidy free UK solar – Proxy revenue swaps in the US and Australia – Scandinavian baseload PPAs for subsidy free wind

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Virtual / Synthetic vs Physically sleeved PPAs

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1. Buyer agrees a PPA price with developer to purchase the electricity it will generate plus renewable certificates; 2. Buyer enters into a back-to-back PPA to sell the electricity to the utility 3. Generator will transfer the electricity to the utility, which will sleeve / wheel it through the grid to buyer sites 1. Buyer agrees a PPA price (strike price) with the developer and a price for renewable certificates; 2. Developer delivers renewable energy to the grid and is paid by a utility a variable spot price; 3. Developer and buyer settle the difference between the variable market price and the strike price and the developer delivers renewable certificates to the buyer; 4. Buyer continues to buy its power from the utility, which is now (subject to basis risk) hedged by the synthetic PPA

Common risks

Development

• Risk that generation facility is not constructed and commissioned on a timely

basis or at all

Performance

• Risk that facility does not perform as expected
• For eg: fails to achieve a minimum level of mechanical availability, meets its

warranted power curve (wind) or performance ratio (solar)

Volume

• Intermittent technologies: risk re uncertainty of output of the facility over a

period of time

Shape / Profile

• Risk that hour-to-hour output will be variable depending on relevant

conditions such as wind or irradiation, even if the overall volume of an intermittent technology over a sufficient period of time can be forecast

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Practice across different markets

• US, Aust, UK, Netherlands, India

Development

• Across markets, common to see target milestone dates for completion.
• Delay damages after a buffer period have been included on many deals (except

UK). Australia relatively strong in approach to limited excuse events for breach of longstop dates.

Performance

• Minimum capacity availability requirements common for intermittent technologies
• Breach can lead to shortfall payments and potentially termination

Volume

• Evidence from across markets that corporates are increasingly seeking minimum

generation volumes as some corporate buyers look to pass volume variability risk back to developers

Shape / Profile

• Less clarity on common positions. For example, UK physically sleeved deals

tended to leave to buyer to manage with its utility but this is changing

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Volume Risk Innovation

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• Emergence of Proxy Revenue Swaps in US,

now moving into Australia and (parts of) Europe

• Simple example:
• Contract–for-differences on annual revenue of a

renewable energy project

• Project receives fixed revenue ($/year, not

$/MWh) and pays variable proxy revenue

• Provides cash-flow and revenue certainty to the

project by removing weather and price risk (for a cost)

• Corporate PPA can provide mechanism for PRS

provider to back off long term price risk

Volume Risk Innovation

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• Proxy Revenue Swaps not the only solution
• Sellers are offering baseload PPA to corporate

buyers for intermittent assets

• For physical PPA, usually seller out-sources volume

risk to trader to manage

• Common topics for discussion are when baseload

commitment adjusted (for example scope of force majeure or grid relief)

• Others discussing multi-technology PPAs as

alternative

Q&A

A lender’s view on Corporate PPAs

Marjella de Vries - Rabobank

Project financing and Corporate PPAs

No assets in place at time of financing Only the promise of future revenues (‘cashflows’) (Usually) Non-recourse

Now that subsidies are phasing out, corporate PPAs become the backbone of the financing.

• Project Finance requires long term stable,

predictable cash flows: banks and investors take a view on volumes and prices for electricity and associated benefits sold

• PPAs typically provide route to market for

projects to sell production and associated benefits

• Clear allocation of responsibilities and risks (incl.

balancing) between project and off-taker Project Finance

Bankability of corporate PPAs

Financing parties appetite for transactions with corporate PPAs very much depends on the (remaining) exposure to spot price and volume risk. Volume Price

CfD

If combined with

Tenor, Counterparty Risk & Credit Support

Credit Support

• Parent company guarantee, bank guarantee and/or letter of credit
• Corporate offtaker sometimes also asks for credit support. If so, the level of credit support usually

mirrors the one provided by the offtaker and should be consistent wih the potential total loss that could arise from termination of the corporate PPA (i.e. a declining profile along the way).

Counterparty Risk

• Rated vs. unrated entities
• Top holding vs. subsidiary

Tenor Tenor of the corporate PPA is generally 10 – 20 years: fixed price vs. tenor considerations. Debt tenor vs. PPA tenor.

Volume and Profile/Shape risk

Profile/Shape risk

• Risk that hour-to-hour output will be

variable depending on relevant conditions such as wind or irradiation, even if the

• verall volume of an intermittent

technology over a longer period of time can be forecasted.

• “As produced PPA” – not applicable

because no hourly fixed volume

• bligation
• “Baseload PPA” – fully allocated to

generator. Volume risk

• Risk that due to the intermittent character
• f the technology the fixed volume
• bligation over a longer period of time (e.g.

a year) will not be met:

• “As produced PPA” : volume risk is not

applicable to generator and lender(s) because no fixed volume obligation

• “Baseload PPA” : volume risk is relevant

for generator and lender(s). The contracted volume is generally set at 60 - 70% of P50 to ensure the fixed volume

• bligation will always be met.

Main considerations for lenders Explanation Contractual Tenor Debt tenor depends on PPA tenor Counterparty risk Credit strength, track record and reliability Credit support Support package depends on strength offtaker, rating triggers included in contracts Merchant price risk versus fixed price Majority of merchant price risk to be locked-in Volume risk Hedge percentages up to 70% in case of baseload offtake Profile/shape risk Demand profile is baseload while generation is variable. Committing to hour- to-hour-output for a intermittent technology is difficult Terminations provisions Termination conditions and calculation of termination payments are key credit points Force majeure provisions Suspension of obligations during force majeure period of 6-12 months, thereafter yes/no termination payment Security Lenders take security over project assets Step-in rights for lenders In a default scenario, lenders would like to have the right to step into the shoes of the generator to keep the project alive

Summary - main bankability considerations

Contact details

Marjella de Vries

Associate Director – Rabobank Project Finance Telephone: +31 (0)30 71 21359 E-mail: Marjella.de.Vries@rabobank.com

Q&A

Open discussion and questions

https://www.wbcsd.org/Programs/Climate-and-Energy/Energy/REscale/Resources/Innovation-in- Power-Purchase-Agreement-Structures

Webinar: On-site renewables

16 January 2019 Register here: https://register.gotowebinar.com/register/4527878339002988803