C-Power: Maritime movement

C-Power's package of senior and mezzanine debt is the second offshore wind project financing to close worldwide. It embodies an approach to developing wind farms at sea that emphasises the offshore construction and operational expertise over turbine technology. It invites comparisons with its predecessor, 2006's Q7, and exceeds the earlier deal in most respects.

C-Power's sponsors, each with a roughly 20% stake, are the DEME Group, whose main subsidiary is Dredging International, Ecotech Finance (owned by the Walloon region's economic development company SRIW), EDF Energies Nouvelles, NUHMA (a utility investment vehicle, owned by various municipalities and communes in the province of Limburg) and Socofe (another publicly-owned investment vehicle for the Walloon region).

The financing consists of a Eu111 million 15-year long-term non-recourse senior loan and a Eu20 million loan, which is also non-recourse. The sponsors rejected the high levels of sponsor financial support that have characterised previous offshore wind financings. Instead, the financing relies on laying off larger quantities of risk onto other project parties.

C-Power has been planning to build a wind farm on Thornton bank, about 28km off Belgium's coast, since 1998. This financing backs the installation of a first 6 turbines, each of 5MW, out of a planned total of 300MW. It also allows for the construction of the associated infrastructure, including a 150kV transmission line that runs 36km from the project to the shore, which ABB will construct.

The construction contracting for the wind farm is split between DEME and the turbine supplier REpower, a subsidiary of Suzlon, with a lengthy agreement describing the responsibility split between the two. But REpower's role in the financing is greater, since the turbines that C-Power is using have a very limited track history, and the manufacturer is providing a generous set of performance guarantees, one that leaves the sponsor and lenders holding less risk than if they were using proven technology.

REpower's 5MW turbines have a short history at the Beatrice demonstration site, and C-Power is to serve as a commercial scale demonstration. C-Power's sponsors and lenders, in exchange for serving as a shop window, receive a suite of guarantees that would be unavailable for proven technology.

For the first ten years of the turbines' life, the manufacturer provides guarantees of availability, on a sliding scale that decreases over time. REpower and DEME have an agreement to share responsibilities for operations and maintenance. The project also benefits from a full set of insurance policies, courtesy of Ethias and some other specialist London-based underwriters.

The project company took an equally hard line with its offtake arrangements. The Belgian renewable energy framework provides for generators to dispatch their projects onto the spot market and receive a market rate for their output. They then receive one renewable energy certificate per MWh on top of market revenues, but will depend upon both the ability of the market to set an attractive price for the certificates and the quality of the regulations to ensure that the market keeps functioning.

Ultimately, the developers prevailed upon the grid operator to provide the project with a base revenue of Eu107 per MWh that is enough, along with the proceeds of spot sales, to meet lender expectations. By the time C-Power mandated Dexia Credit Local in late 2006, the project agreements were at a far enough advanced stage that the documentation process took only three months. The project reached financial close on 23 May, and might have closed six weeks earlier if banks had warmed more quickly to a deal centred on contractors, rather than sponsors.

Dexia is providing the project with Eu75 million in short-term support facilities to back construction, and these will be refinanced at close with a 15-year, Eu90 million permanent facility, a Eu5 million working capital facility and an Eu11 million contingent facility. On top of the senior debt enhancements, the project is also raising a Eu20 million mezzanine loan, which acts in effect as a non-recourse contingent equity facility. The mezzanine illustrates most clearly of all the sponsors determination to keep their entanglements with the project to a minimum.

Lenders take comfort in the limited scope of the first phase and the above-market set of contracts. If the first phase is successful, the sponsors want to move ahead with installing another 54 turbines at the site, which would take the farm's capacity up to 300MW. The first financing has been structured to accommodate the next phase, but this would need to be financed either with a separate loan, or by refinancing and rolling up the first phase. According to C-Power's general manager, Filip Martens, it is also exploring non-bank financing options for the follow-up.

Nevertheless, C-Power obtained competitive pricing, particularly given how circumscribed the project's sponsor support is. Pricing varies from between 100bp to 190bp, but on average stands at 120bp, a slightly wider range that Q7, but roughly equivalent, and with, at 1.3x, a slightly lower debt service coverage ratio than the 1.35x of Q7. KBC, Société Générale and Rabobank came in to the senior debt during syndication.

C-Power has much from which developers, large and small, can borrow, not least a set of contracts that place a much lower stress on sponsor balance sheets. But REpower's market-share-building contract terms will not be on offer to future offshore developers. While lenders will ultimately become more comfortable with the 5MW units, as soon as the technology becomes proven, REpower will be able to command the same terms from purchasers as other manufacturers. Indeed negotiations over the turbine supply agreement for C-Power phase 2 are currently in progress.

C-Power NV Phase 1
Status: Financial close 23 May 2007
Size: Eu153 million
Description: First offshore wind farm in Belgium
Senior debt: Eu111 million
Mezzanine facility: Eu20 million
Sponsors: DEME, Ecotech Finance, EDF Energies Nouvelles, NUHMA, Socofe
Lead arranger and underwriter: Dexia
Mezzanine lender: Rabobank
Lender counsel: Watson Farley & Williams, Loyens Advocaten
Mezzanine counsel: Allen & Overy
Sponsor counsel: Allen & Overy
Lender consultants: Mott MacDonald (engineer), SgurrEnergy Ltd (wind), James Ingram & Associates (offshore engineering), Jardine Lloyd Thompson Limited (insurance)
Sponsor consultant: Technum (technical)