C-Power closed the Eu1 billion ($1.37 billion) financing of the second and third phases of its offshore wind farm on the Thorn­ton Bank on 25 November. The financing, which is a further advance on the offshore-Belgium wind financing template, pro­vides a model lesson on how to make banks comfortable with offshore construction risk. In brief, that lesson is provide exhaustive due diligence.

With a maturity of 18 years, including a three-year construction period, the Eu1.007 billion debt package is the longest ever fin­ancing concluded in the offshore wind sector. The deal is also the largest ever to be closed in offshore and the first transaction where banks finance the installation and operation of 6MW offshore wind turbines.

The financing comes from a group of seven lenders – KBC, Rabobank, Societe Generale, KfW IPEX-Bank, Commerzbank, Dexia and ASN Bank – together with export credit agencies Euler-Hermes and EKF, as well as the European Investment Bank (EIB).

The financing will fund the construction, between 2011 and 2013, of the second and third phases of the 325MW offshore wind farm, located about 30km off the Belgian coast in the North Sea. Once complete, C-Power will contribute 10% of the renewable energy capacity which Belgium needs in order to meet its EU objective of 13% renewable energy production by 2020. The pro­ject has a total investment cost (excluding contingencies) of Eu1.289 billion, which includes the refinancing of the already operational 30MW pilot phase.

C-Power completed its pilot phase project in June 2009, with 6 REpower 5MW turbines which have now produced over 155 GWh. The project was the first to erect large scale 5MW wind turbines offshore on a commercial basis.

The financing for the first phase of C-Power provided banks with a prototype on which they could improve. The Eu126 million financing of the 30MW first phase in 2007 allowed banks to get comfortable with the incremental technical risk of moving to 6MW REpower turbines. C-Power completed the first phase project in June 2009, and since then it has achieved an availability rate of about 97%.

The second and third phases will consist of the installation of 48 jacket foundations and 48 REpower 6M wind turbines (with rated power output of 6.15MW), the laying of infield cables and a second 150kV export cable, as well as the installation of an offshore high voltage substation.

The financing benefits from heavy ECA and multilateral sup­port, with just Eu19 million of the senior term loan uncovered. The debt/equity split is 70/30, and average debt service coverage ratio (DSCR) is 1.30x at P90 wind production. The all-in average cost of debt is around 5% and the average loan life for the term loan is 7.25 years post-commissioning. 

The financing structure includes:

– Eu869 million in long term facilities;

– Eu44 million in contingent facilities;

– Eu36 million in stand-by letters of credit;

– Eu58 million in equity bridge facilities.

This is the first non-recourse offshore wind project financing in which Euler Hermes has participated, and the Eu400 million facility with a 95% commercial guarantee from Euler cor­res­ponds to the value of the REpower contract. EKF, the Danish export credit agency, is counter-guaranteeing Eu45 million of the EIB package.

With facilities of Eu450 million, including a direct loan of Eu150 million, the EIB was a crucial source of funding and help­ed keep debt costs down. The project is also benefits from a Eu10 million EEPR (European Energy Programme for Recovery) grant.

The sponsors and their adviser engaged banks at an early stage, which gave lenders an early say in the negotiation of key contracts to ensure they were bankable. Despite the complexity of the phase 2 deal, which brought together 23 counterparties and produced 20,400 pages of documentation, it closed just five months after ap­proach­ing the market.

Project revenues benefit from Belgium’s incentive regime for renewables. Generators receive green certificates worth Eu107 per MWh for the first 216MW of a project and Eu90 per MWh above that level, paid for by the grid operator, Elia. All of the green certificates and electricity that the project produces are sold under long-term contracts.

While banks are taking construction risk, lend­ers can look to a strong set of contracts and the involvement of marine civil firm Dredg­ing Environmental & Marine Engineer­ing (DEME) both as a contractor and a spon­sor. The con­tracts, particularly availability war­rantees from REpower, combined with in-depth due dili­gence, allow the lenders to be comfortable with the potential cost overruns or delays. And a DSCR-triggered cash sweep mechanism pro­tects lenders if the project performs poorly.

The latest C-Power transaction offers up two lessons for the active UK wind market. Firstly, sponsors should try not push too many risks onto banks in one go: an incremental and phased approach will cut lead times. With three public institutions (the two export credit agencies and the EIB) and seven commercial banks, the C-Power deal is one of the most complex ever in the offshore wind sector. Despite this, it was concluded just five months after the first invitation to the market was issued.

Secondly, if sponsors are not prepared to mitigate construction risk with guarantees or other undertakings, they must be prepared for very thorough, possibly intrusive, levels of due diligence. This may be uncomfortable for large utilities, but it is the price to pay for shifting risk in project financings. 

?C-Power
Status: Financial close 25 November 2010
Size: Eu1.289 billion
Location: Offshore Belgium
Description: C-Power phases 2 & 3, and refinancing of phase 1, 325MW in all
Sponsors: SRIW Environnement, Socofe, Nuhma, DEME, EDF-EN and RWE Innogy
Mandated lead arrangers: KBC Bank (ECA bank), Société Générale (technical and hedging arranger), KfW IPEX-Bank, Rabobank (modelling and docs), Commerzbank, Dexia and ASN Bank
Non bank debt participants: Euler Hermes, EKF and EIB
Financial adviser: Energy Bankers à Paris
Borrower legal counsel: Allen & Overy
Lender legal counsel: Watson, Farley Williams and Loyens Loeff
EKF legal counsel: Kromann Reumert
EIB legal counsel: White & Case
Lender technical adviser: Mott MacDonald
Lender insurance adviser: Jardine Lloyd Thomson
Insurance broker: Willis
Auditor for German Republic: Ernst & Young/AHB
Main contractors: REpower Systems (O&M), ABB (cable), DEME/Fabricom (jacket)