The €450 million (US$539m) Trianel CCGT plant in Germany's North Rhine Westphalia region has turned heads in the project finance world, being developed in a country which is more used to project finance deals of this size to fund its roads and increasingly schools - rather than traditional power plants

The reason for this is rooted in the structure of the domestic power market, but can also be explained by the fact that it is only recently that Germany's fleet of post-war power plants have come around for replacement.

This pathfinder project brings together 28 local utilities to develop a power plant for which they are the sole offtakers. In doing so, they will cut the amount they pay for their electricity by 20 per cent and, crucially, break free from the grip of the four mega utilities which, in the words of one banker close to the deal, are 'oligopolists'.

Background

When Germany's power market was liberalised, major utilities like RWE and E.ON came to dominate the generation market, opting to finance new-build, when it was necessary, from their own balance sheets.

'Stadtwerke', or municipal utilities, on the other hand, were responsible for guaranteeing the power (and water/wastewater) needs of their respective local populations, purchasing output from the major players through long-term offtake agreements.

For the main part the persistence of long-term offtake agreements and the relatively small size of each of the bodies (the takeover by larger Stadtwerke, such as ENBV, of their smaller peers is a relatively new development) made financing of their own generation facilities untenable.

Trianel was established as a means by which the Stadtwerke would increase independence vis-à-vis those mega-companies, while simultaneously lowering their overheads and hedging against price hikes further down the line.

According to Ralf Ernst, involved in the syndication of the deal at WestLB, their rationale was 'how many utilities do we need to get sufficient offtake for one turbine?'

The result was 28 municipal companies coming together, to buy the output of two turbines, guaranteeing the entire offtake among them and building in a cushion of 10 per cent.

The German power market will never be the same again.

The project

Trianel CCGT unites 28 municipal utilities, the vast majority of which are German and some of which are part-owned by the big utilities, although it has also attracted interest from some Austrian and Dutch players.

No party has more than 16 per cent ownership of the project vehicle, Trianel Power Hamm-Uentrop (TPH).

This is the first generation project being developed by the company and involves construction of two 400MW gas-fired units at Hamm-Uentrop, 120km north east of Duesseldorf.

The EPC contract was awarded to Siemens and Bereich Power Generation, and construction began in September 2005 and will last for two years. E.ON Ruhrgas is supplying the gas. It is being connected to the grid by RWE Transportnetz Strom. Fortum will be the operator.

The owners of the project company are as follows:

• Allgäuer Überlandwerk
• Cogas Facilitair, Almelo (NL)
• Energie- und Wasserversorgung Rheine
• ENNI Energie Wasser Niederrhein
• Enwor energie und wasser vorort GmbH, Herzogenrath
• EWMR Energie- und Wasserversorgung Mittleres Ruhrgebiet, Bochum
• Hertener Stadtwerke
• GSW Gemeinschaftsstadtwerke Kamen-Bönen-Bergkamen
• N.V. ONS Houdstermaatschappij, Schiedam (NL)
• Salzburg (A)
• Stadtwerke Borken/Westf.
• Stadtwerke Bonn
• Stadtwerke Dachau
• Stadtwerke Fröndenberg
• Stadtwerke Hamm
• Stadtwerke Lengerich
• Stadtwerke Lünen
• Stadtwerke Osnabrück
• Stadtwerke Schwäbisch-Hall
• Stadtwerke Soest
• Stadtwerke Solingen
• Stadtwerke Ulm/Neu-Ulm
• Stadtwerke Unna
• STAWAG Energie
• SWK Energie, Krefeld
• Teutoburger Energienetzwerk
• Trianel European Energy Trading
• Uberlandwerk Fulda

Financing

Project cost is €450m (US$539m) and it has an 80:20 debt:equity ratio, with €90m (US$108m) of this being put up in equity.

WestLB was mandated in April 2005 as sole lead arranger, agent and bookrunner and launched a successful syndication in November that was seriously oversubscribed by more than 35 banks.

The final line-up includes:

• Capitalia - MCC
• Banque de l'Economie - Credit Mutuel
• IKB Deutsche Industriebank
• LBBW
• Helaba
• LRP
• NordLB
• WGZ 
• and in excess of 25 Sparkassen or local savings banks

The financing is priced at 45bp over EURIBOR, moving to 95bp in four steps over time. It has a 20-year tenor and grace period is co-terminus with the construction period.

The project has been fast-tracked so that it will benefit from a five-year petrol tax exemption on the gas price, so it will be commissioned autumn 2007. Construction is being paid for at a fixed-price, lump sum rate.

Conclusion

Trianel CCGT is a pathfinder IPP deal in the German traditional power generation market. That's mainly due to the dominance of major utilities financing generation out of their own pocket.

The high level of subscription for a share in the syndication was unexpected by WestLB - the MLA - and shows the appetite among financiers for more movement in the German power market.

And movement is likely to come.

Trianel is said to be examining further investment possibilities in the sector and with the post-World War II wave of power plants up for replacement - between 20 and 40GW are needed up to 2015 - in the words of one banker involved in the deal 'it will just be a matter of time' before we see more deals of this kind across the German market. 

The project at a glance