FOREN
14-15 June 2012, Hotel Intercontinental Bucharest,
The basic contractual structure of a non
recourse project financed for renewable
projects using an EPC contract.
Robert Ghelasi
Director of Energy Department
Capital Partners
robert.ghelasi@capitalpartners.ro
The following diagram illustrates the basic
contractual structure of a non recourse
project financed wind farm project using an
EPC contract.
Local
Public services
Maintenance
Authorities
Operation services
•Call centers
Sponsor decision•Field
– windservices
farms needed to be located on sites that have
Concession
Superficies
with adjacent
land uses
•Repairs
Agreement
Consultants/Advisers
•Metering
Agreement
•Remote monitoring
Financing and
•Inspection
•Community acceptance
and compatibility with adjacent land Security
uses
Equity Support
Agreements
Agreement
•Control room operation (24h/7d)•strong, steady winds
•Preventive
& the
corrective
maintenance
throughout
year, including
extreme wind conditions.
Project
Company
•Spare part management
Romania has one of the Europe’s best wind resources especially along the
•Energy management & automation
•Emergency response
Black Sea Coast.
Sponsors
Financial
•good road access with adequate capacity to serve the wind
plant (distance to
Institutions
(SPV)
publicly accessible areas) and spacing between turbines
Partner 1
EPC
Contract
Partner 2
Other equity
investors
•Seismic activity, noise constraints, altitude,
corrosion,
and extreme
Technical
Advisor
temperatures
•Environmental impact, including avian, bat and other biological considerations
O&M Contracts•proximity
Connection
Agreement
to the electricity
grid.
EPC
Contractor
O&M
Contractor
Network
Distributor
PPA + GCPA
Power
Offtaker
Green
Certificates
Offtaker
Sub-contractor
Tripartite Agreements
Project financing is a generic term that refers to
financing secured only by the assets of the project
itself. Therefore, the revenue generated by the project
must be sufficient to support the financing. Project
financing can be “non-recourse” financing or “limited
recourse” financing.
The recourse is limited both in terms of when it can
occur and how much the sponsors are forced to
contribute. In practice, true non-recourse financing is
rare. In most projects the sponsors are obliged to
contribute additional equity in certain defined
situations.
A construction contract for a wind farm includes various elements,
from manufacture of the blades and towers and assembly of the
nacelles and hubs and construction of the balance of the plant
comprising civil and electrical works.
There are a number of contractual approaches that can be taken to
construct a wind farm. An EPC contract is one approach.
Another option is to have three separate contracts:
• Wind Turbine Generator (WTC) supply contract;
• Balance of Plant (BOP) contract;
• Warranty Operating and Maintenance Agreement (WOM).
Balance of Plant (BOP) is the infrastructure of a wind farm
project, in other words all elements of the wind farm, excluding
the turbines. Includes civil works, SCADA and internal electrical
system. It may also include elements of the grid connection.
The choice of contracting approach will depend on number of
factors including:
• the time available
• the lender requirements
• the identity of the contractor(s).
The major advantage of the EPC contract over the other possible
approaches is that it provides for a single point of responsibility.
Interestingly, on large project financed wind farm projects the
contractor is increasingly becoming one of the sponsors, ie an
equity participant in the project company.
Contractors will ordinarily sell down their interest after financial
close because, generally speaking, contractors will not wish to tie
up their capital in operating projects.
In assessing bankability, lenders will look at a range of factors and assess a contract
as a whole.
• A fixed completion date;
• A fixed completion price;
• No or limited technology risk;
• Output guarantees;
• Liquidated damages for both delay and performance ;
• Security from the contractor and/or its parent;
• Large caps on liability (ideally, there would be no caps on
liability, however, given the nature of EPC contracting and
the risks to the contractors involved there are almost
always caps on liability);
• Restrictions on the ability of the contractor to claim
extension of time and additional costs;
An EPC contract delivers all of the requirements listed
above in one integrated package, being designed to
satisfy the lenders‟ requirements for bankability.
This is one of the major reasons why they are the
predominant form of construction contract used on
large-scale project financed power and infrastructure
projects.
EPC Contracting - Abbreviation
E
P
Engineering
Applying
acquired
knowledge
and
experience to
efficiently
Design
The wind
farm
according to
requirements
Procurement
Supplying of
equipment at
the best
possible cost
to meet the
needs of the
project in
terms of
quality,
quantity time
and location
C
C
Construction
Building and
assemblying
the
ifrastructure
and the
equipment.
Requires
competive
costs, carefull
planning of
works and
materials,
QHSE
awareness, etc
Contract
EPC Contracting – Scenarios
Technical
Advisor
• The sponsor and lenders sign separate
contracts with the EPC contractor (BoP)
and the Equipment supplier;
• An Interface Table regulates the
responsibilities between the involved
parties;
• The supplier warranties the equipment
and optionally, maintains theequipment
under a long term contract;
Financing
Project
Company
• The EPC Contractor warranties the
infrastructure;
Scenario 1
EPC
Supplier
Scenario 2
Technical
Advisor
• The Sponsor and the Lenders sign one
contract with the EPC Contractor ;
Financing
Project
Company
Supplier
• The Supplier sign also a contract with
the EPC Contractor ;
• The Interface Table regulates the
responsibilities between the involved
parties.
EPC
• The EPC Contractor warranties the
project;
• Optionally the Supplier maintains the
equipment under a long term contract;
EPC Contracting –
EPC Contracting –
Project Insurance
FIDIC Contract form
Coverage
•• Professional
FIDIC is acronym
the International
of as
liabilityfor
insurance
(PLI), also Federation
commonly known
Consulting
Engineers.
The
areofthe
mostinsurance
widely
errors
& omissions
(E&O)
in FIDIC
the US, forms
is a form
liability
usedhelps
forms
of contract
internationally,
thecontractor
World
that
protect
the professional
advice andincluding
service byby
EPC
from
full cost of remedying works because of fault design.
Bankbearing
for itsthe
projects.
Conditions of Short Form of
Contract (the Green Book).
It is best known
for its range of Conditions of Contract for
Conditions of Contract for
Construction for Building and
EPC/Turnkey Projects (Silver
standard
Engineering Works Designed
Book)
conditions of by
the Employer (Red Book);
contract for:
Conditions of Contract for
Plant and Design-Build (Yellow
Book);
A single point of
responsibility.
• The contractor is responsible for all design, engineering,
procurement, construction, commissioning and testing activities.
Therefore, if any problems occur the project company need only
look to one party – the contractor – to both fix the problem and
provide compensation. As a result, if the contractor is a consortium
comprising several entities, the EPC contract must state that those
entities are jointly and severally liable to the project company.
A fixed
contract price
• Risk of cost overruns and the benefit of any cost savings are to the
contractor‟s account. The contractor usually has a limited ability to
claim additional money, which is limited to circumstances
A fixed
completion
date
• EPC contracts include a guaranteed completion date that is either a
fixed date or a fixed period after the commencement of the EPC
contract. If this date is not met the contractor is liable for Delay
Liquidated Damages (DLDs). DLDs are designed to compensate
the project company for loss and damage suffered as a result of late
completion of the wind farm.
Performance
guarantees
Caps on
liability.
• The project company’s revenue will be earned by
operating the wind farm. Therefore, it is vital that
the wind farm performs as required in terms of
output and reliability. Therefore, EPC contracts
contain performance guarantees , payable by the
contractor if it fails to meet the performance
guarantees. These performance guarantees usually
comprise a guaranteed power curve and an
availability guarantee guaranteeing the level of
generation of electricity
• Most EPC contractors will not, as a matter of
company policy, enter into contracts with
unlimited liability. Therefore, EPC contracts for
power projects cap the contractor’s liability at a
percentage of the contract price. This varies
from project to project.
Security
• It is standard for the contractor to provide
performance security to protect the project
company if the contractor does not comply with
its obligations under the EPC contract. The
security takes a number of forms including:
A bank performance guarantee for a percentage, normally in the range of 5–15%, of the
contract price. The actual percentage will depend on a number of factors including:
• the other security available to the
Retention Money Guarantee,
ie withholding
a percentage (usually 5%–10%) of each
project
company;
payment.
Advance
• the payment schedule (because the
greater the percentage of the contract
price unpaid by the project company, the
payment
if an can
advance
payment
smaller guarantee,
the bank guarantee
be);
is made
• the identity of the contractor and
the risk of it not properly
performing its obligations;
A parent company guarantee - this is a guarantee from the ultimate parent (or other
suitable related entity) of the contractor, which provides that it will perform the
• theif,price
the bankreason,
guarantee
contractor‟s obligations
for of
whatever
theand
contractor does not perform
the extent of the technology risk;
Vă mulţumesc,
Robert Ghelasi
Director Energy Department
Capital Partners
Email: robert.ghelasi@capitalpartners.ro
Mobil: 0724377661