Deal focus: Nordsee One offshore wind

Inspiratia, 27 March 2015

Inspiratia published on 27 March 2015 an article about the Nordsee1 financing for which Green Giraffe acted as financial advisor.

The speed at which the 332MW Nordsee 1 offshore wind farm this month [March 2015] signed off its financing – and the absence of any multilaterlal involvement on the deal – is further evidence of the increased maturity of the European offshore wind market 

By 18 March, just six months after it first approached banks, the €1.2 billion (£883.1m $1.3bn) Nordsee 1 offshore wind farm had not only signed financing agreements but also reached full financial close – the first major offshore financing in Germany for over two years.

For Northland Power, the Canadian IPP that owns 85% of the project, the swift transaction marks its second success in European offshore wind in the space of 10 months – after it took the Gemini project to financial close last May. No fewer than five lenders from Nordsee 1’s 10-bank club were fresh out of Gemini, while four of the others have experience in German offshore wind financings. In fact, of the entire bank club only NBC is new to the sector.

Unsurprisingly, given the current appetite for deals, the €840 million (£618.2m $919.6m) debt raise was massively oversubscribed. inspiratia understands that twice as many banks made offers, though only the final 10 were invited to participate. This appetite was high enough that Northland and utility RWE Innogy were able to fund the project solely with commercial banks – with EDC, an export credit agency, acting as an MLA on identical terms but without the interest rate swaps. Several sources note how multilaterals often slow deals down because of the greater due diligence required, and that their absence was a key factor – along with the bank club’s experience in offshore wind – in getting Nordsee 1 to financial close in just half a year.

So too was the involvement of Northland itself. Jérôme Guillet, managing director of the project’s financial adviser Green Giraffe, says, “Northland is being seen more favourably. It was the new kid on the block on Gemini, but now it is the kid that has done it – which is very important for banks.”

Utility trend
Those involved in Nordsee 1 – which will be built at a site around 50km north of Juist Island in the German North Sea – see its shareholder structure as a blueprint for future deals in European offshore wind. RWE Innogy had taken the project through development and sold off a majority stake to Northland last September, leaving it with a 15% equity interest. This decision is part of a wider strategy that will see the utility share the capital required for offshore projects in an effort to cut costs – partly in response to German energy reforms that have squeezed utilities’ margins and put pressure on their business models.

“RWE Innogy had done a lot of the development legwork already but wanted to get Nordsee 1 off its balance sheet because it’s a pretty big project,” says Adam Beaumont, director of finance at Northland.

“We’re seeing some of our peers come into this space and do the same thing as well. It’s about taking the fiscal responsibility off the utilities and onto the private power producers.”

Contingency funding
Cost overruns have affected the German offshore wind market in recent years, most notably on the Bard 1 project that is thought to have cost double its initial valuation of €1.5 billion (£1.1bn $1.6bn) when it was grid connected two years behind schedule in 2013. This caused problems around which parties – debt or equity – had to stump up the contingency funding. Previously, it has been commonplace to set aside roughly 12-15% on top of the original capex to cover delays and other cost overruns. This is now seen as a futile approach, with most saying contingency funding should be determined on a project-by-project basis.

Nordsee 1’s capex includes €35 million (£25.8m $38.3m) of base contingency, with an additional budget of €90 million (£66.2m $98.5m) to be committed by the debt and equity providers on a pro-rata basis if this limit is exceeded.

Also included in the project’s capex is around €70 million (£51.5m $76.6m) in pre-completion revenues. In the case of a wind farm, by the time the final turbine is commissioned, the first turbine is already generating electricity and making money. Sources who worked on the deal say it is becoming acceptable in the market to consider these revenues as quasi-equity, which Nordsee 1 has done.

EPCI contracting
A noteworthy aspect of Nordsee 1 in terms of project finance transactions is its use of so-called EPCI contracts – a variant of multi-contracting that, for example, will see one company not only design, manufacture and deliver the turbines, but also transport and install them. The idea is to take away the risk from the project and put it on the counterparty, which also means the project requires less contingency funding.

Three of the five engineering contracts are designed in this way:

  • Senvion – turbines
  • Bladt Industries – offshore substation
  • Siem – inter-array cables

Ranjan Moulik, global head of power and renewables at Natixis, one of the banks on the deal, says, “It’s about dividing the workflow into independent silos that have very few interfaces. It’s a much more efficient contracting structure than traditional multi-contracting, which have caused material delays and cost overruns on certain projects in the past.”

It’s a much more efficient contracting structure than traditional multi-contracting, which have caused material delays and cost overruns on certain projects in the past 

While EPCI-type contracts have been used in Europe before, their presence in such a large project is said to be relatively unique. Northland and RWE have condensed potentially dozens of contracts into just five, with Ambau and GeoSea also contracted to produce and install the monopile foundations respectively. Meanwhile, Germany’s North Sea transmission system operator TenneT will connect the project to its DolWin 2 offshore converter station, which is scheduled to be installed in mid-2015.

Financing details
The project has a total capex of €1.2 billion (£883.1m $1.3bn), with around €840 million (£618.2m $919.6m) in non-recourse debt being provided for a gearing of 70:30 debt-to-equity. Green Giraffe, which had played a key role as financial adviser on Gemini, acted as financial adviser to the sponsors and once again ensured that the financing was concluded swiftly.

The debt was made up of a single-tranche 12-year construction and term loan, provided by the following 10-bank club:

  • Bank of Montreal
  • BTMU
  • Commerzbank
  • EDC
  • Helaba
  • KfW-Ipex
  • NBC
  • Natixis
  • Rabobank

The debt terms on Nordsee 1 show an improvement since Gemini, reflecting general market conditions and the strong appetite for the deal. Pricing is set at 275bp + Euribor during construction, before falling to 250bp upon operation and rising back to 275bp by the end of the 12-year tenor. As with Gemini, it is understood that the bank club plans to syndicate up to €10 million (£7.4m $10.9m) each to one or two additional banks – leaving them final tickets worth around €75 million (£55.2m $82.1m).

Under new German energy laws, the project will receive support through a contract-for-difference feed-in tariff for a 20-year period, structured as follows:

  • €194/MWh for the first eight years
  • €154/MWh for an additional 1.54 years
  • €39/MWh until year 20

As such, the banks on the deal will see just short of 2.5 years of uncontracted revenues. Meanwhile at P90 – the amount of electricity that the wind farm is 90% likely to produce over an average year – the DSCR is 1.3.

As well as financial adviser Green Giraffe, the sponsors were also advised by Linklaters (legal) and Chatham (hedging), while Clifford Chance (legal), Sgurr (technical), Benatar (insurance), Corality (model audit) and EY (tax) acted for the banks.


Banks still want the due diligence to be watertight… but if you meet that threshold, the liquidity is huge – which is the difference from before 

Nordsee 1 follows Nordergründe – a more modest deal at 111MW, with debt provided by the EIB and KfW-Ipex – in reaching financial close in Germany this year, and precedes the likes of Veja Mate and Baltic 2 – both of which are on track to close in the coming months. All of this suggests that if 2014 was the year of the Dutch, 2015 is without a doubt Germany’s.

The transaction had so few complications that one adviser went as far as describing it as “the smoothest process we have ever had”. While the strong counterparties were important in achieving this, the deciding factor in its success was the appetite from a banking market that is hungry for deals.

Jérôme Guillet of Green Giraffe says, “There is still a cliff effect in offshore wind. It’s still quite hard to get a deal financed. The lending standards have not slipped; banks still want the due diligence to be watertight and for the structure to follow a certain number of rules. But if you meet that threshold, the liquidity is huge – which is the difference from before. Before it was adequate, and now it is plentiful. Projects still have to meet that high standard of quality, and if they do, they become eminently financeable.”

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