European Offshore

O
Wind
d Conference
e 2009, Stocckholm
Proje
ect Financing
g Offshore Wind
W
Farms

PRO
OJECT FINANCIN
NG OFFSHORE WIND
W
FAR
RMS:
RISK
K ANALY
YSIS FOR A STR
RUCTURE
ED FINANCE
Finding Structure
es for a risk adequate
a
pro
ofitability for all
a parties invvolved
Authors: Acchim Schreid
der (1), co-au
uthor: Mirko Sedlacek
S
(2)
(1) Lah
hmeyer Interrnational Gm
mbH
F
Friedberger
S
Strae
173
61118 Bad
d Vilbel
Germa
any
Phone: +49-6101-55-1185
F
Fax:
+49-6101-55-1808
www.lahme
eyer.de
achim
m.schreider@
@lahmeyer.d
de

(2) KffW IPEX-Ban

nk Gmbh
ae 5-9
Palm
mengartenstra
60325 Frankfurt a
am Main
Germanyy
Phone: +49-7431-3763
Fax: +49-69-743
31-2944
www.kfw.d
de
mirko.sedlacek@
@kfw.de

1. Summary
S
The present
p
pape
er analyses the
t risks of offshore
o
wind farms in order
o
to identtify an appro
opriate
project finance sttructure. It iss shown that the examine
ed structuress measure up all the identified
risks and enable a risk adequate profitabillity to all project stakeholders.
Experiences mad
de with existting offshore
e wind farms are analyse
ed for the m
most importan
nt risk
driverrs (constructtion time ovverrun, availa
ability risk and
a
O&M co
ost overrun) in order to get a
detailled picture of the offshore
e wind farm risk profile.
In a project fina
ance structure scenario analysis, an
a EPC stru
ucture and a Multicontracting
structture are com
mpared to the
t
(adapted
d from publicly available
e information
n) project fin
nance
structture of Q7, the first pro
oject finance
ed offshore wind farm. It can be co
oncluded tha
at the
consttruction and operation of a reference
e offshore wind
w
farm is profitable within all struc
ctures
both on level of the
t SPC and
d for the individual proje
ect stakehold
ders. It can b
be shown that the
cash flow of the SPC
S
is such
h robust that within all strructures in all
a downside cases the SPC
S
is
able to
t repay its debt
d
with eno
ough securityy margins.
The adapted
a
Q7 structure
s
pre
evails in this evaluation, because
b
it offfers the high
hest NPVs fo
or both
the sponsor
s
and the WTG manufacture
er. Even tho
ough the IRR
R on equity is lower as
s in a
Multiccontracting structure
s
due
d
to high equity, the risk accepta
ance herein is the lowe
est for
sponssor, lenderss and WTG
G manufactu
urer. Moreo
over, risks are distributed in the most
homo
ogenous wayy among the stakeholderss within the Q7
Q structure.
ntroduction
2. In
A rela
atively smalll track record
d of offshore
e wind farms
s (OWFs) ma
akes it difficult to assess
s their
inherrent risks. Due
D
to this reason
r
15 of
o the 17 big
g offshore wind
w
farms h
have been equity
financced: Either entirely, or the necessa
ary debt has
s been raise
ed through ccorporate fin
nance.
Takin
ng into accou
unt the large
e project volu
umina of the
e planned offfshore wind ffarms, it bec
comes
clear, that full-reccourse-financcing comes to
t its limits. Project
P
financce (PF) is wiidely discuss
sed as
the possible soluttion for upcoming investm
ments in Gerrmany, the UK etc. .
The expecttation of lend
ders lies in a comprehen
nsive risk an
nalysis
Tablle 1: Main da
ata of the
and allocattion when it comes to project
p
financce. Risks sh
hall be
analysed reference OWF
allocated at
a the projectt partner, who can influen
nce them or cover
Ratted power
40
00 MW
WTG
80
0 x 5 MW
them in th
he best way
y. If banks cannot take
e recourse to
t the
Yielld p.a.
1..700 GWh
sponsors, the cash flo
ows have to
o be robust enough to cover
Inve
estment
1 Bn
downside scenarios.
s
Even
E
in stress cases, the
e project com
mpany
Disttance
40
0 km
has
to
be
a
able
to
pay
b
ack
its
debt
o
obligations.
Watter depth
30
0m
Within thiss paper, ex
xperiences with
w
existing
g OWFs will
w be
Con
nstr.begin
01
1.08.2010
Tariff
15
5 Ct/kWh
analysed in
n order to identify the most critical d
downside cas
ses of
PPA
A after 15a 5,,5Ct/kWh
OWFs fina
anced. These
e data will serve as inpu
ut parameterr for a
o a reference OWF. This
s simulation aims at finding a PF stru
ucture,
profitability & risk simulation of
h offers an adequate profitability with a deffined risk fo
or sponsor, bank and WTG
which
manu
ufacturer. Fo
or this reaso
on, three diffferent PF sttructures will be analyse
ed regarding
g their

European Offshore Wind 2009 Conference, Stockholm

Project Financing Offshore Wind Farms: Risk Analysis for a Structured Finance

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capability to guarantee appropriate risk mitigation/transfer in the context of the above mentioned
objective.
The statements made in this paper
Table 2: Overview on available data
concerning operational experienAvailable Data
OWF
Country Operational
ces of OWFs are based on
Years [1]
information publicly available in
Middelgrunden DK
2000-2008
2000-2008 [2-4]
literature and expert interviews.
Horns Rev
DK
2003-2008
2003-2007 [5] [6]
Table 2 shows the data used.
Sams
DK
2003-2008
2003-2008 [7] [8]
The simulation takes into account
Nysted
DK
2003-2008
2003-2005 [9] [6]
North Hoyle
UK
2004-2006
2004-2006 [10] [11]
a fictive reference OWF of 400 MW
Kentish Flats
UK
2005-2008
2006 [12]
in the North Sea. Its technical data
Scroby Sands
UK
2005-2008
2005-2007 [6] [13-15]
are given in Table 1. They have
been chosen in order to correspond to the OWFs which are going to be installed in the
upcoming years.
3. Offshore Risk Drivers derived from experiences with existing OWFs

Waterdepth[m]

3.1 Construction Time Risk

The following Figure 1 shows the average specific OWF construction times for a wind turbine in
days. The depicted construction time considers the period from the start of offshore works
(foundations) to the completion of the WTGs.
No correlation between distance to shore and/or water depth can be observed with the build
time, which would have
Distancetoshore[km]
been expected because
0
2
4
6
8
10
12
14
16
of the difficult and
0
tedious access to the
2
offshore sites. This is
days/WTG
HornsRev
4
due, firstly to differing
13,0
Middelgrunden
buffer times between the
6
construction
of
the
ScrobySands
8
8,0
4,5
5,7
foundation
and
the
10
NorthHoyle
WTGs; which ranked
12
Sams
from -1 (simultaneous,
11,0
14
Horns Rev) to 5 months
KentishFlats
2,4
16
(Kentish
Flats).
Nysted
Secondly, it depends on
18
9,0
the experience of the
20
offshore
construction
Figure 1: Mean specific construction time of selected OWFs
company. In addition, the
as a function of water depth and distance to shore in
weather conditions play
days/WTG
an important role. [3] [6]
(source: own illustration based on [3] [6] [8-10] [12] [13]).
[8-10] [12] [13]
Experience shows that
risk and interface management are essential for the project's progress - regardless of whether
an EPC or a multi-contracting structure is used. The OWF Nysted could be commissioned one
month prior to its planned commissioning date. [9]
In the project finance structure risk & economic-simulation in section 5 & 6 a construction period
of 33 months is assumed in the base case (= 12,5 days/WTG). This is considerably higher than
the average construction time. Given the greater distance to shore and the novel water depth,
however, the assumed construction time appears short. It becomes plausible on the premise
that the construction of the foundations and the WTGs will be realised nearly parallel, and that
several transport vessels will be used in addition to the jack-up platform, which will exclusively
be used for the erection.
In the construction time downside case the construction period is considered to be one year
longer. Hence, the total construction time would be then 45 months (= 17,1 days/WTG). A
construction period overrun of one year is generally regarded as a comfortable buffer. As shown
in Figure 1, such a long construction period was never required for any existing OWF yet.

European Offshore Wind 2009 Conference, Stockholm

Project Financing Offshore Wind Farms: Risk Analysis for a Structured Finance

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CapacityFactor

Availability

3.2 Availability Risk

Figure 2 shows planned and actual availabilities of selected OWFs. Generally, availability is in
line with expectations: OWFs Nysted, Middelgrunden are slightly above, Horns Rev, Scroby
Sands, North Hoyle and Sams are slightly below. The low availability in Scroby Sands can be
explained,
since
the
120%
figures represent technical
ACTUAL2001
availabilities, whereas the
100%
ACTUAL2002
figures of the other OWFs
ACTUAL2003
80%
represent
commercial
availabilities.
NonetheACTUAL2004
60%
less, the low figure for in
ACTUAL2005
2006 is due to intensive
ACTUAL2006
40%
planned maintenance and
ACTUAL2007
repair. According to E.on,
PLANNED
20%
already
in
2007
ACTUAL
downtimes
could
be
0%
decreased significantly by
reason of experiences
made, although O&M
works consumed more
time as in the previous
Figure 2: Planned and actual availabilities of selected OWFs1
years. [14] [15]
(commercial availability, Scroby Sands: technical availability)
Maintenance & repairs
(source: own illustration based on [2] [3] [8-16]).
can only be done at
favourable weather conditions. This can lead to the fact that some WTGs cannot generate
electricity for several days.
Figure 3 displays operational experience of selected OWFs concerning their capacity factors.
Generally, it can be observed, that the OWFs Nysted, Middelgrunden and Sams exceeded
their planned figures for 2,2%, 0,8% and 2,5% resp., the other OWFs missed their expectations
by 2,3-5,5%.
Scroby Sands shows the largest difference between planned and actual figures, because there,
the generator had to be replaced in all WTGs, and in three WTGs also the gear box.
Additionally, extensive
50%
O&M works at the gear
45%
box bearings led to
longer periods of non40%
availability. [15] Also
35%
ACTUAL2001
the OWF North Hoyle
30%
ACTUAL2002
could not reach its
ACTUAL2003
25%
objectives. In 2005 the
ACTUAL2004
following factors were
20%
ACTUAL2005
responsible
for
ACTUAL2006
15%
downtimes:
WTGs
ACTUAL2007
10%
(67%),
construction
PLANNED
works (12%), weather
5%
ACTUAL
(12%) as well as
0%
planned maintenance
(5%). [10]
In order to take into
account the availability
Figure 3: Planned and actual capacity factors of selected OWFs2
risk in the project
(source: own illustration based on [4] [7] [9-11] [13-15]).
finance structure risk &
1

For the calculation of the planned availability the mean value of the respective annual planned figures has been used.
The planned availability is considered as the technical availability forecasted for the correspending year. Within its
calculation planned outages are taken into account as non-available.
While computing the average value, the first operative year has not been taken into account, since the WTGs did not
work 8.760 hours and they had not been finally configured yet, i.e. they could not yield the optimised energy output at
that site yet.

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Project Financing Offshore Wind Farms: Risk Analysis for a Structured Finance

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economic-simulation (section 5 & 6) one downside case will consider possible shortfalls in
availability. It is reasonable to assume an average deviation (standard deviation) and not a
worst case scenario. Thus, base case considers 95% availability, the downside case
(availability case) is based on 91% availability, in the operational years 1, 4 and 11 even
availabilities of 65%, 70% and 75%.

O&MCost[EUR/MWh]

3.3 O&M Cost Overrun Risk

The O&M cost for an average round-1 OWF amounted to 21.300 - 25.300 /MWinstalled. One third
of these costs derived from expenses for ships, another third had been caused by the
generator, 14% had to been expended for the generator. The lifecycle cost for O&M of the
round-1 OWFs (OPEX) accounted for 23% of their respective initial investment sum (CAPEX).
In the beginning warranties
25
induce O&M cost being
ACTUAL2003
relatively low, whereas costs
20
ACTUAL2004
increased towards the end of
ACTUAL2005
15
the OWFs lifetime caused by
ACTUAL2006
the higher expenditures for
10
maintenance
and
repair.
ACTUAL2007
However, these figures do not
PLANNED
5
yet take into account that
ACTUAL
OPEX will decrease in the
0
future
due
to
operating
experience gained. [17]
In 2003 [18] calculated OPEX
(planned & forced mainFigure 4: Planned and actual O&M cost of selected
tenance, costs of the conOWFs in EUR/MWh3
tractor, insurances) were at
(source: own illustration based on [2] [3] [8-15]).
52.000 /MWinstalled and predicted cost reductions for the
year 2008. Comparing with the figures of 2007 (without costs for insurances), a cost reduction
can be observed (despite the neglect of insurance costs). Figure 4 lays out the OPEX of
selected OWFs: Scroby Sands, North Hoyle and Sams show on average lower OPEX as
planned, Sams even significantly by 20%. Solely the OWF Middelgrunden shows higher
average OPEX of 3,3% compared to its planned costs. This is mainly due to the successive
exchange of all transformers. Apart from that, many small replacements & repairs had to be
realised because the turbines in one of the first OWFs were not fully adapted to offshore
conditions. [2]
In a survey on seven OWFs [19] assessed OPEX (maintenance & repair, insurance and other)
in the range of 17-45 /MWh were observed, with an average of 26,40 /MWh. The integral,
clearly defined scope of this cost benchmark, serves as basis for the base case in this paper, in
which OPEX are assumed at 25 /MWh. The corresponding downside case (OPEX case)
reflects an increase of OPEX to 37,50 /MWh.
3.4 Risks Summary: Derivation of Downside Cases
In Table 3, the above mentioned assumptions for the corresponding downside cases are
summarised.
Table 3: Overview on the different business cases (base + downside cases)
Base Case
Constr. Time
Constr. Costs
Yield
Availability
OPEX /MWh

3
4

2,75 a
1 Bn
P50
95%
25

Constr.
Time
3,75 a
1 Bn
P50
95%
25

Constr.
Costs
2,75 a
1,15 Bn
P50
95%
25

Yield
2,75 a
1 Bn
P84
95%
25

Availability

OPEX

2,75 a
1 Bn
P50
4
91%
25

2,75 a
1 Bn
P50
95%
37,50

Constr. Time
& Costs
3,75 a
1,15 Bn
P50
95%
25

For Kentish Flats no planned figures had been available.

The availability case is based on 91% availability, in the operational years 1, 4 and 11 availabilities of 65%, 70% and
75% respectively are taken into account in order to reflect potential downtimes of extensive exchanges/repair.

European Offshore Wind 2009 Conference, Stockholm

Project Financing Offshore Wind Farms: Risk Analysis for a Structured Finance

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Since for construction cost overruns no information could be found in literature, a 15% increase
in construction costs is considered in the corresponding construction cost downside case. This
value has been estimated on the basis of a usual risk premium which is applied by an EPC
contractor. [20] [21]
For the annual energy yield, the base case reflects the P50-level as the expected annual wind
energy production. In the corresponding downside case (yield case), the P84-level is applied,
which in case of a deviation corresponds to a mean deviation.5 Since the net capacity factor of
the reference OWF amounts to 48,5%, the P50 energy yield counts for 1.700 GWh, the P84
value is equal to 1.480 GWh.
4. Project Finance Structures analysed
In this paper, three different project finance structures are analysed: Under an EPC structure,
the EPC contractor is responsible for the construction of the foundations, the WTGs and the
internal cabling. Thus, the construction time & cost overrun risk is allocated at the EPC
contractor (capped with 10% of the contract value). The EPC contract foresees a lump sum with
a risk premium of 18%. Contrarily, under the Multicontracting (MuC) structure, the sponsor
has to cover the construction time & cost risk on its own. As a third structure, an adaptation of
the Q7 structure is considered.6
All structures foresee a contingency tranche. This tranche provides funds for unforeseen
expenses which are covered neither by revenues nor by equity and the term loan. However, the
structures show different equity/debt ratios for this contingency. E.g. in the EPC structure
expenses have to be covered by the following hierarchy: payment through (i) revenues (ii)
equity, (iii) debt and (iv) 25% contingent equity with 75% contingent debt. Hence, the
contingency enhances the financial stability of the SPC in case of temporary wind energy yield
problems or an increase of OPEX. In order to guarantee the ability to repay its debts of the term
and eventually of the contingency loan in case of temporary illiquidity, the SPC disposes in all
structures of a debt service reserve account (for the DS of half a year = 49 M) as well as of an
O&M reserve account (80 M). The cash flow waterfall sets the DS (priority) before filling up the
reserve accounts as well as dividend payments to the sponsor. The main elements of the three
structures are summarised in Table 4. The initial construction loan is converted into a term loan
after commissioning (3 years). No interest is paid during construction, instead the corresponding
amounts are capitalised. The three structures dispose of a VAT tranche of 15 M. Furthermore,
all structures foresee the same margins on EURIBOR (4.95%)7: 1,3% for term loan, 3% for
contingency loan and 0,5% for VAT tranche. Also, upfront and commitment fees are the same
for all structures in order to allow for a better comparison of the structures themselves.8
Within all structures it is assumed
Table 4: Overview on the project finance structures
that the entire electricity produced
Structure
EPC
Multicontracting
Q7
will be taken off by the
Capital
1.222 M
1.045 M
1.045 M
transmission system operator
Equity Share
30%
20%
43%
Contingency
140 M
200 M
200 M
(TSO) at defined tariffs under the
Equity Share
25%
75%
50%
Renewable Energy Law. After 15
EPC guarantee
YES
NO
NO
years the electricity will be sold
EPC Premium
18% of contr.
----under a PPA with a price of
EPC Cap
10% of contr.
----5,5 Ct/kWh9 (see Table 3).
Life of Loan
3 + 14,5 a
3 + 12,5 a
3 + 9,5 a
Repayment
sculptured
progressive
progressive
Hence, the SPC is not exposed to
WTG guarantee conventional
structured
bonus/malus
market risk.
5

With a standardised normal distribution N(0;1) the values within the range of one standard deviation on the left and
on the right side of the mean value are realised with a probaility of 34%. Hence, 16% are respectively situated out of
this range from above of the upper standard deviation or from the below of the lower standard deviation.
6
Q7 has been the first project financed OWF. Its structure shall be made comparable to the two others. For this purpose
its main structural parameters are adapted to the conditions of the examined reference OWF. They comprise: equity
ratio, tenor of term loan, relative amount and capital sources of the contingency tranche, reserve accounts as well as
type and structure of the availability guarantee.
7
Which corresponds to the mean 12M-EURIBOR in 2008.
8
Commitment fees: construction loan (0,5%), contingency tranche (0,7%) and VAT tranche (0,3%). upfront fees:
construction & contingency tranche (1,1%) and VAT tranche (0,5%).
9
Which corresponds to todays average market prices.

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Project Financing Offshore Wind Farms: Risk Analysis for a Structured Finance

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In all three structures the SPC has a machine breakdown insurance (90.000 /WTG) and a
generation interruption insurance (2% of annual revenues). Thus, repair of mechanical
accidents and subsequent downtime are covered by the insurance. Since the insurance
company only pays for clearly defined accidents, however, this first protection does not replace
a more extensive availability guarantee by the WTG manufacturer, which allocates the
availability risk at the latter. The availability guarantee obliges the WTG manufacturer to
compensation payments in case of lower availabilities as contractually agreed. The three
structures foresee three different contracts. E.g. in the adapted Q7 structure the WTG
manufacturer has to pay penalties of 57% (penalty factor) of the lost revenues to the SPC, if
availability drops below 80%. However, if availability is lower than 50% its annual penalty
payments are capped at 42,5 M. In the case of availabilities higher than 90% the WTG
manufacturer is awarded bonus payments of 50% of the annual SPC revenue (see Figure 5).
180M
160M

ElectricityRevenues/
PenaltyPayments

140M

ElectricityRevenueswithoutGuarantee

120M

ElectricityRevenuesConventionalGuarantee

100M

ElectricityRevenuesStructuredGuarantee

80M

ElectricityRevenuesQ7Guarantee

60M

PenaltyPaymentConventionalGuarantee

40M

PenaltyPaymentStructuredGuarantee

20M

Bonus/MalusPaymentQ7Guarantee

M
20M
0%

20%

40%

60%

80%

100%

Availability

Figure 5: Guaranteed SPC electricity revenues & WTG penalty payments as a function of
the availability
In the conventional and the structured guarantee no such incentives are foreseen. By the
penalty factor of 100% within the structured guarantee, this availability guarantee transfers the
highest portion of availability risk to the WTG manufacturer. In cases of availabilities lower than
80%, the SPC is financially compensated in that way, as if availability accounted for 80%. By
the restriction of the guarantee at 50%, the annual penalty of the WTG manufacturer is capped
at 80,9 M.
Since no cost data for O&M services of the WTG manufacturer are available, it is assumed that
the WTG manufacturer calculates its price based on 35% mark-up on his O&M costs in the
deterministic case (without financial impacts of the availability guarantee). For the calculation of
its expected annual income the following probabilities of the different availability classes are
used (Table 5). The mean loss of a specific availability class is derived from the penalty
payments depicted in Figure 5.
Table 5: Calculation of the annual expected income of the availability guarantees / WTG
Availability
class
100% - 90%
90% - 75%
75% - 0%
Expected loss
O&M cost
Sales price
Expected
Income

Probability
80%
18%
2%

EPC structure
Mean loss of
availability class
0
204.150
382.781
44.403
191.750
295.000
58.847

Availability
class
100% - 90%
90% - 80%
80% - 50%
50% - 0%

Probability
80%
15%
4%
1%

MCR structure
Mean loss of
availability class
0
43.860
574.171
1.035.448
39.913
195.000
300.000
65.087

Q7 structure
Mean loss of
availability class
-31.101
0
281.822
545.463
8.153
175.500
270.000
86.347

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Project Financing Offshore Wind Farms: Risk Analysis for a Structured Finance

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5. Methodology
The objective of this paper is to find a structure that offers an adequate profitability with a
defined risk for sponsor, bank and WTG manufacturer. Translated into explicit objectives, this
gives:
1. a high degree of profitability for all actors,
2. a possibly low risk for all actors and
3. a possibly equally distributed risk among all actors.
The selection of the appropriate structure shall be done with the help of the following decision
model. In order to be able to compare the net present values (NPVs) better of each actor k in
the three structures, they will be normalised (equation (1)).10 11 For finding a structure with a
relatively high profitability for all actors, subsequently for each structure j both the average ,
and the standard deviation , among all three actors are calculated.
,

1
3

max

and

,
,
1,2,3

1
2

1,2,3

(1)
(2) (3)

For the risk consideration, for each actor k a risk indicator is calculated, which puts the lowest
profitability and the lowest DSCR resp. of all cases i into relation to the one of the base case
(i=1).
min

1,2,3,4,5,6,7
1,2,3

(4)

,
,

The average , as well as the standard deviation , is computed analogical to equations (2)
and (3). For the risk consideration the decision model follows the idea of the maximin criterion.
Since this decision model aims for several objectives, for reaching each objective, one point is
given to the corresponding PF structure following the approach of a utility analysis. The
structure gaining the most points (total of 4) is selected. One point is given to the corresponding
structure j* with
,
max ,
min ,
,
(profitability objectives12)
,

max

and

min

(risk objectives).

These formalised objectives guarantee the selection of the PF structure following the above
mentioned content related objectives.
6. Results of the Risk Simulation
Subsequently, it is being discussed, to what extent the Multicontracting structure allocates risk
at the corresponding project stakeholders:
10

11

12

Traditionally banks have a low equity ratio (Basel II: minimum 8-12,5%). Hence, their capital cost is only slightly
superior to the risk free rate (EURIBOR: 4,95%, see Footnote 7). WACCBank is thus assumed to be 5,3%. Since equity
sponsors are supposed to also refinance at the capital market, the WACCEquity = 6% is also low. Since WTG suppliers
are mostly considered less solvent, their WACCWTG = 7% is higher.
In this paper the calculation of typical indicators like RAROC (Risk Adjusted Return on Capital) and EVA (Economic
Value Added), which are typically used for banks risk controlling, is renounced, because they represent risk adjusted
values, which consider the profitability of a project minus its expected inherent downside risk value. This is useful for
bank management in order to make different projects (of different branchs) comparable. However, in this paper only
one project is analysed concerning its risks with changing PF structures. For this reason, also for the bank the NPV
and the IRR are used for measuring profitability. Risk evaluation is done by means of DSCR figures.
In order to reach high profitability for each project stakeholder, it is not sufficient to only calculate the average of their
normated NPVs. For avoiding that only one or two stakeholders are highly profitable, the additional objective
minimisation of standard deviations sets an incentive for that structure, which enables a possibly equal profitability
among all project stakeholders.

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Project Financing Offshore Wind Farms: Risk Analysis for a Structured Finance

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NPVSponsor&Bank

NPVWTGManufacturer

The IRR of the SPC is efficient (> 0) for all cases with a maximum in the defined base case
(IRRSPC = 15,47%) and a minimum in the combined construction time & cost case
(IRRSPC = 9,22%). This significant difference between the two cases has three reasons: Firstly,
more debt has to be drawn, in order to pay interest which is already due during construction
time. Secondly, even though the
90M
400M
amount of the revenues does not
80M
change, they are postponed for one
350M
70M
year which influences on the
300M
60M
profitability.
And
finally,
the
250M
50M
elevated costs during construction
200M
40M
also have to be co-financed. For
150M
30M
the project stakeholders, the results
100M
20M
are shown in Figure 6. It can be
50M
10M
observed that all cases except for
M
M
the base case are de facto
Sponsor
downsides
for
the
sponsor.
Bank
Through
the
multicontracting
approach, the SPC and thus the
WTG
sponsor
bear
the
entire
Figure 6: Scenario analysis of the NPVs of all project
construction time & cost risk.
parties in the Multicontracting structure
Consequently, NPVEquity decreases
to 234 and 265 M respectively, in the combined case even to 125 M. In the yield and OPEX
cases there is no risk mitigation for the sponsor. Solely in the availability case the WTG
guarantee offers medium means of risk transfer from the perspective of the sponsor, because in
the availability range between 90% and 80%, firstly equity profit is reduced (through the low
penalty factor of 25%) before the guarantee provides a protection for lower availabilities (with a
floor at 50%). Summarising the foregoing, availability risk is transferred first from the SPC to the
sponsor and then to the WTG manufacturer. For the latter, the availability case means real
downside because it has to pay massive penalties (due to the high cap) in the three years
where availabilities are extremely low. Hence, these penalties undo the positive cash flows of
the other years. In the OPEX case, the WTG manufacturer transfers the O&M cost increase
(with the premise of the same markup factor) to the SPC, so that it can benefit of higher
revenues. In all other cases its NPV remains stable at 55 M compared to the base case. For
the lender, the NPV remains in the same range (90-101M) except for some minor deviations
which are due to the amount of debt actually drawn.
Figure 7 shows the most important profitability & risk indicators of the three project stakeholders
within the three structures. The farther outside an indicator is situated, the more profitable or the
less risky is the structure for the corresponding project stakeholder.
IRRBANK
10%

NPVBANK
120M
IRREQUITY
16%

DSCRavg
3,00

minEPCStructure
minStructure#2

NPVEQUITY
420M

minQ7Structure
BaseEPCStructure

DSCRmin
3,00

BaseStructure#2

LLCRmin
3,50

NPVWTG
90M
PLCRmin
3,50

BaseQ7Structure

Figure 7: Summary of profitability & risk indicators for the project finance
structures: each indicator with minimum value and base case as reference

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Project Financing Offshore Wind Farms: Risk Analysis for a Structured Finance

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Generally, the adapted Q7 structure dominates the two other structures with all indicators
(except IRREquity, NPVBank and DSCRavg): both for base case and for the respective minimum
value. On the one hand, high equity gives more security to the bank, on the other hand also
lower profitability (NPVBank) within the adapted Q7 structure. For the sponsor this offers a high
profitability but with a lower return on his equity compared to the Multicontracting structure
(where equity ratio is lower). For the lender as well as the WTG manufacturer, the EPC
structure shows similar results to the Multicontracting structure in the base case: Their
respective minimum values are either marginally higher or lower to each other, which results
from their equity ratios (30% and 20%). For the sponsor it is different: Since the SPC has to pay
a higher price of 18% (EPC risk premium) for the erection of the OWF, the profitability for the
sponsor is lower.
Within all structures there are no differences for NPVBank and IRRBank (except only very little
deviations) between base case and the respective minimum value. This is based on the fact
that within all structures in all downside cases the SPC is able to repay its debts with significant
security buffers (DSCRmin,min > 1,4), i.e. the bank does not have to suffer any payment shortfalls.
For the WTG manufacturer
Table 6: Evaluation according to profitability objectives
the difference between base
case and the minimum value
n,j
nEquity,j nBank,j nWTG,j n,j
EPC (#1) NPVEquity,base
256.346.064 62%
(availability case) is the
NPVBank,base
92.523.968
100%
76% 21%
highest. Since it only bears
NPVWTG,base
55.943.248
67%
the availability risk, the
MuC (#2) NPVEquity,base
364.523.520 88%
probability for this case to
NPVBank,base
88.787.440
96%
84% 14%
realise is relatively low, so
NPVWTG,base
56.891.436
69%
that it is bearable. Even with
Q7 (#3)
NPVEquity,base
413.606.880 100%
NPVBank,base
52.842.396
57%
86% 25%
the structured availability
NPVWTG,base
83.021.504
100%
guarantee (MuC) the return
on its services reaches the break even (NPVWTG,min = 1,2 M). For the WTG manufacturer, the
adapted Q7 structure offers the highest profitability, because even in the availability case it
can benefit of bonus payments.
The evaluation of the three structures, which shall enable a risk adequate profitability to all of
the project stakeholders, follows the methodology as described in section 5: Table 6 and
Table 7 show the calculation of the
Table 7: Evaluation according to risk objectives
target variables, according to
r,j
rEquity,j rBank,j rWTG,j r,j
those points shall be given: In
EPC (#1) NPVEquity,min / NPVEquity,base 31%
Table 6 the profitability indicators
DSCRmin,min / DSCRmin,base
80%
42% 34%
of all project stakeholders are
NPVWTG,min / NPVWTG,base
15%
normalised in relation to their
MuC (#2) NPVEquity,min / NPVEquity,base 34%
maximum values: The adapted Q7
DSCRmin,min / DSCRmin,base
79%
38% 39%
NPVWTG,min / NPVWTG,base
2%
structure
receives
a
point,
Q7 (#3)
NPVEquity,min / NPVEquity,base 40%
because on average it is the most
DSCRmin,min / DSCRmin,base
67%
43% 23%
profitable
for
all
project
NPVWTG,min / NPVWTG,base
22%
stakeholders.
Moreover,
the
Multicontracting structure scores a point since within this structure the returns (in relation to the
structures analysed) are distributed in the most homogenous way.
Evaluating risk, in Table 7 the respective minimum values of the risk indicators of the individual
project stakeholders are put into relation to their respective base case values: The adapted Q7
structure gets both points for the lowest deviation of all risk indicators from base case (lowest
risk) and for the most homogenous distribution of risk among the project stakeholders.
In total, the adapted Q7 structure gets three points and thus is selected, because it prevails over
the two other structres in three out of four objectives.

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7. Main References
[1] Deutsche Energie Agentur (2008): Internationale Windparkprojekte. Realisierte Projekte im Ausland.
Online available at http://www.offshore-wind.de/page/index.php?id=4765, last
checked on 20.09.2008.
[2] Svenson, Jan; Larsen, Jens H. (03.04.08): 8 years O&M experience from Middelgrunden Offshore
Wind Farm. European Wind Energy Conference (EWEC) 2008. Bruxelles, Belgium.
Organiser: (EWEA) European Wind Energy Association.
[3] Larsen, Jens H.; Srensen, Hans Christian; Christiansen, Erik; Naef, Stefan; Volund, P. (26.28.10.05): Experiences from Middelgrunden 40 MW Offshore Wind Farm.
"Copenhagen Offshore Wind". Copenhagen. Organiser: EWEA.
[4] Middelgrundens Vindmllelaug (2008): History, Production Report, Middelgrunden. Online available
at http://www.middelgrund.com, last checked on 20.09.2008.
[5] Franken, Marcus; Lnker, Oliver (26/2004): Windstrom in Seenot. Der grte Rotoren-Park auf
offener See steht vor der dnischen Kste. Jetzt muss er komplett repariert werden.
In: DIE ZEIT, 26/2004, p. 1418.
[6] Gerdes, Gerhard; Tiedemann, Albrecht; Zeelenberg, Sjoerd (2007): Case Study: European
Offshore Wind Farms - A Survey to analyse Experiences and Lessons learnt by
developers of Offshore Wind Farms. Final Report. (POWER) Pushing Wind Energy
Regions.
[7] Sams Havvind I/S (2008): History, Prodution Report, Sams havmllepark. Online available at
http://www.samsohavvind.dk/windfarm/, last checked on 20.09.2008.
[8] Sams Energiakademi (30.07.08): On the way to Project Finance of Offshore Wind Parks.
Questionnaire. Interview with Sren Hermansen. 30.07.08.
[9] Volund, P.; Hedersen, P. H.; Ter-Borch, P. E. (2005): 165 MW Nysted Offshore Wind Farm. First
year of operation - performance as planned.
[10] npower Renewables Ltd. (2005): Capital Grant Scheme for the North Hoyle Offshore Wind Farm.
Annual Report: July 2004 - June 2005. Edited by (dti) Department of Trade and
Industry, UK.
[11] npower Renewables Ltd. (2006): Capital Grant Scheme for the North Hoyle Offshore Wind Farm.
Annual Report: July 2005 - June 2006. Edited by (dti) Department of Trade and
Industry, UK.
[12] Vattenfall Danmark A/S (2007): Capital Grant Scheme for Offshore Wind. Kentish Flats Offshore
Wind Farm. Annual Report January 2006 - December 2006. Edited by (dti)
Department of Trade and Industry, UK.
[13] E.ON UK (2006): Capital Grant Scheme for Offshore Wind - Scroby Sands. Annual Report: January
2005 - December 2005. Edited by (dti) Department of Trade and Industry, UK.
[14] E.ON UK (2007): Capital Grant Scheme for Offshore Wind - Scroby Sands. Annual Report January
2006 - December 2006. Edited by (dti) Department of Trade and Industry, UK.
[15] E.ON UK (2008): Capital Grant Scheme for Offshore Wind - Scroby Sands. Annual Report: January
2007 - December 2007. Edited by (dti) Department of Trade and Industry, UK.
[16] Ernst, Kim (20.-21.03.2007): Offshore Wind Farms in Poland. DONG Energy Renewables. "2nd
Annual Conference - "Wind energy market in Poland". Warsaw. Organiser: Polish
Wind Energy Association.
[17] Offshore Design Engineering Ltd. (2007): Study of the costs of offshore wind generation. A Report
to the Renewables Advisory Board & DTI. (dti) Department of Trade and Industry,
UK.
[18] Garrad Hassan (2003): Offshore Wind. Economies of Scale, engineering resource and load factors.
Bristol, UK.
[19] KPMG (2007): Offshore-Windparks in Europa. Marktstudie. Wirtschaftsverband Windkraftwerke e.V.
[20] Luby, Simon (2008): Project Risks and the Role of Due Diligence for Project Finance. EWEC 2008.
[21] Zeelenberg, Sjoerd; Kloet van der; Jelly (2007): Challenging offshore wind: Guiding experiences
from the North Sea Region. Final Report - June 2007. Faculty of Spatial Sciences University of Groningen.