CONFIDENTIAL

OFFSHORE WIND PROJECT FINANCING: LESSONS LEARNT, BANKABILITY AND IRR OPTIMISATION

May 2019

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SG IN OFFSHORE WIND

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SG - A LEADING ENERGY PROJECT FINANCE GROUP WITH FOCUS ON OFFSHORE WIND

GLOBAL LEADER IN OFFSHORE WIND DEBT AND EQUITY ADVISORY, AND DEBT ARRANGING

• One of the most awarded energy financing teams in the market, with strong commitment and expertise in advising and financing energy infrastructure assets worldwide

• Solid experience in renewable energy transactions across different geographies and different technologies, including the most innovative ones such as carbon capture & storage, solar CSP and offshore wind

• SG has a clear renewable energy and dedicated offshore strategy and has played leading roles in structuring and financing

• Expertise in all active offshore jurisdictions

▶ SG’s advisory and lending success isbased on a “One-Stop-Shop” forclients

▶ SG supports the projects where weact as financial advisor, with eitheran underwriting or a large-ticketsenior lending

Refinancing of Northwind (216 MW) and C-Power(325 MW), Belgium, 2017

Deutsche Bucht (252 MW), Butendiek (288 MW),refinancing of Trianel (200 MW), Germany, 2017

Merkur (396 MW), Germany, 2016

Rentel (309 MW) and Norther (370 MW), Belgium, 2016

Beatrice (588 MW), UK, 2016

Lincs (270MW), UK Green Investment Lyle’s 31% stake financing, UK, 2017

Dunkerque (750MW), Le Tréport (500MW) and Noirmoutier (500MW), France, Ongoing

Confidential floating wind project, Ongoing

Borssele III and IV (700 MW), Netherlands, 2017

Borssele I and II, Netherlands, 2016

Kriegers Flak (600 MW), adviser to a bidder, Denmark, 2016

London Array (CDPQ’s 25% financing), UK, 2017

Dudgeon (402 MW), UK, 2016

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SeaMade (487 MW), Belgium, 2018

Merkur Refinancing (396 MW), Germany, 2018

Northwester 2 (219 MW), refinancing of Belwind (165 MW) and Nobelwind (165 MW), Belgium, 2018

Hornsea 1 (1.2 GW), Moray East (1.1 GW), refinancing of Galloper (336 MW), UK, 2018

RECENT DEALS IN EUROPE SINCE 2016

Debt & M&A Advisor to Enbridge on the acquisition of a 50% stake in offshore wind projects owned by EDF EN and Dong Energy, France, 2017

Debt & M&A Advisor for the CTG’s acquisition of equity in a 3-asset portfolio of offshore development projects, Europe, 2017

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GLOBAL ADVISOR OF THE YEAR

GLOBAL PROJECT FINANCE ADVISER RANKINGS –2018

SOCIETE GENERALE 2018 DEAL AWARDS FOR ENERGY FINANCE

Europe Bank of the Year

2015 PFI

Global Adviser of the Year

2016 PFI

Europe Bank of the Year

2017 PFI

#2 Best Arranger of

Project Finance

Loans

2017 GLOBALCAPITAL

SIGNIFICANT BANKING AWARDS

SG CIB has topped the Global Project Finance Adviser league table with 9.5% of the market share.

#1

Rank Financial Adviser Vol USDm Deals %share

1 Societe Generale 21,934 12 9.5%

2 EY 17,402 48 7.5%

3 KPMG 13,971 20 6.0%

4 Macquarie 13,315 31 5.8%

5 Royal Bank of Canada 12,331 11 5.3%

6 MUFG 10,942 14 4.7%

7 Santander 10,710 32 4.6%

8 HSBC 8,194 5 3.5%

9 SMBC 7,639 9 3.3%

10 Rothschild 7,149 9 3.1%

TOTAL 231,372 443 100%

Source: IJGlobal –Global Project Finance Volume by Financial Adviser –2018

SG HAS A LONGSTANDING AND WELL ESTABLISHED TRACK RECORD OF PROVIDING FINANCIAL ADVISORY SERVICES AND ARRANGING DEBT FORTHE POWER SECTOR

• Moray East Offshore Wind Farm (UK)Project FinancingEUR 2,600,000,000Deal of the Year (PFI)

• Formosa 1 Offshore Wind Farm (Taiwan)Project FinancingNTD 18,700,000,000Deal of the Year (PFI)

• Nachtigal Hydroelectric (Cameroon)Project FinancingEUR 1,200,000,000Deal of the Year (PFI)

• Hornsea 1 Offshore Wind Farm (UK)Project FinancingGBP 3,364,000,000Deal of the Year (PFI)

• Borssele III & IV Offshore Wind Farm (the Netherlands)Project FinancingEUR 1,260,000,000Deal of the Year (PFI)

• Trans Adriatic Pipeline (Europe)Project FinancingEUR 3,764,600,000Deal of the Year (PFI)

Global Advisor of the Year

2018 PFI

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LESSONS LEARNT

Back testing on construction risk

Despite multi-contracting, only one project experienced cost overruns exceeding contingencies

Most of the projects built on time and on budget

Trend towards a reduced number of construction contracts but no full EPC wrap

Operation

Wind yield: current refinancings at COD + X years demonstrate supportive wind yields, with a number of projects in line

with P50

Development of yield-based availability warranties

Sponsors In-house O&M vs. Turbine Supplier – fight for cash flows?

Issues Encountered

Weak sub-contractors - major delays and cost overruns

Leading edge erosion

Cables more prone to incidents than expected

Focus on Certification

More leeway, more and more flexibility to treat as a conditions subsequent after financial close

Sky is the limit?

Technology keeps evolving – 12 MW turbines?

A very positive track-record but technological challenges ahead and offshore wind risks remain complex to assess

WHAT WE HAVE LEARNT (1/2)

Our various advisory roles, in particular for tenders, have put us at the heart of tariff optimisation

Capex and Opex remain in our experience the main drivers to bring the tariff down

Then come, at a secondary level, other price reduction drivers such as financing cost – all IRR optimisations

make a difference

A new world without subsidies – yes or no? and how to get there?

WHAT WE HAVE LEARNT (2/2)

TARIFF REDUCTION IN EUR / MWH

CAPEX DECREASE

OPEX DECREASE

INCREASED AVAILABILITY

INCREASED WIND YIELD ASSUMPTIONS

PPA DISCOUNT

FINANCING

IRR TOLERANCE

BASE CASE

?

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BANKABILITYCONSIDERATIONS

A number of options available

No standard structure – depends on sponsors key IRR objectives and regulatory framework

KEY CREDIT AND STRUCTURING CONSIDERATIONS

Contingencies

Optimize hedging

strategyGearing

Tenor post

completion

Refinancing at

COD or when de-

risked

Mezzanine debt No MRA

Equity injectionDistribution

efficiency

Reduction of debt

cost

LCs instead of

cash reserves,

DSRF instead of

DSRA

DSCR Sizing

Optimisation of the capital structure – Radar screen

Layout

optimisation

Subordinated

Payments

Payment deferrals /

Payment curve

Installation

schedule

SynergiesLong lead itemsImprove Px yield

uncertainly

Reduce

unavailability in

base case

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BANKABILITY FOR FLOATING PROJECTS

Technology

Access to near shore deep waters (to make OFW possible) or far shore (to access strong wind resource)

More competitive installation costs (at port, less vessels) and O&M costs (maintenance at port)

Coupled design and interface between the turbine and the foundation

Can we talk about agnostic technologies?

Contractual consequences on the TSA and SMA

Potential carve outs of the availability warranty and of the power curve warranty etc.

Risks not covered by contractors

Failure of the mooring system during operation

Impact on cabling etc

Design and Certification

Back to a conservative certification approach?

Wind yield assessment

Use of a floating lidar?

Impact of buoyancy compared to fixed OFW and usual technical due diligence issues for fixed-bottom OFW

Increased interface risk

Preliminary conclusions – Floating offshore wind is at an early stage but definitely promising and heading to bankability

FLOATING OFFSHORE WIND

Cédric ChatelDirectorEnergy Finance & Advisory

Hong Kong

Tel: +852 6078 0773

cedric.chatel@sgcib.com

THANK YOU

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