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SMART CONTRACTING: STRONG WINDS AHEAD A SEMINAR FOR THE OFFSHORE RENEWABLES SECTOR

AGENDA

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SESSION 1: CONTRACTING Smooth sailing in theory – bad weather in practice: EPC - Contracts in offshore wind The clock is ticking! Offshore working time regulation: Who is a seafarer and who is not?

SESSION 2: BD & FINANCE Exploring new Markets: Lets go East! Exposing the Hidden Risks: Legal due diligence of construction & maintenance contracts from an investor's perspective

SESSION 3: TECHNICAL & LEGAL SNAPSHOTS BOP vs Multicontracting Changing winds in German waters: The new German offshore wind act BREXIT: What are the potential consequences for offshore wind energy?

SMOOTH SAILING IN THEORY – BAD WEATHER IN PRACTICE EPC - Contracts in offshore wind

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Smart Contracting Smooth sailing in theory – bad weather in practice

30th March 2017

Moritz Horn

A set of examples from offshore wind projects which we have executed in recent years in German waters.

With a special focus on contract clauses which seem to be very straight forward and sensible in theory, but have caused various kinds of issues, problems or negative impact on the parties involved in practice.

To be understood as some practical examples, where experience and a simple „is that fit for reality?“ check shows that contract wording can be made more simple and easier to handle.

With the intention to make the contract a good tool for a successful project and not an additional complication.

Smooth sailing in theory – bad weather in practice

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What is it about?

The Tenderer / Contractor warrants the availability of the nominated installation vessel for duration of the performance of the Works

Vessel Availability

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Clause

Client wants to be sure that the intended / contracted installation vessel is available and remains „in the project“ until the completion of the Works.

Purpose

Conflict with Clients unilateral rights to (a) vary, (b) instruct or (c) suspend the Works. Just think of what would happen to your project if the precedent Client uses those rights.

What is the issue?

Either significant reduction of the Clients possibilities to change the schedule.

Or acceptance of a „latest vessel availability date“ and adressing the consequences of a substitution vessel

Solution?

The Tenderer / Contractor warrants the availability of the nominated installation vessel for duration of the performance of the Works

Vessel Availability

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Clause

In a tender a Client wanted to receive the above warranty and he made our written acceptance a part of his evaluation scheme.

4 current tenders for the same installation period on the market and 6 potential contractors giving the above warranty to their clients = 24 warranties given. For the last Client to make a decision in his tender process it turns out that 50% of the warranties given can not be fulfilled and the vessels are gone to another project.

What is the issue?

Client provides a preliminary tender design with steel quantities.

The Contractor shall be responsible for the final and certified design and the resulting steel quantities.

Steel Quantity Regulation

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Clause

Client wants to „fix the price“ and bear no risk of the outcome of the final design of the EPC contractor.

Purpose

The mandatory involvement of the turbine supplier is forgotten. His design has a significant impact on the overall structure. Only the Client can judge and decide on the optimal solution.

What is the issue?

Steel quantity regulation based on „external cost only“ compensation = Contractor has no conflicting commercial interest. Can be supported by a bonus regulation to let the two involved contractors (foundation / turbine) earn a share of the overall optimization.

Solution?

Variations may be initiated by the Employer at any time prior to issuing the Final Taking Over Certificate for the Works, either by an instruction or by a request for the Contractor to submit a proposal.

Variation Regulation

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Clause [FIDIC YB 13.1]

Client shall have the freedom to decide if he wants a certain variation to the Works or not.

Purpose

Works perfect: Client wants a change / but if not the Works could still be completed. But does not work if the original Works become impossible and have to be varied.

What is the issue?

Distinguish between the cases where the Client can make a choice („may“) and where he has to vary („shall“) because there is no other option or the original intended solution is no longer possible or allowed or if the Employer Requirements have been altered / instructed.

Solution?

may no major

reasonable attempt

try avoidable

Unclear wording / meaning / time span

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Nice little words

Not beeing too precise. Avoiding to be hit by missing a deadline. Trying to move the consequences of future actions (or „non-action“) to a more open interpretation. Predominantly found in clauses dealing with obligations of the Client.

Purpose

Works in practical terms well most of the time. But creates confusion between the parties because a different set of rules and regulations needs to be established post-contract.

What is the issue?

Simple: Be more precise! Use figures („10.000€“) instead of „no major“. Use time span instead of „reasonable“. Use „if“ and „if not“ instead of „may“ and define the consequences for both cases.

Solution?

“… the Contractor shall give notice to the Employer…”

„… failure of the Contractor to give notice…“

In multiple sections of the contract.

Giving notice under the Contract

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Clause

Client wants to be officially informed about „what is going on“ and the Contractors findings. Main purpose is to allow the necessary involvement / decision making of the Client and not learn about importent topics afterwards.

Purpose

Requirement to give notice can result in a (high) number of contractual letters. Those letters can be received by the Client as “offensive”, “too contractual” and “non cooperative”.

What is the issue?

Limit the cases where a „notice“ is required. Define a process (like „early warnings“ or „task lists“) where the parties exchange their needs and requirements on a level below a contractual notice. Be prepared (and accept) that the contract does require notices.

Solution?

In the Contract of a recent offshore wind project in Germany the contract had in 107 places the requirement that the Contractor shall give notice to the Client.

We ended up with letter no. 200 just before installation start and about 320 at the end of the project – of which only 21 where actually notices of a potential claim.

The Client was clearly offended despite our numerous explanations that we only try to live up to the contract and that we would be more than happy to find an alternative reliable solution to process the tasks between the parties.

Hugh negative impact on spirit and cooperation.


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What happened…


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Three phases of a notice and the related famous words

Pre-contract Project execution After completion

Phase The contract wording is negotiated

The project is in execution. Staff and pressure is growing. Technical and commercial consequences kick in.

The work is done and the parties are discussing the final settlement.

Client I want to know what is going on in my project. And for the good records I need those notices.

Don‘t send all those official letters. You are uncooperative – let us sit together and find a solution. Every time you send an official letter I have to inform my board / boss / financing banks.

You have lost your entitlement because of not sending a notice in time.

Contractor Please don‘t time-ban our claim entitlement to have more time for discussing solutions.

Yes, perfect. Let us sit together and find a solution. Do I still need to write the official notice to be relieved from the risk of loosing my entitlement?

Can we please find a different way next time. I do not want to make a choice between entitlement and reputation.

Clause 3 „The Engineer“ is intentionally omitted.

Where is the „Engineer“?

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Clause

Giving the Client direct control over all aspects of the contract without involving (and cost saving for) an appointed Engineer.

Purpose

The contract still requires to make “determinations” to keep the project rolling and to not create standstill. However, it appears that Client own staff has no mandate to do so. Which results in a stand still of the contractual process while the project has to move on.

What is the issue?

Either reinstate an Engineer position with the mandate to actually make determinations on an interim basis. Or define the consequences in the case the Client fails to make a fair determination within a given time frame.

Solution?

All Subcontractors [and Suppliers] of the Contractor shall be approved by the Client. The Contractor shall send the / all details of the intended Sub- Supply contract to the Client and shall not commence the sub-contract before approval is given.

Subcontractor approval

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Clause

Check if the sub-contract / supply-contract is in compliance with the main contract.

Check if a specific experience (positive / negative) with the subcontractor / supplier was made on an earlier project.

Purpose

An average offshore wind project has 300 – 500 subcontractor / suppliers. Most do not want that their contract details are submitted to third parties. And what happens if a Client does not approve a specific subcontractor / supplier? Will the Client take the additional cost?

What is the issue?

Limit the application of the clause to a few specific „key subcontractor“ only and without giving the commercial and contractual details. But most important (and that is missing in most contracts so far): Define what happens if a proposed key subcontractor is not approved – both for time and money.

Solution?

cycle time

Float in the time schedule – what to do with it?

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What is „Float in the time schedule“

Net operation time Learning Breakdown Weather …

„Planned“ 6 days „Reality“ 4 days

„Reality + 2 days delay“ = 6 days -> EoT for milestone

Client delay = 2 days

The sum of time at the Contractors disposal before reaching a milestone

The Contractor has not entitlement for an extension of time or cost compensation as long as the planned installation period is not exceeded.

Float in the time schedule – what to do with it?

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Clause

Client does not want to pay „twice“ (e.g. the day rate of the vessel) what is already included in the lump sum.

Same for the time for completion.

Purpose

At a time of delay in the project caused by the Client it is unclear what the impact on the later date of completion is. It could be that the Contractors risks kick in at the very rear end. If that happens, a consumption of float by the Client leaves the Contractor exposed to LDs.

What is the issue?

Like to have: Respect, that it is the Contractors right to earn money by working quicker.

Must have: Float consumption by the Client shall give entitlement for EoT to the Contractor.

Solution?

1 day during installation ca 300 k€

= 12.500 € / h

+ 1 day typical LD risk ca 150 k€

= Risk exposure 450.000 € / day

= 18.750 € / h

Adverse Weather Regulation

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Time is money How does it look?

The „classical“ calendar methode of estimating Adverse Weather Days is underestimating reality.

Simulations with real weather data give more accurate results.

But they are still „hindsight“ information.

The next year can be very different.

And do not forget the impact of ice, snow, tide, current, daylight, fog, the mood of the MWS, GPS accuracy, marine traffice and the master on board.


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Simulation

Dear Contractor, why do you not price the p50 weather downtime only but take the full risk of the weather – on the long term it will level out for you.


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The p50 – myth / The „average“ myth

A day more cost the full spread cost – let‘s say 300 k€

A day less does not give the same saving – typically 75% of the spread cost goes into charter / rental agreements and equipment depreciation.

As a rule of thump one needs 2 – 4 days saved to balance 1 day extra spend. Also depending on the percentage of „own“ equipment used in relation to external charter.

What is the issue?

In reality, in the long term one would need p60-p70 to level out cost and savings.

And more for smaller projects and if clients require extension options.

Result?

02468

101214

1 2 3 4 5 6 7 8 9 10 11 12

Win

d sp

eed

Hours weather forecast

Dear Contractor, it is easy and perfect: We record the time when the wind / the waves are actually above the limits and you get paid for that extra. Okay?


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The „adverse weather is when you can not work“ myth

Every activity offshore needs a certain „Weather Window“. You can not start the activity if the necessary window will not be there.

Waiting for the storm to come = downtime. Even if the weather is still below the limits.

What is the issue?

Not yet – it is getting worse…

Result?

Upend Piling TP inst


02468

101214

1 2 3 4 5 6 7 8 9 10 11 12

Win

d sp

eed

Hours weather forecast

Dear Contractor, it is easy and perfect: We record the time when the wind / the waves are actually above the limits and you get paid for that extra. Okay?


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The „adverse weather is when you can not work“ myth

Some activities need to be done in a continuous process / within a short time frame (= reliable weather forecast).

Waiting for activity B = downtime. Even if the weather is below the limits AND you could safely do activity A.

What is the issue?

A good adverse weather regulation deals with the practical facts of working at sea.

And reliefs the teams working offshore from commercial considerations but let them focus on the optimal installation process only.

Result?


Upend Piling

MWS will not allow to start upending when you can not pile afterwards

Get visual – easy to read, easy to check and everybody can understand it in 5 minutes!


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How to deal with „bad weather“ in a „smart contract“?

Most contracts focus on the installation phase of the project.

That is not wrong – however, the overwhelming majority of the interaction, solution seeking and chance for optimization towards a good project is in the first months after contract signing. This phase is treated quite poorly in most contracts.

Omit „soft wordings“ from the contract and rather focus on a clear process description instead of dealing with consequences only.

Create „loops of interest“ where every party gets a pain and gain feedback from their respective action.

No worries: There is a joint interest in completing a project in time and budget on all sides. Contractors do not gain anything when it gets messy.

Smooth sailing in theory – bad weather in practice

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In a nutshell…

Smooth sailing in theory – bad weather in practice Moritz Horn

THE CLOCK IS TICKING! Offshore working time regulation who is a seafarer and who is not? | Dr. Eckehard Volz

Overview

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Ordinance on working time in relation to offshore work entering into force on 1 August 2013 (Offshore-Arbeitszeitverordnung, "OAZV")

1. Legal framework

2. General contents of the regulation

3. Scope of the regulation

4. Distinction seafarer vs. offshore employee

5. Case Study

Legal Framework

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Arbeitszeitgesetz German territorial waters and EEZ Health and safety of (offshore) employees

Seearbeitsgesetz Vessels flying the German flag Working and living conditions of the crew on board German flagged vessels

OAZV Came into effect in August 2013 German territorial waters and EEZ Extensive exceptions to the ArbZG and the SeeArbG

European Directive RL 2003/88/EG

Minimum requirements for health and safety Working time regulation

International Convention MLC 2006

ILO August 2013 Decent working and living conditions for seafarers worldwide

General Contents of the Regulation

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Deviations from regular maritime working hours regulations

Limitation for maximum time spent offshore

Overtime Compensation

Transfer Time (applicable to offshore employees only)

Time Recording

Working hours for offshore employees

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Deviations from regular working hours regulations: Extension of working hours up to 12 hours per day Working on weekends and holidays is generally permitted Minimum of 60 min rest period if working hours exceed 10 hours

Limitation for maximum time spent offshore:

Maximum period of 21 consecutive days If stay is up to 21 days long, average working hours may not exceed 10 hours. Shifts up to 12 hours are only allowed on seven of 21 days and only on two consecutive days If stay is shorter than 14 days, shifts of up to 12 hours are allowed on more than seven days and for more than two consecutive days

Overtime compensation, transfer times and time recording

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Overtime compensation: One day off for every eight hours of overtime To be granted on a continuous basis following the time at sea

Transfer time (applicable to offshore employees only):

Transport and working time must not exceed 14 hours per day Exceptions for delays due to unforeseeable circumstances No restrictions if transfer time exceeds 6 hours and the employee has access to a sleeping cabin

Time recording:

Employer must keep record for each employee on a daily basis No specific mechanism required

Scope of the regulation

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OAZV applies in German territorial waters and the German Exclusive Economic Zone, but limited to:

Crew members of German flagged vessels ("offshore crew members"), and

Any other offshore employee not being part of the vessel‘s crew who is performing "offshore work" ("offshore employees")

Crew members – German flag

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Seafarers (within the meaning of the German Maritime Labour Act) are all persons working on board the vessel, regardless of whether they are employed by the ship-owner or by another person or are self-employed, including those employed for the purpose of their vocational training [§ 3(1) German Maritime Labour Act]

OAZV is not applicable to vessels under any other than German flag.

Crew members of foreign flagged vessels remain subject to the relevant flag state regime under the general maritime rules, even if laying in a German port.

Offshore employees performing "offshore work"

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"Offshore work" = special activities to erect, modify or operate buildings, artificial islands or any other installation at sea (ArbZG)

Identification can be problematic in some cases, e.g. with: › crane operators › divers › freelancers (with regard to

ostensible self-employment) › vessel‘s crew performing

more offshore work than work on the vessel

Distinction between “crew” and “offshore employee” is less problematic if the work is performed on board of a German flagged vessel (sec 3 para 3 SeeArbG).

It becomes more tricky when personnel leaves the vessel flying a foreign flag in order to work directly on the site

Who is a seafarer and who is not?

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SCENARIO Seafarer leaves the foreign flag vessel and performs "offshore work" on a site within the German EEZ. German Maritime Labour act does not apply by virtue of the Maritime Labour Convention:

› flag state legislation to determine whether or not someone is to be considered a "seafarer" and

› which working regime applies.

QUESTION Is OAZV applicable to seafarer, who is not considered a seafarer under the German Maritime Labour Act, and carries out offshore work within the German EEZ? Does his legal status as "seafarer" modify?

MLC 2006 versus SeeArbG

Definition of "seafarer" according to German Maritime Labour Act and Maritime Labour Convention not identical, therefore conflict between flag state and coastal state of site

Seafarer (within the meaning of the Maritime Labour Convention) means any person who is employed or engaged or works in any capacity on board a ship to which this Convention applies [Art. II (1) (f) MLC]

Maritime Labour Convention contains a broader definition of "seafarer" than the German Maritime Labour Act

Maritime Labour Convention ultimately prevails over the German Maritime labour Act

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Who is a seafarer and who is not?

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QUESTION Is OAZV applicable to seafarer, who is not considered a seafarer under the German Maritime Labour Act, and carries out offshore work within the German EEZ? ANSWER

If the employee is a "seafarer" according to the Maritime Labour Convention, the OAZV does not apply, even if he leaves the vessel and carries out offshore work within the German EEZ. This person remains subject to the flag state regime

Distinction seafarer vs. offshore employee

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Criteria suggested by International Labour Conference to determine status of "seafarer" according to the Maritime Labour Convention:

(i) the duration of the stay on board of the persons concerned (ii) the frequency of periods of work spent on board (iii) the purpose of the person’s work on board

Prior to the conclusion of the relevant contracts, (i) the applicable flag state regimes and (ii) the various persons and their role on board the vessel should be thoroughly analysed Clarification with the local authorities, in particular of the flag state, to which of the persons the flag state regime of the seafarer still applies and which persons may be considered an offshore employee working under the regime of the offshore construction site

Case Study 1 – The UK Owner

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Offshore Construction Company

Vessel: UK Flag, UK owner

Site location: German EEZ

15 Persons on board: › 10 Crew members › 5 Offshore Engineers

Crew members: › 5 Englishmen, employed by

Offshore Company › 5 Germans, employed by

Offshore Company

Offshore Engineers (tasks on platform): › 3 Dutchmen, employed by

Offshore Company › 2 German, employed by

Offshore Company

Does the OAZV apply? If so, to whom?

Case Study 1

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CREW MEMBERS: Since the vessel has a UK flag, the OAZV does not apply to the crew members.

OFFSHORE ENGINEERS:

The OAZV applies to all 5 engineers, irrespective of their employer or nationality. According to Section 1 No. 1 OAZV, the OAZV applies to all employees who carry out offshore-activities within the German EEZ.

Case Study 2 – The German Owner

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Vessel: German Flag, German owner

Site location: Dutch EEZ

15 persons on board: › 10 Crew members › 5 Offshore Engineers

Crew members: › 5 Germans, employed by

Offshore Company › 5 Dutchmen, employed by

Vessel's owner

Offshore Engineers (tasks on platform): › 5 Dutchmen, employed by

Offshore Company


Case Study 2

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CREW MEMBERS

The OAZV applies to all crew members onboard ships flying the German flag, if the crew members are seafarers according to Section 3 (1) of the German Maritime Labour Act.

OFFSHORE ENGINEERS

The OAZV does not apply to the engineers since they do not work within German coastal waters or the German EEZ (Sect. 1 No. 1 OAZV).

Case Study 3 – The Dutch Owner

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Vessel: Dutch Flag, Dutch owner

Site location: German EEZ

15 persons on board

Crew members: › 5 Germans, employed by

Vessel's owner › 5 Dutchmen, employed by

Offshore Company

"Passengers": › 3 German engineers,

employed by Vessel's owner (tasks on platform and vessel)

› 2 German divers, hired by Offshore company (tasks on platform and vessel)


Case Study 3

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CREW MEMBERS: The OAZV does not apply, since the vessel flies a Dutch Flag

ENGINEERS AND DIVERS: The OAZV potentially applies, if they are not "seafarers" according to the Maritime Labour Convention.

In principle the flag states law applies, when determining whether someone is a seafarer. However, the flag state law applies only insofar as it is consistent with the Maritime Labour Convention.

If both, divers and engineers, are considered to be seafarers under the Maritime Labour Convention, then the OAZV does not apply. Should they not be considered seafarers according to the Maritime Labour Convention, they are considered to be Offshore-employees under German Law and the OAZV applies, since they operate within the German EEZ (Section 1 No.1 OAZV).

Case Study 4 – The Danish Owner

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German Offshore Construction Company

Vessel: Danish Flag, Danish owner

Site location: UK EEZ

15 persons on board: › 10 Crew members › 5 Offshore Engineers

Crew members: › 5 Danes employed by

Offshore Company › 5 Germans, employed by

the Vessel's owner

Offshore Engineers (tasks on platform): › 3 Germans, employed by

Offshore Company › 2 Danes, employed by

Vessel's owner


Case Study 4

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The OAZV does not apply. CREW MEMBERS:

Since the vessel does not fly a German Flag, the OAZV does not apply to the crew members of the Vessel (Section 1 No.2 OAZV).

OFFSHORE-ENGINEERS:

Since the engineers do not work within German coastal waters or the German EEZ, the OAZV does not apply to them either (Section 1 No.1 OAZV).

Nota bene:

If a German working contract declares the OAZV applicable, the OAZV might apply indirectly!

Beijing Cologne Dubai Hamburg Hong Kong Le Havre London Monaco Paris Piraeus Shanghai Singapore

[email protected]

LET’S GO EAST Dr. Burkhard Seif - burkhard seif strategy & projects

Agenda

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Offshore Wind in the Name of the island Economics and Offshore Wind Business Case Regulation, Feed-in Tariffs and Offshore Sites Chinese Language 101 – orientation ‚Design Basis Check‘ Earthquakes Typhoons Chinese Language 102 – ready for offshore works Question to Lawyers

Disclaimer

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The information contained in this presentation (the "Presentation") is for general information purposes only. The editor Mr. Burkhard Seif ("the editor") of this Presentation assumes no responsibility for errors and omissions in the contents of this Presentation. Furthermore, the editor does not guarantee the accuracy, relevance, timeliness, or completeness of any information contained in this Presentation. In no event shall the editor be liable for any damages whatsoever arising out of or in connection with the use of the Presentation or the contents of the Presentation.

Chatham House Rule

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This contribution is held under the Chatham House Rule: Participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed. Diese Veranstaltung findet unter Anwendung der Chatham-House-Rule statt. Inhalte dieser Präsentation dürfen daher zwar frei verwendet werden, allerdings nur unter der Bedingung, dass die Identität des Redners sowie seine Teilnahme an dieser Veranstaltung nicht preisgegeben werden und dieser auch in keiner anderen Form in Verbindung mit den Inhalten der Präsentation gebracht wird.

Source: https://www.chathamhouse.org

Let‘s go East

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Taiwan

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Let‘s explore why the fit of Taiwan to offshore wind can already be found in the name itself.

For that we run a Chinese language course 101 with some elementary words.

Chinese Language course 101

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service service desk window window sill

writing desk train train platform

dance dance floor, stage

sun sun terrace

is something flat

. . . and so is the Taiwanese west coast

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The western coast line gives the name to the country,

the western coastal waters are shallow waters,

quite favourable to offshore foundations.

What about the wind conditions?

http://www.nationsonline.org/oneworld/map/google_map_taiwan.htm

The wind conditions are quite favourable in the Taiwan Strait, in fact the wind resource is one of the best in the world.

Taiwan Strait Wind Resources

9 Source: Sustainable Energy Technologies and Assessments, Volume 16, August 2016

Shallow Water (5 m to 20 m) Area: 1.780 km2

Potential: 9 GW Feasible: 1.2 GW

Deep Water (20 m to 50 m) Area: 6.550 km2 Potential: 48 GW Feasible: 5 GW

Ref. “Wind Resource Assessment Handbook,” ITRI, 2011 Source:

Promising environmental inputs wind and water depths

The offshore wind conditions have attracted international interest in 2016

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Danish utility Dong Energy A/S inaugurated an office in Taipei, unveiled plans to develop four offshore wind parks in Taiwan and has signed an agreement to acquire a 35% ownership interest in Formosa I from local developer Swancor Renewable.

Australia’s Macquarie Capital and Taiwan’s Ministry of Economic Affairs signed a Memorandum of Understanding

An Taiwan-USA memorandum of understanding (MOU) was signed in August with three U.S. companies to create new opportunities in green energy between Taiwan and the U.S.

Singaporean energy company Enterprize Energy and Canada’s Northland Power Inc. have launched an inaugural offshore wind farm project.

Source: Press research, online research

who is next?

Economics of Offshore Wind in Taiwan

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Wind and water depths are promising and reasonable, so let‘s take a systematic approach to offshore wind in Taiwan:

Start with a general SWOT analysis for business in Taiwan.

Home in on an offshore specific SWOT analysis for Taiwan.

Identify the main risks and opportunities for European players, considering participation in the Taiwanese Offshore Wind Market.

Check the business case, control the risks.

From a general SWOT analysis Taiwan . . .

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Strength Weakness Strong industrial base,

work force,

China

Opportunities Threats

-spending, up-market consumers,

. . . to an offshore specific SWOT

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Strength Weakness Western coast wind resource, Island geography, Political goal of energy self

sufficiency, Highly densely populated island

No established supplier base offshore, Distance to European wind markets, Insufficient harbour quay side, Insufficient infrastructure, Lack of marine experience, No established technical codes and

standards for offshore wind

Opportunities Threats

Ventures and investment with local players,

services,

Local player market, Taiwanisation,

Answers to the case Offshore Wind Taiwan . . .

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Offshore Wind

Taiwan

Revenues

Opportu-nities

Feed-in-Tariff

Costs Risks:

Register & Mitigation

Technical Risks

Earthquake Typhoon others

Sovereign Risk, Currency

FX Risk Legal Risks

. . . by focus today on prominent elements

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Offshore Wind

Taiwan

Revenues

Opportu-nities

Feed-in-Tariff

Costs Risks:

Register & Mitigation

Technical Risks

Earthquake Typhoon others

Sovereign Risk, Currency

FX Risk Legal Risks

Taiwan West Coast

17 Source: http://www.4coffshore.com/offshorewind/

Zooming in on the area

18 Source: http://www.4coffshore.com/offshorewind/

Some geography and Chinese Characters

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what common features do we detect?

Cities in the Region

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Some geography and Chinese Characters

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bei

nan

xi dong

The regulator has set sail for offshore wind

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Offshore Demonstration Incentive Program ( ) 3 Demonstration Wind Farms by 2020

Government provides subsidy for both equipment and developing processes

Offshore Zone Application for Planning ( ) 36 Zones of Potential revealed for preparation in advance of Zonal Development Applicants must acquire environmental consent by 2017 and Preparation Permit by 2019

Offshore Zonal Development ( ) Expected to be announced by 2017 Commercial scale for cost reduction (similar to Round 3 of UK)

Source:

Feed-in Tariff in offshore wind

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Feed-in Tariff (FIT, ) is guaranteed through a Power Purchase Agreement PPA valid for 20 years with two options: Option 1: NT$ 5,7405/kWh (EUR 0,174) for 20 years Option 2: NT$ 7,1085/kWh (EUR 0,215) for year 1 to year 10

and NT$ 3,4586 /kWh (EUR 0,105) for year 11 to year 20

For reference: onshore wind: NT$ 2,6338/kWh (EUR 0,08);

FX rates NT$/EUR as per early March 2017.

NT$: New Taiwan Dollar

Source: http://www.tradingeconomics.com/taiwan/rating Source:

The scale of Taiwan‘s renewable ambition – calibrated by historic electricity production

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and now . . . - eliminate nuclear

power - slash greenhouse gas

emissions to 80% of 2005 levels

- maintain a reliable, and affordable electricity supply to Taiwan‘s industrialized economy

Source: Taiwan Business Topics, www.amcham.com.tw

Government rating and FX aspects

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Government rating Taiwanese Government: Standard & Poor's credit rating for Taiwan stands at AA- with stable outlook. Moody's credit rating for Taiwan was last set at Aa3 with stable outlook.

New Taiwan Dollar NTD / TWD: The Taiwan dollar is perceived as a stable currency in the Asian region owing to the country’s steady economic management and consistent investment and trade policy.

Importance of the New Taiwan Dollar in trade: US goods and services trade with Taiwan totaled USD 86 billion in 2015. Exports were USD 38 billion, imports were USD 48 billion. The U.S. goods and services trade deficit with Taiwan was USD 10 billion in 2015.

Liquidity/Trading Volumes: USD 24 billion in Taiwan dollars is traded daily on global foreign exchange markets. Sources: Office of the United States Trade Representative, https://ustr.gov/, www.fxcm.com/insights/twd-taiwan-dollar/

Technical risks identified by ‚Design Basis Check Taiwan‘

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Geography Met ocean conditions Wind conditions › Wind resource › Typhoons Geophysical information Geotechnical information Soil parameters Earthquakes Technical Scope Envelope

Technical risks identified by ‚Design Basis Check Taiwan‘

27

Geography Met ocean conditions Wind conditions › Wind resource › Typhoons Geophysical information Geotechnical information Soil parameters Earthquakes Technical Scope Envelope project specific:

WTG, foundations, cables, substation, if any

Legend: principally available and/or no fundamental obstacle for offshore wind

Seismic hazard analysis

28 Source: Development of Seismic Demand for Chang-Bin Offshore Wind Farm in Taiwan Strait Yu-Kai Wang, Juin-Fu Chai, Yu-Wen Chang, Ti-Ying Huang and Yu-Shu Kuo

Degree of risk or potential for seismic damage at the selected site over a certain period of time

‘Plug-in’ to IEC 61400-1: local design specifications referred for calculating seismic forces, Taiwan’s Seismic Design Specifications and Commentary of Buildings

Magnitude–recurrence probabilities are calculated

Surface motion parameters such as peak ground acceleration /velocity are calculated

Taiwanese Engineering on bearing characteristic jackets in seismic loads

29

“improving the prediction of the behavior of wind turbine jacket foundations subjected to seismic loading;

bearing capacity of the jacket foundation pile using effective stress analysis, pressure generation and soil/liquid coupled analysis;

design process for the jacket foundation pile can properly reflect the interaction behavior of foundation and soil;

pressure generation model to simulate soil liquefaction.”

Source: http://www.mdpi.com/1996-1073/9/8/625; Energies 2016, 9(8), 625

Typhoon statistics

30

Taiwan is located in North Pacific Ocean typhoon-prone area, statistics on 405 typhoons between 1897 and 2014, typhoon generally occurs from as April to December, August has the highest chance of typhoon, On average three to four typhoons pass through Taiwan each year.

Source: Taiwan Generation Corporation, http://www.taiwangenerations.com/english/project.php?projectid=11

Typhoons and Hurricanes

31

Quantified approach on extreme winds and turbine classes:

IEC Class IA turbines designed to extreme 50-year gust up to 70 m/s, typhoon risk assessments have been undertaken with statistics on 128 typhoon of 66 years, probability of extreme wind speed surpassing IEC Class IA wind is cited as low as 0.36%, Likelihood of the wind turbines affected by typhoon is extremely low.

“Typhoons in Taiwan are what hurricanes are in Texas” – and Texas is one of the best sites for onshore wind generation in the US.

Source: Taiwan Generation Corporation,

Findings of the ‚Taiwan Design Basis Check‘

32

Design Basis check Taiwan: Technical Risks have two prominent categories largely unknown in Europe › Typhoon to be designed against, › Earthquake to be designed against.

So we, offshore wind developers, offshore contractors and utilities are ready for a detailed feasibility study offshore wind Taiwan.

For business success in Taiwan

33

Let‘s lift our Chinese language skills

to offshore wind levels.

Chinese Language – offshore wind level

34

upending the pile lifting hydro-hammer start piling after piling install transition pieces

install turbines

Local Content, Taiwanisation of offshore wind

35

Strength of Taiwanese industry in steel industry, shipbuilding and also carbon fiber for blades and some specific suppliers to the wind turbine market.

Current position of Taiwan in the wind industry:

Supply Chain

Raw Material

WTG and compo-nents

Support structures

Planning Construc-tion

Operations and Mainte-nance

Current Position of Taiwanese Players

Steel supplies with superiority in local market

Dominated by foreign manufac-turers

Initial experience of met mast, lack of actual experience in offshore wind

Need for collaboration with foreign consultants

Lack of experience in the offshore wind sector

Lack of experience and need for collaboration with non-Taiwanese players

Source: Industrial Technology Research Institute (ITRI), Taiwan

Question to the Lawyers

36

Taiwan uses civil law. The emphasis of the legal system is placed on statutes rather than case law. Courts look to what the Constitution states first and then to codes, statutes, and ordinances.

The laws governing arbitration in Taiwan are the “Republic of China Arbitration Act of 1998” modeled after the UNCITRAL Model Law of 1985. Alternatively, Hong Kong Arbitration or London Arbitration.

2011 double taxation treaty (‘Doppelbesteuerungsabkommen’) between Taiwan and Germany (‘Deutschen Institut in Taipeh und der Taipeh Vertretung in der Bundesrepublik Deutschland zur Vermeidung der Doppelbesteuerung und zur Verhinderung der Steuerverkürzung‘) in force, yet not deemed as international treaty ‚völkerrechtlicher Vertrag‘.

Source: http://www.arbitration.org.tw, http://guides.library.harvard.edu/, Library of US congress: LOC, http://www.bundesfinanzministerium

‚Taiwan Check‘ & your take way

37

Very attractive Offshore Wind Opportunities exist, Strong political will to make renewables happen, Attractive revenue by Feed-in Tariff, within a stable regulatory framework and currency ‘Design Basis Check’: Technical Risks have two prominent categories largely unknown in Europe, typhoon risk and earthquake risk to be designed against

we developers/utilities are ready for a detailed feasibility study

offshore wind Taiwan.

we offshore contractors and offshore players are ready for handing in tenders and negotiate contracts for rewarding offshore works.

Thank You!

Questions - Comments – Feedback

38

In case of questions, comments or feedback please

come back to us at

[email protected]

39

BACKUP

Taiwan Strait in Global Wind Speed Rankings

40

Rank world-wide

Name of site Developer Wind Speed (m/s)

2 Changhua – Stage I Taipower 12.02 2 Changhua – Stage III Taipower 12.02 2 Xidao TGC 12.02 2 Zhangfang TGC 11.94 6 Hibao TGC 11.94 6 Changhua – Stage IV Taipower 11.94 6 Changhua – Stage V Taipower 11.94 6 Changhua - Stage VI Taipower 11.94 6 Changhua- Stage II Taipower 11.94

Source: 4C Offshore, www.4coffshore.com/windfarms/windspeeds.aspx

Primer on the electricity market in Taiwan

41

The price of electricity is fixed in Taiwan by the state.

The distribution monopoly utility / Taiwan Power Company (‚Taipower‘) implements the state regulation.

Taipower is also the largest electricity producer in the country.

Plans for unbundling of the energy sector are discussed, yet time horizon for their implementation is unclear.

Source: case studies, interviews, Taiwanese market research 2016

Local Taiwanese developers and utilities

42

Incumbent utility, fully integrated /

Taiwan Power Company. some 10 independent power producers (IPPs). power project and business development company

Taiwan Generations Corporation (TGC).

Formosa Wind Power Company www.swancor.com.tw owner of Formosa 1 Offshore Wind Farm

Source: Press research, online research

Preliminary site assessment undertaken in Changhua County

43 Source: http://www.mdpi.com/1996-1073/9/8/625, therein [16] Taiwan Power Company. Feasibility Study of Offshore Wind Farm in Taiwan—Stage I; TPC: Taipei, Taiwan, 2013. (In Chinese)

Beijing Cologne Dubai Hamburg Hong Kong Le Havre London MonacoParis Piraeus Shanghai Singapore

[email protected]

44

EXPOSING HIDDEN RISKS: Legal due diligence of construction & maintenance contracts from an investor's perspective | Christian Reinert

Introduction

30

General approach in DDs: check for common mitigation measures such as › BoP: Limited number of contracts / EPC type › Warranty package › LDs › Fit-for-purpose contracts › Shifting of weather risk to contractor (>P50)

In reality, key risk for investors with construction risk is delay and excess of budgets due to dependency on project revenues

For investors without construction risk, (one) key risk is downtime caused by defects and subsequent disputes

Introduction

31

Underestimated, if not ignored: contractual arrangements prone to cause disputes and delay in critical situations

EPC contracting not always sufficient, check contracts down the chain in the same way

EPC caps delay damages, hence, direct effect on target if EPC contractor does not perform due to delay of his critical subcontractors

Legal DD should also check whether entire set of essential supply chain contracts fulfills following criteria: › designed to avoid delay › disagreements can be settled quickly › Responsibilities are clearly attributable

Back-to-Back Myths

32

Back-to-back contracting does not ensure proper project execution

Prone to dispute because head contract seldom fits to scopes down the chain

Better: contracts tailor made for respective scope which properly reflect particularities

Vessel Availability

33

Common requirement: no "long-stop date" for vessel availability in project contracts (e.g. FIDIC) › Regularly fulfilled in EPC-like contracts › BUT: not always continued down the supply chain

Recap: LDs / delay damages under EPC capped, hence no sufficient remedy for significant delay in case new vessel is required

Vessel Availability

34

FIRST compile all critical vessels and equipment hired for certain time for project with technical advisor, not only installation vessel (e.g. cable laying vessel, hammer, bubble curtain, CTVs etc.)

SECOND check individual charter parties and option rights

THIRD think of worst case scenario and how to optimize it:

Request / assess emergency concepts to replace critical equipment

Interface Analysis

35

Interface management is one of the key risks, even in EPC contracts down the chain

Target and target’s EPC contractor must avoid being caught in the middle

Imperative: sufficiently detailed interface matrix to be checked by technical advisors

BUT: also check any critical handover documentation

Handover documentation is key to attribute responsibilities and exercise warranty rights

Approval Rights of Target / Employer

36

Target should always agree on ‘fit-for-purpose’ but also trust its contractor Looks good (from a legal perspective) BUT excessive information and approval rights can › delay execution (contractor awaits response) › cause misunderstandings, and even worse, › justify contributory negligence (even if responsibility is generally

excluded)

Approval Rights of Target / Employer

37

Reporting duties should be clearly shaped and limited to the necessary (information required for certifier, MWS, authorities, key events)

Target should prove capacity to deal with reporting by contractor

Variations

38

Common criteria: employer has always right to instruct variation

In "better" contracts: no retention right, not subject to contract but "immediately enforceable"

Can I tick my box? NO.

› Check pricing scheme contractor will seek alternative compensation where the contract allows

› Check that target has capacity/advisors to check variation offers by contractor

› Check technical plausibility in advance or "kill" the (sub)contractor by enforcing variation leading to insolvency of (sub)contractor

Working Parameter

39

Check relationship between all working parameter (operational limits, adverse weather, operation times) and pricing

Check with technical advisors: loopholes in P99-regimes and in P50/P0-regimes that working limits are clearly defined

Gaps or lack of clarity may have significant impact on contract price and cause disputes negatively affecting the project execution

Example: Synchronize working limits of installation vessel and TSA/maintenance contract

Termination

40

Common termination grounds, such as, inter alia, › Insolvency › Material breach of contract › Reaching of liability caps

Bear in mind: › termination in case of

insolvency may be invalid under mandatory German law

› insolvency of key component providers not unrealistic

Check for emergency concept of target to replace critical components

Direct agreements do not help in the event of an insolvency of critical subcontractors

MWS and Certifier

41

MWS and certifier can have critical influence on project execution

Check synchronisation of document submission schedule and review periods in order to ensure that every contractor receives feedback in good time

Conclusions

42

Always check critical contracts down the supply chain beyond target’s EPC contractor

Any interface should be properly documented to quickly attribute responsibilities

Own technical due diligence is indispensable as legal rights cannot remedy technical failures

Contract procedures (reporting, instructions, variations) should be focused and pragmatic, not excessively confrontative


[email protected]

BOP vs Multicontracting

BOP vs. Multi Contracting We support our clients in their efforts to develop and operate wind projects that achieve the best possible return on investment.

Outline

K2 Management – About us

Multi contracting vs. Balance of Plant (BOP)

Hypothesis

Risk and uncertainties

Probabilistic Cost Estimates

Example of Weather Contingency Sizing

What contractual setup is best?

Trend identified

Conclusion

Courtesy: Vattenfall/Jorrit Lousberg

Involved in 110+ offshore and 150+ onshore projects in 30+ countries. 100+ employees with experience from 1.000+ onshore and offshore wind projects before joining. 100 percent independent. Founded and owned by Lars K. Hammershøj and Per K. Melgaard in 2007.

At a glance

Our global, independent service offerings within wind project planning and management make us a unique wind project consultancy covering the entire value chain.

We offer

Project developers onshore & offshore

Financiers

Our clients K2 Management mainly serves the following two client groups:

Courtesy of Vattenfall

Value for developers Full life cycle budget and cash flow analysis Yield optimization Cost reduction Tender Management and Procurement Time schedule optimization Management, monitoring, control and optimization of project during development, construction and operation

Value for financiers

Courtesy of Vattenfall

Identification and mitigation of construction and operation risks Review of wind energy forecasts Review of stakeholder and counterparty capabilities and track record Review of bankability issues, technology and performance risk Review of project cost estimates

Our services and solutions split by project phases

Development Construction Operation

Wind Analysis

Project Planning & Management

Certification Support

Project Engineering & Development

Procurement & Tendering Management

Project Implementation

Civil Engineering

Electrical Engineering

Risk & Interface Management

Quality and Health & Safety Management

Control & Monitoring

Asset Management

Due Diligence

HHypothesis Multi Contracting leads to a wide amount of interface and cost are unpredictable. BOP in contrast will reduce the risk and smoothen the process

Multi Contracting vs. Balance of Plant

Limited Employer involvement ”One point of contact” Interfaces and Risks at Main Contractor Risk premium – Contingency from Contractor Number of bidders in the market

BOP

Cour

tesy

: Vat

tenf

all

Extensive Employer involvement Interfaces and Risks at the Employer Contingencies

Multi Contracting

Cour

tesy

: Vej

a M

ate

Offs

hore

Pro

ject

Gm

bH

A project’s outcome / value depends on:

the quality of the project definition (i.e. quality of the design and engineering, risk profile of the schedule, quality of the contracts, etc.). the quality of the project execution (i.e. execution of the contracts, quality control, claim management, etc.).

Risk and Uncertainty FID COD

PLANNING PHASE EXCECUTION PHASE

Proj

ect V

alue

Time

Uncertainty of the project outcome

RISK & UNCERTAINTY MANAGEMENT

Bid Submission

Feed-in tariff System Auction System

Key Milestone Final investment decision / Financial close Submission of bid Creeping commitment

Typical Design Status

Site investigations completed (Soil, metocean, wind, etc.) Detailed foundation design completed OSS conceptual design completed, potentially detailed design commenced

Available site investigations determined by regulatory body Typically only conceptual design completed

Contracts Fully negotiated and signed Potentially Heads of terms, Term sheets Contract negotiations likely only after successful bid

Realisation probability Certain – execution phase to commence immediate High but not certain

High sunk costs if project is not built – bid bonds

Market dynamics Plenty projects for divers players

Strategic bidding Consortiums Increased M&A activities by key players Increased need for technical innovation (e.g. foundation types, WTG size)

Risk and Uncertainty

Complex market conditions

Increased uncertainty for project developers, contractors and financiers

Experience gained and lessons learnt on past projects are critical for reducing risk & uncertainty

Information considered critical to make educated decisions

Changing market conditions

Understanding costs uncertainty is a key for making educated decisions

Probabilistic models based on Monte-Carlo simulation technique can capture the uncertainty of the estimated and dderive a total cost range rather than a single point estimate

Cost to completion (Base Case + Contingency Spent) monitored during the project execution phase

FID COD

EXCECUTION PHASE

P90

P25

Base case budget defined

Proj

ect C

osts

PLANNING PHASE

P50

Base case budget

Time During the development phase cost ranges can be estimated while design, engineering and contract negotiations progress.

During the execution phase costs to completion can be tracked as the implementation continues.


Specific cost models for any package or the entire project can be developed Past project experience, market knowledge and project specific knowledge (e.g. conceptual foundation design results if available) are used to size 3 point estimates for both units and costs rates Models should be refined as the project development progresses in order to narrow the range and derive more accurate results Correlation implemented to avoid inconsistent results Key cost drivers can be identified early and specifically focused on during the development


Weather risk is a key value driver accounting for tens of millions EUR for a 400MW offshore wind farm

All-in weather risk contracts are available and allow for transferring this risk

Expensive and means no benefits in case of good weather

Accurate models to conduct thorough weather risk analysis are available

Combined with robust risk management approaches, clear contract provisions this allows projects to successfully manage weather risk

Insurance products are available to provide down side case protection

Weather Contingency Sizing Probability

90%

Base Estimate

P90

Mean

Risk

Weather Costs

Opportunity

Cumulative distribution

Frequency distribution

Total reserve

Decision on number of contract ”packages”:

What can I handle? Who will take design risk/do the design? What risks will I accept? How will I finance the project? What contractors are available?

What contractual setup is best?

Cour

tesy

: Vej

a M

ate

Offs

hore

Pro

ject

Gm

bH

Trends identified

1. Tactical multi-contracting to reduce costs and balance risks

2. Difficulties in forecasting OpEx costs

3. Long-term issues aren’t holding developers back: lack of track record; no certification; failures

No need to re-invent the wheel Tap into past project experience and lessons learnt Prudent, state of the art risk and uncertainty management is an essential component to increasing the project value both in the planning and execution phase

AAnd definitely use risk management already on deciding which path to go

??? BOP or Multi Contracting ???

All in all: ”A balance between Risks/Rewards/Price”

Conclusion

We are global – find us locally K2 Management locations – supporting wind projects in 30+ countries so far

Axel Juhnke Country Director Germany, MD

K2 Management GmbH

Alstertwiete 3 D-20099 Hamburg

Phone: +49 40 3866 4560

Fax: +49 40 3866 4561 Mobil: +49 157 72545909

Email: [email protected]

CHANGING WINDS IN GERMAN WATERS: The new German offshore wind act (Wind-auf-See-Gesetz) | Anna-Sophie Spiess

Overview

46

Background Bidding procedure Practical consequences

The Offshore Wind Act : Background

47

INTENTION

Promoting renewable energy sources Tackle shortage in grid connection Achieve cost-efficient power supply Structure permit application process

LEGAL FRAMEWORK

EEG 2017 Offshore Wind Act

The Offshore Wind Act: bidding procedure

48

Decision on AREA

DEVELOPMENT PLAN

SITE SURVEY and SUITABILITY testing of each area by the

“BSH”

Announcement of CALL FOR

BIDS

OFFERS BY BIDDERS including bid capacity and reference value

SUPPLY OF GUARANTEE

(bank guarantee or cash deposit)

GROUND TESTING and UXO SURVEYS

by the successful

bidder

CONSENT of the bidder to

TRANSFER RIGHTS to the project

after the approved duration of the wind

farm operation

after the scheduled completion date, the bidder has to EVIDENCE THE TECHNICAL AVAILABILITY

After completion and start of the operation, the bidder may operate the wind farm for

CONSTRUCTION of the wind farm

Bid with the LOWEST REFERENCE VALUE is awarded the project

Application of successful bidder

for BUILDING PERMISSION; SUPPLY OF PLANNING

DOCUMENTS

after award

THE FULLY IMPLEMENTED AUCTION MODEL, COMING INTO EFFECT IN , PROVIDES THAT

PROSPECTIVE DEVELOPERS OF AN OFFSHORE WIND PARK MUST BID AGAINST OTHER POTENTIAL INVESTORS IN ORDER TO RECEIVE A PLANNING PERMISSION. THE BIDDING PROCEDURE CAN BE ILLUSTRATED AS FOLLOWS:

The Offshore Wind Act: practical consequences

49

EVER INCREASING IMPORTANCE OF MILESTONES

Strict delay penalties Back-to-back contracting Contingency planning Incentives for early completion of milestones Interface management

The Offshore Wind Act: practical consequences

50

FOCUS SHIFTING FROM LONGEVITY TO COST-EFFICIENCY

EARLY COMMITMENT

Price calculation Hedging as a means of security Project schedules


[email protected]

BREXIT: What are the legal consequences for the wind offshore industry? | Götz Rahne

Brexit – Article 50 and beyond

53

UK has decided to trigger withdrawal from the EU by serving notice on EU Council after UK Parliament Bill was passed (29 March 2017)

Any EU exit treaty requires majority consent from the EU parliament and qualified majority of the EU Council

If no deal is reached within 2 years after notice is given and not unanimously extended by all EU members, the UK will be automatically out of the EU.

EU Treaties and EU law apply in full until UK exits

Brexit – What possible effects should I be thinking about for my business?

54

Freedom to provide services Freedom of movement of workers Trade tariffs on goods Licences and consents Changes in law Currency exchange rates Other financial factors (e.g. rise in inflation/costs of borrowing)

Brexit and the Wind Offshore Industry – What might happen Post-Brexit…

55

A choice of the most relevant areas:

Cross-Border Contracts Insurance/Financing Employment Customs/Tariffs Procurement/Competition/HSE

There are other potential areas, too: e.g. cross-border insolvency, agency, data protection, sanctions

Contracts - Jurisdiction / Enforcement

56

ARBITRATION

Where the parties have agreed on an arbitration clause, Brexit is likely to be of little consequence. This is because the UK will remain a party to the 1958 New York Convention which provides for enforcement of arbitral awards in signatory countries

COURTS

Brussels Regulation EU 1215/2012 provides that Courts must recognise and enforce commercial judgments given in other Member States

After Brexit, EU Member States are most likely to enforce UK judgments, but the exact mechanism is not clear yet, judgment recognition proceedings might become more time-consuming and cumbersome

Contracts – Governing Law Clauses

57

ROME I

The EU’s Rome I Regulation sets out the rules to determine which law applies to contracts. In most wind offshore contracts, like any other, the parties’ express choice of law is upheld

Rome I is generally only relevant where there is no express choice of law clause, this is usually no issue in Offshore Contracts

ROME II

The Rome II Regulation sets out the rules that the English courts apply to determine which law applies to non-contractual obligations Problem: country of tortious event (UK) vs. country of damage (EU-Rome II)

Other Contractual Issues – e.g. Territory

58

Offshore contracts may include a reference to "EU" territory (e.g. trading limits in charter parties)

Would this continue to include the UK or not where the contracts were concluded before UK leaves the EU?

Faced with such uncertainty, parties to a contract with ill-defined territorial clauses may be tempted to seek to terminate on the basis that the contract is void/frustrated but this may be difficult to achieve

Post-Brexit: care will need to be taken in the event that an existing contract is renewed, as the court would almost certainly apply the definition of EU relevant at the time the (renewed) contract is entered into, which might be different from the original or intended definition

Insurance/Financing

59

Currently, any bank/insurer in the EU is automatically entitled to write business in other member states. This means that, for example, German bank/insurers can write business in the UK, and London banks/insurers can write offshore risks in Germany (and indeed all other EU states)

This is known as "passporting" and the idea is that the bank’s/insurer’s "home" regulator regulates that bank’s/insurer’s activities, removing the need for the bank/insurer to be regulated in each Member State

Banks and insurers are already looking at options so that obtaining financing and insurance cover should not necessarily be difficult, (but costs/premium may go up)

Employment

60

Significant number of international employees engaged, both onshore and offshore

Without freedom of movement of persons, it may be more difficult to manage a flexible workforce which can be moved from project to project depending on need

A significant amount of UK employment law is based on EU rules, for example the Working Time Directive

UK must negotiate appropriate arrangements in relation to residence and employment of UK nationals working in the EU and EU nationals working in the UK

For offshore operators with European operations both in the UK and in the rest of the EU there will possibly be two separate (and not necessarily complementary) employment regimes applicable to their workforce after Brexit and, thus, more red tape

Customs

61

A hard Brexit may result in the UK leaving the EU customs union

Transport of cargo into the UK and from the UK may be subject to customs tax and rules

Tax/customs clauses in contracts may need to be re-assessed to consider who should bear the costs risk of customs

Procurement/Competition/HSE

62

Procurement, Competition Law and HSE include many EU rules and regulations

UK first? UK procurement, competition and HSE requirements may change after Brexit

UK operators/contractors will still need to comply with EU laws for projects within EU or with an EU link

EU operators/contractors will need to comply with new UK laws within the UK or a UK link

Projects which have an EU and a UK nexus will require compliance with EU and UK laws, which may be different, resulting in higher compliance costs and more red tape

Brexit and Contracts

63

Are there standard provisions already included in the contract that I can rely on? › Force Majeure? › MAC-Clause? › Compliance with law

clauses?

Can the common law help? › Frustration? › Interpretation and

implied terms?

Bespoke Brexit Clause


64

WHAT TO CONSIDER

Defining "Brexit"

Should the Parties be able to invoke the Clause before Brexit?

Should there be an end date for invoking the clause?

Must the Party invoking the clause show that Brexit has caused the problem?

What problems will allow a party to invoke the clause?


65

WHAT TO CONSIDER

How great should the impact be on a party for the clause to be invoked?

Should both parties be able to invoke the clause?

Should the clause foresee a period of re-negotiation of the terms or an immediate termination of the contract or termination following a notice period? Who should be entitled to terminate?

What are the consequences of termination?

Are there standard provisions already included in the contract that I can rely on?


[email protected]

Decision on AREA

DEVELOPMENT PLAN

SITE SURVEY and SUITABILITY testing of each area by the

“BSH”

Announcement of CALL FOR

BIDS

OFFERS BY BIDDERS including bid capacity and reference value

SUPPLY OF GUARANTEE

(bank guarantee or cash deposit)

GROUND TESTING and UXO SURVEYS

by the successful

bidder

CONSENT of the bidder to

TRANSFER RIGHTS to the project

after the approved duration of the wind

farm operation

18 MONTHS after the scheduled completion date, the bidder has to EVIDENCE THE TECHNICAL AVAILABILITY of 95 % of the turbines

After completion and start of the operation, the bidder may operate the wind farm for 20 YEARS

CONSTRUCTION of the wind farm

Bid with the LOWEST REFERENCE VALUE is awarded the project

Application of successful bidder

for BUILDING PERMISSION; SUPPLY OF PLANNING

DOCUMENTS within 12 months

after award

THE FULLY IMPLEMENTED AUCTION MODEL, COMING INTO EFFECT IN 2026, PROVIDES THAT

PROSPECTIVE DEVELOPERS OF AN OFFSHORE WIND PARK MUST BID AGAINST OTHER POTENTIAL INVESTORS IN ORDER TO RECEIVE A PLANNING PERMISSION. THE BIDDING PROCEDURE CAN BE ILLUSTRATED AS FOLLOWS:

smart contracting: strong winds ahead a seminar for … · client wants to be sure that the...

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