Fundamentals of Developing an Independent Power Project

Course Overview The last 20 years has seen significant global development of IPPs resulting from: Deregulation of gas and electricity markets The growth of the Public Private Partnership (PPP) model for the development of key infrastructure Economic growth in developing markets requiring additional power generation capacity An increased focus on the development of renewable and sustainable sources of energy production These market conditions continue to provide new opportunities for IPPs but the successful development of projects in terms of delivering environmentally acceptable and cost efficient plant in the required timescales and at affordable electricity tariffs remain the key challenges to face developers, equipment suppliers and the providers of finance for these projects. The approach to procurement and structuring of IPPs also varies from country to country, requiring different strategies for and approaches to the development and financing of projects. The objectives of this course are to provide participants with a greater understanding of: The necessary conditions (legal, regulatory, market/commercial, technical, financial) for the successful development of IPPs including renewable energy projects The risk management tools and techniques available to maximise value and to understand, calculate and manage risk in IPPs including renewable energy projects The requirements of lenders necessary to be met to secure project financing for IPPs including renewable energy projects Methodology The course will use a number of recent “real life” core case studies and related exercises, drawing on the extensive global experience of the course director as a former banker, lender and advisor on IPPs who is still actively involved in advising Governments and private sector sponsors on the procurement, commercial structuring and financing of IPPs and related projects in the energy sector. These case studies and exercises are designed to involve participants in an interactive manner and stimulate discussion of the key issues, including sharing of experiences amongst the participants. The case studies and exercises will be supplemented by power point presentations illustrating key data/principles and providing participants with additional examples. Take-away Participants will receive copies of all presentation material, including case studies and an "essential toolkit" for project analysis and financing used during the course in both hard and soft copy forms for future reference. Who should attend? Power project developers Finance managers in power project development companies Bankers involved in the project financing of IPPs Lawyers involved in the commercial and financing documentation of IPPs Procurement managers in state utilities purchasing power from IPPs Government officials involved in promoting IPP developments Technical and insurance advisors involved in IPPs
Day 1 History, market conditions for successful IPP development and introduction to project finance Background What is an IPP – the basic IPP contractual structure? Definitions: IPP, IWPP, HPP, CCGT, BOT, BLT, BOOT, PPP, PPA etc. A review of IPP developments globally What have been the “lessons learned” from the past history of IPPs? The IPP development process Who are the various participants involved in the process? When should the different participants become involved in the process? Managing the process effectively and efficiently Different markets, different approaches (“single buyer” vs deregulated market models) Impacts of regulation on independent power generation Case study: Understanding the role of competitive tendering and assessing potential competition for IPP projects - a review of a recent Middle East IPP procurement Introduction to project finance (PF) How is PF different from other forms of finance? What does “limited” or “nonrecourse” finance mean? The PF approach and process Advantages and disadvantages of PF Criteria for a successful PF Exercise: Developing the criteria necessary for the successful project financing of an IPP Current trends and issues The growth in renewable energy projects and its impact on related infrastructure requirements Environmental and social issues and the equator principles Impacts of the global financial crisis on financing for IPPs Alternative and additional financing sources for IPPs Issues for IPPs in developing markets Case study: The development of a coal fired power generation expansion project in Southern Africa Day 2 Understanding risk in IPPs, Power Purchase Agreement and tariff structures Risk analysis Risk identification Principles of risk allocation Risk mitigation Developing the risk matrix for an IPP IPP risk allocation under Power Purchase Agreements (PPAs) & other project agreements Alternative PPA risk allocation models Capacity and variable payment structures "Take or pay" obligations Tolling contracts Contracts for differences ("CfDs") Floor price agreements Construction risk allocation Fuel supply risk allocation Operating and maintenance cost risk allocation - the role of long term service agreements Financial risk allocation Risk mitigation techniques in IPPs Insurance Capital structures (including guarantees and other forms of credit enhancement) Due diligence reports Mitigating "merchant" (market) based risks in IPPs Political risk mitigation Case study: Review of the risk allocation and mitigation for a European gas fired IPP Tariff structures Issues in determining the structure and level of capacity and variable payments Regulated tariff structures "Feed in" tariffs and other sources of revenues in renewable energy projects (carbon emissions trading) Measuring risk Project ratings Basel II "supervisory slotting criteria" Developing financial models for IPPs Using financial models to: Establish debt capacity Risk sensitivity Monitoring performance for projects Modelling assumptions and risks Exercise: Assigning a project rating for a European IPP Case study: Using an EXCEL model to determine debt capacity and the risk ensitivity of the European IPP Case Study, including discussion of the implications of the results of the risk sensitivity analysis Day 3 Financing sources, structures, documentation and the cost of capital Sources of PF Commercial banks and the role of the syndication market Government and multilateral agency funding Bilateral institutions Export credit agencies International bond markets Infrastructure investment funds Host country sources of debt and equity Financing structures "Fragmented" financing plans and the role of the intercreditor agreement Preserving the commercial contractual framework following a default and the role of "direct" agreements Controlling the cashflows: documenting reserve accounts and the cashflow waterfall in the accounts agreement Managing interest and foreign exchange rate risks through "swaps" Case study: Review of the terms of a typical intercreditor agreement and a direct agreement. Discussion of the implication of these terms for the parties to the agreements Financing documentation Developing the financing term sheet Security The covenant package Representations Undertakings Events of default Case study: Developing and negotiating the undertakings for the project financing of the European IPP case study The cost of capital Determinants of the cost of capital in power projects PF debt pricing Cost of equity – the capital asset pricing model Sources of equity returns in IPPs Course summary and close