wind power epc o&m april 2013
DESCRIPTION
TRANSCRIPT
Wind power projectsWind power projects
Construction and Construction and O&MO&M
Weero KosterWeero Koster
25 April 201325 April 2013
Typical turbine structure
Typical PF StructureTypical PF Structure
3
PUBLIC ENTITY
CONCESSION CONTRACT
SPV
SPONSOR EQUITY
THIRD PARTY EQUITY INVESTORS
DUE DILIGENCE ADVISER 1
MEZZANINE FUNDERS
INSURERS
CONSTRUCTION
SENIOR FUNDERS (BANK/BOND)
SURPLUS REAL ESTATE DISPOSAL
DUE DILIGENCE ADVISER 2
SUBCONTRACTOR 1
DESIGNERS
EQUIPMENT SUPPLY
OPERATION & MAINTENANCE
DEVELOPER
DUE DILIGENCE ADVISER 3
INVESTORS
SUBCONTRACTOR 2
SUBCONTRACTOR 3
BONDS & GUARANTEES
SURETIES & GUARANTORS
Where does EPC fit in?Where does EPC fit in?
Except as otherwise stated in the Contract:Except as otherwise stated in the Contract:
a)a) the Contractor shall be deemed to have obtained all necessary information as to risks, the Contractor shall be deemed to have obtained all necessary information as to risks, contingencies and other circumstances which may influence or affect the Works;contingencies and other circumstances which may influence or affect the Works;
b)b) by signing the Contract, the Contractor accepts total responsibility for having foreseen by signing the Contract, the Contractor accepts total responsibility for having foreseen all difficulties and costs of successfully completing the Works; andall difficulties and costs of successfully completing the Works; and
c)c) the Contract Price shall not be adjusted to take account of any unforeseen difficulties or the Contract Price shall not be adjusted to take account of any unforeseen difficulties or costs.costs.
4
Construction Management
Owner assumes risk
Contractor retains risk
Traditional Design & Build
LSTK/ EPC
R I S K S P E C T R U M
LSTK – Lump Sum TurnkeyEPC – Engineering Procurement and Construction
EPC Structure
Forms of ContractForms of Contract
5
General applicationGeneral application• Yellow Book: design/build contract Yellow Book: design/build contract
electrical/mechanical works, including plant electrical/mechanical works, including plant supply and construction works; allocation of risk supply and construction works; allocation of risk on basis of insurability, project management on basis of insurability, project management principles and ability to foresee and mitigateprinciples and ability to foresee and mitigate
• Silver Book: fixed-price, date-certain, lump-sum Silver Book: fixed-price, date-certain, lump-sum turn-key contract:turn-key contract:• Little risk of price increase (but higher price) or delay Little risk of price increase (but higher price) or delay
for Employerfor Employer
• Shift of risks to Contractor: design and executionShift of risks to Contractor: design and execution
General risk profile: Shift of General risk profile: Shift of risksrisks
• Employer’s Engineer is Employer’s Employer’s Engineer is Employer’s RepresentativeRepresentative
• Employer’s ‘determinations’Employer’s ‘determinations’
• Setting OutSetting Out
• (No) Unforeseeable difficulties & (No) Unforeseeable difficulties & verification/ interpretation of Employer verification/ interpretation of Employer data (incl. sub-surface, hydrological and data (incl. sub-surface, hydrological and Employer Requirements)Employer Requirements)
• General design obligations, design errorGeneral design obligations, design error
Shift of risks, cont’dShift of risks, cont’d• No extension of Time for Completion No extension of Time for Completion
for:for:
• exceptionally adverse climatic conditions exceptionally adverse climatic conditions (except FM) (except FM)
• unforeseeable shortages in personnel or unforeseeable shortages in personnel or goods by epidemic or government actionsgoods by epidemic or government actions
• Errors in Employer’s RequirementsErrors in Employer’s Requirements
• Setting OutSetting Out
• Unforeseeable physical conditionsUnforeseeable physical conditions
Shift
of
risk
s,
Shift
of
risk
s,
cont’
dco
nt’
d
• Employer’s Risk
Employer’s Risk excludes:excludes:• Use of works by
Use of works by Employer,Employer,• Design of works by
Design of works by Employer’s personnel,
Employer’s personnel,• Unforeseeable operation
Unforeseeable operation
of forces of nature
of forces of nature
General risk profile: General risk profile: key employer issueskey employer issues
• Contractor fully responsible for design and design Contractor fully responsible for design and design coordination (including Employer design)coordination (including Employer design)
• Full ground condition risk to ContractorFull ground condition risk to Contractor
• Employer to retain influence over projectEmployer to retain influence over project
• Right to VariationsRight to Variations
• Limited scope for Contractor claims for time/money; Limited scope for Contractor claims for time/money; Contractor will:Contractor will:• Price these risks, so increase initial Contract SumPrice these risks, so increase initial Contract Sum
• Do extensive due diligence to mitigate, leading to delay in Do extensive due diligence to mitigate, leading to delay in executionexecution
Payment & security: Payment & security: key employer issueskey employer issues
• Fixed price lump sum payments against schedule of Fixed price lump sum payments against schedule of payments & Performance Certificatepayments & Performance Certificate
• Long payment periodLong payment period
• No claim for additional time or money for e.g. No claim for additional time or money for e.g. Variations/innovations, ‘in country” Force Majeure, Variations/innovations, ‘in country” Force Majeure, Unforeseen ground conditions, setting out or Unforeseen ground conditions, setting out or discovery of fossilsdiscovery of fossils
• Robust security package: advance payment bond, Robust security package: advance payment bond, performance bond, retention of moneyperformance bond, retention of money
• Warranty bond after Taking Over (> 2yrs)Warranty bond after Taking Over (> 2yrs)
Progra
mm
e/d
ela
y:
Progra
mm
e/d
ela
y:
key
em
plo
yer
key
em
plo
yer
issu
es
issu
es
• Liquidated Damages
Liquidated Damages
for delay (10 – 20 %, >
for delay (10 – 20 %, >
?)?)• Limited rights for
Limited rights for extension of Time for
extension of Time for
CompletionCompletion• Suspension by
Suspension by Employer entitles
Employer entitles Contractor extension
Contractor extension
of time/ costs
of time/ costs
Testing and defects, Testing and defects, insurance: key insurance: key
employer issuesemployer issues
• Suitable testing regimeSuitable testing regime
• Employer technical advisors to set Employer technical advisors to set performance/reliability standards and regime for performance/reliability standards and regime for testing/ performance guarantee levels testing/ performance guarantee levels
• Liquidated Damages for performance (10 – 20 Liquidated Damages for performance (10 – 20 %, > ?)%, > ?)
• Defects liability period (1 – 2 yrs): default is 1 yrDefects liability period (1 – 2 yrs): default is 1 yr
• Liability cap, sub-caps and ‘carve-outs’Liability cap, sub-caps and ‘carve-outs’
• Project specific insurance provisions; all Project specific insurance provisions; all insurance monies go in separate insurance insurance monies go in separate insurance proceeds account for benefit Employerproceeds account for benefit Employer
Permits, change in Permits, change in law, FM: key law, FM: key
employer issuesemployer issues
• Employer planning, environmental/ Employer planning, environmental/ Contractor construction and Contractor construction and transport: permit scheduletransport: permit schedule
• Change in law after contract signing/ Change in law after contract signing/ in force, EH&S developmentsin force, EH&S developments
• Exhaustive FM list ?Exhaustive FM list ?
• Location of FM, “in country” FM: costs Location of FM, “in country” FM: costs in addition to EOT ?in addition to EOT ?
EPC Construction EPC Construction contracting: key featurescontracting: key features
Turnkey-, date certain-, fixed price-, Engineering, Turnkey-, date certain-, fixed price-, Engineering, Procurement & Construction (EPC) contractProcurement & Construction (EPC) contract
Including Start-up, Testing & CommissioningIncluding Start-up, Testing & Commissioning
Bonus payment Bonus payment
Detailed scope of work (Employer’s requirements)Detailed scope of work (Employer’s requirements)
Performance testing & guaranteesPerformance testing & guarantees
LD’s for delay & performanceLD’s for delay & performance
Assurances of creditworthinessAssurances of creditworthiness
Construction Construction contractingcontracting
Main risks:Main risks: Experience, reputation, resources, credit ContractorExperience, reputation, resources, credit Contractor Increase in construction costsIncrease in construction costs Delay in completionDelay in completion PerformancePerformance Force majeure (& contractual co-ordination/ Force majeure (& contractual co-ordination/
resurrection)resurrection) Building materials: steelBuilding materials: steel Construction related facilitiesConstruction related facilities Raw materials & utilitiesRaw materials & utilities Coordination with employer/ other contractorsCoordination with employer/ other contractors IP rights/ escrowsIP rights/ escrows
Construction Construction contractingcontracting
Customary issues:Customary issues: What are the ‘Works’ ? WTG’s, SCADA, foundations, What are the ‘Works’ ? WTG’s, SCADA, foundations,
crane hardstands, roads, cables, substation, FCU ?crane hardstands, roads, cables, substation, FCU ?
Partial and deemed take overPartial and deemed take over Are all ‘Defects’ created equal ? Serial defects ?Are all ‘Defects’ created equal ? Serial defects ? How are measurements done ? SCADA, cup How are measurements done ? SCADA, cup
anemometers, metmast, Lidar ?anemometers, metmast, Lidar ? How is green and grey metering doen ? By whom ?How is green and grey metering doen ? By whom ? Grid connection interfaceGrid connection interface Site risks (nature, archeology, fossils, ordinance, Site risks (nature, archeology, fossils, ordinance,
boulders, excess/polluted water)boulders, excess/polluted water)
Operation & Maintenance Operation & Maintenance contractingcontracting
Issues similar to EPC contractIssues similar to EPC contract
Creditworthy, experienced Operator: turbine supplier ? Creditworthy, experienced Operator: turbine supplier ?
Can the Operator be replaced ?Can the Operator be replaced ?
What is ‘Operation” ? Scope of workWhat is ‘Operation” ? Scope of work
Agreed upon performance criteria at fixed/ predictable OPEXAgreed upon performance criteria at fixed/ predictable OPEX
Increased OPEX through latent defects/ new technology: Increased OPEX through latent defects/ new technology: typically defects warranty ends after 2-5 yearstypically defects warranty ends after 2-5 years
Performance guarantees with LD’s: Performance guarantees with LD’s:
Availability, power curve, soundAvailability, power curve, sound
cover variety of costs, but also PPA damages ?cover variety of costs, but also PPA damages ?
but usually low caps. What if operator cannot be replaced ?but usually low caps. What if operator cannot be replaced ?
Operation & Maintenance Operation & Maintenance contractingcontracting
What is the maintenance standard ?What is the maintenance standard ? Does maintenance include replacement of Does maintenance include replacement of
‘Components”: blades, nacelle, tower, gearbox ?‘Components”: blades, nacelle, tower, gearbox ?
Balance of Plant ?Balance of Plant ? Is maintenance work warranted for design, materials, Is maintenance work warranted for design, materials,
workmanship ? Serial defects ?workmanship ? Serial defects ? Is there access to the site for components ?Is there access to the site for components ? Is there an on-site stock and what’s in it ?Is there an on-site stock and what’s in it ? How long will spares remain available ?How long will spares remain available ? Condition of the Works at the end of the maintenance Condition of the Works at the end of the maintenance
term ? Testing ?term ? Testing ?
Power Purchase Power Purchase AgreementsAgreements
Linchpin energy project financingLinchpin energy project financing
Financing & operating agreementFinancing & operating agreement
Linkage with EPC/O&MLinkage with EPC/O&M
CP’s & milestonesCP’s & milestones
Delay in COD, testing, early production (at opex + Delay in COD, testing, early production (at opex + price ?)price ?)
Failure to construct or acheive nameplate capacityFailure to construct or acheive nameplate capacity
Approval by purchaser of project doc’s, e.g. pass-Approval by purchaser of project doc’s, e.g. pass-through OPEXthrough OPEX
Take-or-pay is not an absoluteTake-or-pay is not an absolute
Delivery point, connection & transportDelivery point, connection & transport
Main linkages EPC, O&M Main linkages EPC, O&M and PPAand PPA
Approval project contractsApproval project contracts
CP’s & Milestone scheduleCP’s & Milestone schedule
Testing procedures & take pverTesting procedures & take pver
Delay LD’s up to CODDelay LD’s up to COD
Nameplate capacity, defects- & performance LD’sNameplate capacity, defects- & performance LD’s
Early production revenuesEarly production revenues
Capacity and energy paymentsCapacity and energy payments
Delivery point & connection, meteringDelivery point & connection, metering
Term & terminationTerm & termination
Third party sales, RFR’sThird party sales, RFR’s
Force MajeureForce Majeure
Change in lawChange in law
IN SHORT: EVERYTHING !IN SHORT: EVERYTHING !