Construction Contracting Strategy Wind Energy Update; Offshore Wind Europe 22 nd November 2016 Simon Luby, Raya Peterson

Transcription

1 Construction Contracting Strategy Wind Energy Update; Offshore Wind Europe 22 nd November 2016 Simon Luby, Raya Peterson

2 Overview Our references What are the contracting options? Who uses what and why Pros and Cons Cost risks and trends Lessons Learnt / Conclusions

3 About us 2007: Founded by Lars K. Hammershøj and Per K. Melgaard in Denmark 2010: Germany, US and UK 2013: Brazil, Taiwan, South Korea and South Africa 2014: Thailand At a glance: 85+ engineers with experience from onshore and offshore wind projects in 30+ countries K2 Management has been involved in 80+ offshore and 90+ onshore projects 100 percent independent

4 Our work offshore Our engagement so far 60+ offshore projects Albatros (D), Amrumbank (D), Anholt (DK), Arcadis (D), Baltic 1 (D), Bligh Bank (B), Borkum West II (D), Butendiek (D), Cape Wind (US), CLP Offshore (CN ), DanTysk (D), Delaware (US), Deutsche Bucht (D), Dounreay (US), East Anglia (UK), Formosa 1 (TW), Global Tech I (D), Gode Wind (D), Gode Wind II (D), Grand Lejon (F), Gunfleet Sands (UK), Hohe See (D), Hong Kong (CN), Horns rev 3 (DK), Hornsea (UK), Le Treport (F), London Array (UK), Meerwind Sud/Ost (D), MEG1 (D), Navitus Bay (UK), Nearshore (DK), New Jersey (US), Nordlicher Grund (D), Nordsee 1 (D), Nordsee Ost (D), Norther (B), Northern Ireland (UK), Northwind (B), Q7 (NL), Race bank (UK), Riffgat (D), Robin Rigg (UK), Rudong (CN), RWE Innogy 1 (D), Rødsand 2 (DK), Samsoe (DK), Sandbank (D), Scroby Sands (UK), SE Offshore (KO), Sicily Offshore (I), Sprogoe (DK), St. Nazaire (F), SW Offshore (KO), SW Offshore (KO), Teeside (UK), Thanet (UK), Trophy (D), UK Round 2 project (UK), Veja Mate (D), Walney 2 (UK), West of Duddon Sands (UK), Westermeerwind (NL), Wikinger (D) and others we can t disclose

5 Contracting Options Firstly no correct single answer What is your financing strategy; investor and lender requirements need forward planning What experience and resources do you have/can access? There have always been numerous strategies in the industry; Early projects used 10+ contracts (typically on-balance sheet, utility projects) First debt-financed projects used 3-4 The most recent debt-financed projects have used between 2 and 15! Contracting strategy is a key driver of a project s risk profile Risk/Reward profile of any approach will be strongly influenced by: Design and technology choices, construction schedule/strategy. Experience levels of the sponsor and contractors are also key drivers.

6 WTG WTG Foundation OSS Topside OSS Foundation Array Cable Export Cable Typical Multi-Contracting Maximum control over the project Large number of contracts to manage Large number of interfaces to control Requires very experienced and strong project management team on the Sponsors side to be successful Offshore Onshore Difficult to project finance due to precedence set by most recent projects Requirement for construction of export cables and onshore substations depends on market framework

7 WTG WTG Foundation OSS Array Cable Typical EPCI Common on debt-financed projects Supply chain risk transferred to the contractor A clear trend towards more contract consolidation in recent projects: Offshore Onshore Horizontally One contractor responsible for more packages (e.g. single balance of plant contractor) Best cost certainty (but with premium?) Vertically Individual contractors responsible for more tasks within their packages (e.g. EPCI contracts) Offshore knock-on risk between packages remains But manageable interface risk and good balance between cost v risk

8 What and Why? Most utility and successful auction bids are multi-contract They have the experience and resources Able to balance cost benefit versus interface and schedule risk Repeatable and consistent supply chain options and influence Typically no debt-finance, or re-financed at completion; contingency budgets are leaner Contract costs lower than EUR3M/MW, and probably close to EUR2.5M/MW on projects Credit: Vattenfall/Jorrit currently being developed

9 What and Why? Most debt-financed projects use EPCI Cost certainty, and reduced contingency levels Therefore lender-friendly Risk transferal always costs a premium Not automatically best; can create sense of false security Total contract costs around EUR3.5M/MW and declining quickly towards EUR3M/MW Contingency can be 12% or less Credit: Vattenfall

10 Cost Trends (Contract costs only) EPCI Trend is Downwards EUR3.5M (5 EPCI) EUR3.4M/MW (3 EPCI) EUR3.3M/MW (BoP + WTG EPCI) EUR3.1M/MW(5 EPC + I) EUR2.9M/MW (BoP + WTG EPCI) Multi-Contract clearly saving more EUR2.9M/MW (10+) EUR2.5M/MW (15+?) 3. Borselle 1&2 approx. EUR2.5? 4. Kriegers Flak EUR2M/MW? Credit: MPI/Trianel

11 Lessons Learnt/Risks Not as simple as just pushing risk to contractors Everything comes back to the project in a worst case situation Commercial terms just as important and contract splits Latest tender round prices exist only on paper Yet to see what can actually be delivered in Credit: Vattenfall terms of time, quality, contractor stress Risk of repeating supply chain problems seen only a few years ago?

12 Conclusions There is no one single correct strategy But multi-contract will become more prevalent in auction systems EPCI still favourite for debt finance, with reducing no. of contracts Contract price reductions (so far) have not affected strength of contract terms In fact recent EPCI terms have been better Contracts are only one part of the puzzle; Contractor capability, Sponsor experience, financing strategy. Plan ahead, seek advice no one right answer but there are lots of ways to get it wrong!

13 K2 Management Inovo, 121 George Street Glasgow G1 1RD +44 (0)