Caribbean Renewable Energy Forum WASTE-TO-ENERGY RFP BEST PRACTICES. Montego Bay, Jamaica Friday, October 16, 2009

Transcription

1 Caribbean Renewable Energy Forum WASTE-TO-ENERGY RFP BEST PRACTICES Glenn J. Berger Montego Bay, Jamaica Friday, October 16, 2009

2 Firm Overview Over 2000 Attorneys 24 Offices World Wide Serving a Diverse Cross Section of Clients Top Corporate Law Firm in U.S. according to Corporate Board Member San Francisco Palo Alto Los Angeles Toronto Chicago Houston Boston New York Wilmington Washington, D.C. London Paris Brussels Munich Frankfurt Vienna Moscow Beijing Shanghai Hong Kong Tokyo Singapore São Paulo Sydney Presentation on Waste-to-Energy RFPs 2

3 Energy at Skadden Skadden covers the waterfront in energy, fulfilling clients regulatory, litigation, finance and corporate and M&A needs in the energy sector. Chambers USA 2008 Skadden s Energy Infrastructure & Projects Group includes 45 lawyers in New York City, Washington, DC, Houston, London, Hong Kong and Singapore who represent utilities, developers, borrowers, lenders and equity investors in all phases of power projects Project Development U.S. and international electric power generating and transmission projects LNG projects in the U.S., Asia, Egypt, Caribbean and Latin America Project Finance All types of financing arrangements, including commercial bank financings, bond financings, lease financings, multilateral, bilateral and ECA financings, equity placements, joint ventures, and public- private partnerships Renewables Expertise Nearly 30 years leading the development, financing, and mergers and acquisitions of renewable energy projects and companies, including solar, wind, hydro, geothermal, biomass, municipal solid waste, and other technologies Presentation on Waste-to-Energy RFPs 3

4 Examples of Caribbean Project Representations U.S. Virgin Islands Represented USVI Water & Power Authority in preparation of RFP and negotiation of PPAs for 33 MW and 16 MW waste-toenergy facilities on St. Thomas and St. Croix Jamaica Represented Mirant Corp. & Jamaica Public Service Company Ltd in renegotiation of PPA for 50 MW expansion of a barge-mounted power plant Puerto Rico Represented EcoElectrica in development of 460 MW natural gas-fired cogeneration facility, including a desalination plant and LNG import terminal Currently advising developer regarding the development and financing of an energy infrastructure project Dominican Republic Represented AEI (f/k/a Prisma Energy) in sale of 180 MW cogeneration facility Presentation on Waste-to-Energy RFPs 4

5 Procurement of Waste-to-Energy Power How? Request for Proposals (RFP) Process Can be used to select: Construction contractors for projects developed by utilities Independent developers for build-transfer projects Independent power producers that develop, own and operate projects whose electricity is sold to utilities through a PPA Pros: A competitive, well-planned process leads to cost-effective projects benefiting ratepayers A well-publicized process can generate innovative proposals from a wide range of developers Cons: The comparison and negotiation of multiple bids require lots of timeconsuming work To attract solid bids, utility must invest time and effort into preparing a well-structured RFP Presentation on Waste-to-Energy RFPs 5

6 Objectives for RFPs and PPAs Successful Procurement Well-publicized process with a wide range of participants Balance of terms acceptable to developers and lenders against utility s objective to secure best deal for customers Utility Objectives Encourage projects to reach commercial operation on-time and to meet performance requirements over a long term Price electricity to keep rates low Diversify fuel sources for generation portfolio to preserve environment and limit volatility from fluctuating oil prices Financing Considerations Developers likely to rely on debt financing to fund a majority of project costs Assure lenders that secure revenue stream exists to repay loans Presentation on Waste-to-Energy RFPs 6

7 RFP Timeline Technical, Legal and Commercial Preparation Issuance of RFP Deadline for Preliminary Notices of Interest Pre-Bid Meeting Question & Answer Period Deadline for Proposals Evaluation of Proposals of Select Short-Listed Bidders Technical Evaluation Cost-Benefit Analysis Evaluation of Risk Allocation Negotiate Deal Documents Execution of Contracts with Finalists Implementation of Project & Application for Governmental Approvals Process Typically Lasts 6-12 Months Presentation on Waste-to-Energy RFPs 7

8 RFP Documentation: Model PPA Key Terms: Price & Quantity Conditions Precedent Schedule Milestones Performance Guarantees Force Majeure Remedies Credit Support/Security Package Presentation on Waste-to-Energy RFPs 8

9 Special Waste-to-Energy Considerations Integrated Waste Management Opportunity for recycling metals, glass and other waste Beneficial use of residue (ash) Reduced stress on scarce landfill space Waste Delivery Commitment Developer must secure reliable flow of waste to fuel the project May require separate waste management agreement with public authority and/or private suppliers of waste fuel Purchasing utility may take fuel risk through tolling agreement Insufficient Waste If available waste is insufficient to fuel a power plant s full capacity at all times, power plant must be able to run on other fuels Developer may be excused from delivering electricity if waste stream is insufficient Presentation on Waste-to-Energy RFPs 9

10 Financeable Projects RFPs that facilitate financing will attract more bidders A cheaper cost of capital for developers will lead to more attractive proposals in response to a utility s RFP A project that can t be financed is unlikely to be constructed Key Financing Considerations: Minimum Revenues Secure Revenue Stream Creditworthy offtaker? Sufficiently long term? Take-or-pay obligation? Contract Synchronization among prices, deadlines, and performance guarantees in construction contracts, fuel contracts and PPA Regulatory Certainty that no changes will be made to regulatory rate recovery scheme Financing Trends: Shorter tenor: 7 years rather than 30 More equity: Banks require lower debt-equity ratio Larger role for multi-lateral lenders Presentation on Waste-to-Energy RFPs 10

11 Special Caribbean Considerations i Few alternative offtakers: Other than the local utility, independent power projects ( IPPs ) in the Caribbean usually have no potential customers (and no other source of revenue) Potential financiers of IPPs will be keenly interested in the creditworthiness and commitment of the utility, since it will be the project s sole offtaker Presentation on Waste-to-Energy RFPs 11

12 Conclusion Economic downturn has led dto a decline in construction costs Credit crunch has made debt financing more expensive and difficult to obtain Solution: Properly Structured RFP and PPA Must balance utility objectives (such as protection of ratepayers) py with requirements for financing Successful procurement yields real projects at attractive pricing Presentation on Waste-to-Energy RFPs 12

13 For Further Information Glenn Berger Telephone: Frank Shaw Telephone: Alex Cooke Telephone: Presentation on Waste-to-Energy RFPs 13