Project Financing for Biomass Power Plants experiences from technical due diligence in Thailand

Transcription

1 Project Financing for Biomass Power Plants experiences from technical due diligence in Thailand Phil Napier-Moore, Project Manager Mott MacDonald Bangkok

2 Topics for discussion Background Biomass power in Thailand Security of fuel supply assessing biomass resource Equipment selection design credibility and performance guarantees Approaches to technology risk mitigation

3 Background Biomass power in Thailand Biomass power comprises ~ 5% of installed capacity in Thailand Preconditions for this scale-up included: Robust power project finance experience among local banks, from thermal power sector A shaking out of credible feedstock sourcing Improving project development standards

4 Biomass resource assessment (1) Biomass availability and pricing are key inputs to Lenders financial models Often focus of initial fatal flaws due diligence

5 Biomass resource assessment (2) Is the proposed power plant owner the feedstock owner? If not, participation of the feedstock suppliers in the Project, to align incentives? Is feedstock an energy crop or a by-product? For by-products, impact of changes in primary product market? In both cases, threat from rival crops on land use Is feedstock centralised or diffuse? At mills, or collect from fields? Transport logistics chain Influence of transport cost; vulnerability to petrol prices

6 Biomass market studies Cross validation of supply-demand quantity data essential: Provincial production statistics, interview sellers and buyers Mill records, machinery capacity and miller interviews Commercial forestry sampling Expected seasonality and productivity benchmarked against other projects and regions If supply constrained, price is driven by substitution for fossil fuels e.g. correlation with coal prices Concept of localised catchment areas defining accessible supply-demand balance

7 Biomass fuel sampling Basic properties of most biomass feedstocks are well understood, however: Soil conditions influence biomass properties Fuel storage conditions can significantly affect moisture content Good practice to carry out independent laboratory analysis of a range of possible fuels Calorific value, composition, ash analysis

8 Resource assessment: Key issues Resource distribution, and changes over time, affects selection of plant location Resource availability and properties affect plant design boiler and fuel handling Impacts on fuel availability or properties from weather and primary bio-product markets Impacts on fuel pricing of fossil fuel prices

9 Equipment selection How can we defend that equipment is low-risk? Will it work? Basic design due diligence Supplier & design track-record Licensed design Will it continue to work? Maintenance capability Defect warranties Performance guarantees source:

10 Equipment selection: Design & Supplier Design review Validate heat balances and process flows Compare performance and configuration with standard practice Track-record Reference plant? Manufacturer experience with specific feedstock Compliance with supply-country and international standards Design licence pedigree, if relevant Sub-component supplier credibility Assessment process helps to establish credibility of supplier s approach and to assess appropriateness of technical interfaces

11 Equipment selection: Warranties Commitment to replace defective equipment Up to 5 years, depending on equipment type Performance guarantees Thermal Efficiency (LHV net) Plant availability Delay vs Schedule Liquidated Damages Aggregate cap of % of Contract Value

12 Equipment selection: Contractual structure Guarantees generally stronger under an EPC contract structure compared with multi-contract Often higher overall cap on damages, due to greater control over full Project risks Higher damage accumulation levels for given performance shortfall (similar % of a higher contract price) All or most controllable risks covered by the Contractor Clear which party is responsible in event of a claim No need for complex, skilled interface management by Owner, which may not have the experience

13 A hierarchy of technical risk mitigation 1. Design the risk out of the Project Equipment selection / configuration Physical / contractual interfaces margin? 2. Pass the risk on to a Project counterparty Performance / delay / price guarantees Testing and monitoring to demonstrate responsibility 3. Insure 4. Provide contingency or contingent equity to cover the remaining risks that are unacceptable to the Lender

14 Round up Essential checklist for a newly proposed biomass power project A. How is fuel supply security assured? B. Relevant track-record evidenced by the technology and contractor? C. EPC contract with industry standard terms? Established due diligence processes exist, to: Characterise the full range of risks & mitigations Allow an informed Lender financing decision

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