GAS, ENERGY STORAGE & HYBRID SOLUTIONS SYMPOSIUM

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1 GAS, ENERGY STORAGE & HYBRID SOLUTIONS SYMPOSIUM LNG TO WIRE INTEGRATED PROJECTS - Some thoughts on Hatching Chickens and Eggs Paul B. Smith Wärtsilä Development & Financial Services, Inc. Miami, April 24th 2018

2 DEVELOPMENT Wärtsilä Development The Enigma Project Structure One Size Fits All 2 50,000 cbm LNG Terminal in Tornio, Finland Built & financed by Wärtsilä. (A second terminal in financing).

3 WDFS DEVELOPMENT TEAM TO INTEGRATE WARTSILA BUSINESS LINES LNG SOLUTIONS FLEXIBLE POWER PLANTS SOLAR AND STORAGE Small and medium scale LNG terminals and liquefaction solutions with EPC. Power generation solutions with unique combination of energy efficiency, fuel flexibility and operational flexibility. Solar PV and engine+solar hybrid solutions in selected target markets. Engine+storage hybrid plants Energy storage solutions and system integration. -3-

4 WÄRTSILÄ CURRENT AMERICAS PIPELINE INCLUDES Larger Scale 540 MW all gas World Scale Delivery 180,000 cbm FSRU 1,000 MW all gas FSU extended delivery FSRB buffer 570 MW all gas World Scale Delivery FSU Extended delivery. Plug and Play? we are working on it Mid-Small Scale 160 MW all gas 30,000 cbm storage Floating Hose 200 MW all gas 15,000-30,000 LNGC 30,000 cbm Flat Bottom 4 1 million cbm/yr. dual fuel World Scale Delivery FSRU SSY mooring Significant opportunities in the Americas 423 MW all gas 50,000 cbm Flat Bottom Jetty

5 AN ENIGMA The LAST MILE may seem like an ENIGMA but even the Enigma was solved. WDFS The Enigma Project Structure One Size Fits All 5

6 "AMATEURS TALK STRATEGY - PROFESSIONALS TALK LOGISTICS." - GENERAL OMAR BRADLEY Match the supply to the demand. Unlike fuel oil & diesel there is not a large pool of LNG carriers readily available to deliver cargoes at short notice and no liquid spot market for LNG. Small vessels are expensive on an USD/MMBTU basis but not as expensive as an idle ship on charter. If the supply & demand is not carefully considered then overall fuel costs will increase.one current Caribbean example probably adds $4-5/MMBTU at ratepayers expense. On larger scale projects a number of full cargo deliveries can be scheduled but what about dispatch risk vs take or pay obligations under the LNG SPA? 400 MW seems to be a starting point for large scale OR Match the demand to the supply. Work backwards - Look at the available ships, load port and distances: Reverse Engineer into the power plant capacity to keep the Gas Carrier in 24/7 operation taking into account: Annual dispatch Charter rate Vessel downtime Safety inventory (or dual fuel) PPA terms and conditions Available plant storage (if any) 6 Until the LNG supply chain evolves into a well developed Milk Run many solutions will require dedicated vessels.

7 THE LAST MILE. WHERE THE MONEY GOES.. Cheap LNG Suppliers & Lenders will want a say in the terminal concept / design. Not so Safety comes First. New concepts take time to be accepted. consider ALL options Upfront studies key: Metocean Bathymetric Seismic Tsunami Marine traffic Maneuvering Satellite terminals for gas power plants Small satellite terminals Large-scale terminals Storage & Re-gasification barges On-Shore vs. FSRU Many variables Do the math Over 20+ years an >$80k/day FSRU gets pretty expensive Avoid expensive surprises Medium-scale terminals FSRU Consider hybrids 7

8 PROJECT LOGISTICS KEY The devil is in the detail: Load port conditions Disport Potential delays Dry-docking schedule Hurricane risk Dispatch Take or pay Port fees Tugs Power Plant Area Onsite Fuel Storage Area 8 Cocodrie, La to St. Kitts 2,092 nm 13knt. 7% seaway 8 days

9 SPA Considerations LNG Suppliers have become a little more flexible, but. Matching SPA Take or Pay obligations to the actual plant dispatch can be daunting: Cargoes may be rejected due to lack of storage..$$$$$$ Large storage buffer may prohibitively expensive in CAPX and Working Capital. Dispatch may/will change over time..especially as low cost renewables penetrate the market demanding Flexible Generation. Consider Dual Fuel For example: Set Gas Take or Pay at 80% capacity and use LFO/HFO to balance dispatch risk: One Wärtsilä customer in the Caribbean is doing this successfully. Opportunity to take advantage of gas / fuel oil price arbitrage. Plants can run both fuels at the same time and switch seamlessly on the fly. DF also may mitigate project completion risk taking the terminal off the critical path. Take into account potential SPA performance bonds and L/Cs for cargoes. Discuss credit enhancement opportunities with lenders. 9 Wärtsilä Jens Norrgård & Örjan Krokvik

10 PROJECT STRUCTURES WDFS The Enigma Project Structure All of the typical IPP project finance rules apply PLUS the terminal risks need to be addressed and allocated. One Size Fits All 10

11 PROJECT STRUCTURES MANY OPTIONS Terminal Considerations: Dedicated Terminal only for power plant possibly sole owner Simple structure IPP revenues must cover terminal CAPX and O&M High tariff? Open Access Terminal Open to any supplier Terminal fee paid by third party possible upside. Adds competition into the environment Some lenders express a desire for this. Terminal Independent from Power Plant Common ownership at least to start with. Otherwise IPP needs to guaranteed that terminal will be built/perform on time Terminal operator may supply others.

12 PROJECT STRUCTURE EXAMPLE SEPARATE TERMINAL COMPANY LNG Lender Debt HoldCo Charter LNGC Co. IPP Co. TSA Terminal Co. LNG SPA Legend: SPA Sales Purchase Agreement TSA Terminal Services Agreement Physical delivery Distribution Companies PPA/Spot Sales Third Party Buyers LNG Sales Considerations: Lenders concerns / rights PPA obligations take priority Open access? Separate Terminal co? FOB vs. DES vs. Ex-Terminal Future third party sales?

13 THERE ARE SOLUTIONS WDFS The Enigma There is no one size fits all Project Structure One Size Fits All 13

14 ONE SIZE FITS ALL NOPE! There is no single solution. Each case needs to be analyzed and a sound technical & economical solution found. What we do have is an ever growing toolbox of standard solutions that form the building blocks for an Integrated Project. 14

15 Energy Solutions not promises. Thank you. For further information: Paul Smith: Wärtsilä PUBLIC