Risk allocation for offshore wind
- 1. 1 Recommended Risk Allocation of Taiwan Offshore Wind Projects For Taiwan Financial Institution ITEM PARTY BEARING RISK DISCUSSION A. Financing/Energy Revenues 1. Failure to make debt service payments to: a. higher than anticipated operating and maintenance expense Party B Under normal operating conditions b. insufficient revenues Party B Party B unless loss of revenues due to fault of Party A c. bankruptcy/insolvency/walkway Party B d. changes in interest rates Party B Any possibility to adjust tariff ? e. improper cash flow/mismanagement Party B Party B unless event due to fault of Party A f. facility shutdown or limited operation (Curtailment) Party B Party B in accordance with PPA g. changes in foreign exchange Party B 2. Insufficient Revenues from Energy Sales because: a. The energy is in a form not usable by the market due to: i. improper design Party B Guaranteed ii. improper operation Party B Guaranteed iii. change in energy market requirements Party A NOTE: 1. Party A (甲方)means the governmental entities either on behalf of Taiwan government to grant the concession of Taiwan offshore wind projects or Taiwan Power Corp (Taipower). 2. Party B (乙方)means project sponsors
- 2. 2 b. The energy market is unable to accept all or a portion of the energy projected due to: i. market shutdown Party A ii. market energy demand reduction Party A iii. failure of energy transportation mechanism Party A iv. change in law Party A v. breach of contract by either party Party B/Party A Breaching party vi. uncontrollable circumstances Party A vii. market walkaway/bankruptcy/ insolvency Party A viii. Taipower walkaway/bankruptcy/insolvency c. The energy revenues are lower due to: i. lower than anticipated unit energy prices Party A ii. wind resource variability Party B iii. Facility non-performance Party B Guaranteed
- 3. 3 ITEM PARTY BEARING RISK DISCUSSION B. Design/Construction/Testing 1. Construction Behind Schedule due to delays caused by: a. labor strikes Party B For strikes of employees under control of the Contractor b. uncontrollable circumstances Party A To the degree not covered by insurance c. unforeseen site conditions Party A d. Contractor/Party B mismanagement Party B e. failure to secure construction permits Party B f. suspension of work by the Party B Party B g. failure to receive equipment on schedule Party B 2. Construction cost overruns caused by: a. higher than anticipated inflation - i. Fixed price ii. Escalation price Party B Party A Adjustment of Tariff b. construction delays Party B c. change in law requiring additional equipment or design changes Party A Extent of needed change and cost negotiated d. Contractor error in design and/or construction Party B e. Party B initiated changes Party B f. uncontrollable circumstances Party A Extent of needed change and cost negotiated
- 4. 4 3. The Facility cannot demonstrate anticipated performance levels during acceptance testing due to: a. defective technology which will not meet guarantees Party B b. errors in design Party B c. improper construction Party B d. wind resource variability Party B 4. The Facility cannot meet environmental regulations and EIA due to: a. failure of plant to perform as anticipated Party B b. change in law Party A Extent of needed change and cost negotiated 5. The Facility is not completed due to: a. cost overruns with insufficient additional funds available for completion Party B b. Taipower/Party A/walkaway/bankruptcy/insolvency Party A Cost liability negotiated c. Contractor/walkaway/bankruptcy/insolvency Party B d. defective technology which will not meet guarantees Party B
- 5. 5 C. Operation and Maintenance 1. Equipment failure caused by: a. defective equipment which cannot meet guarantees Party B b. legal/court injunction Party B/Party A Party causing the injunction is responsible c. revocation of permits Party B Party B unless due to action or inaction of Party A d. design errors and omissions Party B e. poor construction Party B f. improper operation and/or maintenance Party B g. damaged caused by wind resource variability Party B/Party A Party A responsible for bringing acceptable waste only h. uncontrollable circumstances Party A Extent of needed change and cost negotiated 2. Excessive downtime caused by: a. equipment failure Party B b. uncontrollable circumstances Party B/Party A Extent of needed change and cost negotiated c. labor strikes Party B For strikes of employees under the control of the Contractor d. improper operation and/or management Party B e. wind resource variability Party B Service fee and lost energy revenues paid
- 6. 6 3. Operation and maintenance costs are higher than anticipated due to: a. equipment failure Party B b. uncontrollable circumstances Party A Extent of needed change and cost negotiated c. poor labor productivity Party B d. change in law Party A Extent of needed change and cost negotiated e. estimating error Party B f. higher insurance costs Party B g. higher inflation rate Party A Adjustment to tariff h. wind resource variability Party B i. increase of backup capacity Party A j. increase of backup capacity cost Party A k. increased balancing cost Party A l. cost of necessary reinforcement of transmission and distribution network Party A 4. Facility cannot meet environmental regulations and EIA due to: a. equipment failure Party B b. change in law/permit requirements Party A Extent of needed change and cost negotiated 5. Permanent Facility shutdown caused by: a. Inability to pay operating expenses Party B/Party A depending on reason for inability
- 7. 7 b. revocation of operating permit Party B/Party A depending on reason for revocation c. Taipower/Party A/walkaway/bankruptcy/ insolvency Party A d. Contractor/walkaway/bankruptcy/ insolvency Party B e. wind resource variability Party B f. technology failure Party B g. change in law Party A h. uncontrollable circumstances Party A 6. The wind resource varies from the assumed design criteria due to: a. error in estimating wind resource Party B b. adverse weather conditions Party B