Overview of Legal Issues in Renewable Energy Projects

Renewable Energy Summit 2009

Ainsley Heffernan Partner, Beauchamps Solicitors.

Dundalk, 21 st January 2009

Wind Farm Contracts Matrix

Shareholders Landowner Bank Facility Agreement and security documents Shareholders’ Agreement Lease Option & Lease Agreement CER Authorisation to Construct and Licence to Generate

DEVELOPER – SPECIAL PURPOSE COMPANY

Power Purchase Agreement Grid Connection Agreement ESB Networks / Eirgrid Electricity Supplier Turbine Supplier Turbine Supply Agreement and Service & Warranty Agreement Operation & Maintenance Agreement Operator Civils / Electrical Works Contracts Civil and Electrical Contractors

Lease Option

(i) (ii) Purpose – legal right to call for a Lease within a specified period.

Term – long enough to obtain planning and grid connection offer.

(iii) Description of Lands – retain flexibility to alter location of turbines and access road. (iv) Assignment – proviso allowing assignment to group company.

(v) Landowner’s obligations – restrictions on use of retained lands and objecting to planning.

(vi) Wayleaves – from landowner and/or any third party for grid connection route.

Lease Agreement

(i) Rent – calculated as a percentage of income per annum, subject to a minimum rent plus CPI. (ii) Term - 20 to 25 years with option to renew (minimum > PPA term).

(iii) Assignment – proviso re group companies and security assignments.

(iii) Landlord’s obligations – possible limited use of demised lands and certain restrictions on use of retained lands (“buffer zone”).

(iv) Break option – if PPA terminated.

Turbine Supply Agreement

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) EPC or multiple contracts? (use FIDIC).

Price – check scope of work and stage payments schedule.

Advanced payment guarantee until title to equipment passes.

Assignment – security assignment and step-in rights for bank.

Financing – letter of credit from developer’s bank.

Completion – timetable and penalties for delay (excluding Force Majeure).

Defects Liability Period – typically 2 to 5 years.

Tests on completion and taking over – pre commissioning test / commissioning test / trial operation test / taking-over cert.

Insurance and guarantee – evidence of insurance before commencement of works and requirement for a performance bond or parent guarantee.

Service and Warranty Agreement

(i) (ii) (iii) (iv) Availability warranty – typically 97% availability and 3% downtime in any operational year (excluding force majeure and maintenance).

Performance warranty – each turbine will produce X amount of power at Y wind speed based on power curve.

Liquidated damages if these warranties are breached but subject to cap based on contract price.

Scheduled and unscheduled maintenance by turbine supplier for annual fee (e.g. Enercon 12yr EPK Agreement).

Operation and Maintenance Agreement

(i) (ii) (iii) (iv) (v) Developer as operator versus third party operator.

Performance standards based on results of commissioning and trial operation tests.

Right to replace operator for under-performance.

Bonus and penalty provisions.

Step-in rights for bank.

Civil/Electrical Works Contracts

(i) (ii) (iii) (iv) (v) Clear scope of work and duty to co-operate with other contractors on site.

Defects liability period for the works and warranties in relation to the quality of work and materials used.

Time for completion of works and the payment terms.

Responsibility for putting all necessary insurances in place.

Collateral Warranties to be provided to the bank.

Power Purchase Agreement

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Price – fixed for term of PPA therefore providing cashflow guarantee to developer/bank and REFIT hedging for supplier.

Term – usually 15 years with option to extend.

Green rights – split of any future green certificates?

Beware of “market change” clauses.

Ownership of capacity payments?

Non-REFIT price.

Pre-emption rights – right of first refusal. Formula for calculation of sale price.

Termination - if developer commits a material breach or REFIT payments stopped. Step-in rights for bank – direct agreement.

Grid Connection Agreement

• • • • Connection Agreement, ESB General Conditions and Quotation letter.

Cost based on “assumptions” in quotation letter, subject to change.

Capacity bond – refunded provided customer reaches 90% of agreed MEC within one year.

Firm versus non-firm access.

• • • •

CER Authorisation to Construct and Licence to Generate

Non negotiable.

Apply to the CER with correct information.

Application forms and related guidance are available from the CER website. Subject to compliance with Trading and Settlement Code.

Bank Documentation

• Full due diligence and approval of all project documentation. • Facility Agreement.

• Debenture over company’s assets, undertakings, contracts and warranties.

• Charge over the land lease and all wayleaves / rights of way.

• Charge over the shares in the development company. • A charge over the “debt service reserve account”. • Collateral Warranties from turbine supplier and all professionals involved in the design, construction and maintenance of the project.

Overview of legal issues in renewable energy projects

Renewable Energy Summit 2009 Contact:

Ainsley Heffernan Head of Renewable Energy Group Beauchamps Solicitors Tel: +353 (1) 4180600 Email: [email protected]