Enhanced Business Case Certainty in Emerging Markets

Introduction

European investors are increasingly looking in emerging markets to invest in Wind energy. However, there are considerable and varied barriers to such an investment; such as underdeveloped legislation and lack of wind energy knowledge. These barriers increase the risk profile of the project and can make it more expensive, reducing IRR, or in extreme cases, make the project nonviable.

It is commonly seen in emerging markets that employing the traditional ‘European’ approach to wind project development in Emerging Markets increases investor cost and risk. However, to ensure early identification of risks, and appropriate mitigation, a coordinated approach of specialist insurers, lawyers and project managers is required.

Approach

A wind farm project in an emerging market is mapped out into the 4 phases of Early and Late Stage Development, Construction and Operations. Each stage is then broken down to show the processes within each phase and represented as flow charts. Using these process diagrams as templates, the milestones at which legal advisors, insurance brokers and technical and commercial project managers can be consulted are shown.

Anonymized Case Studies will also be used to show the effectiveness of this approach.


Main body of abstract

As a consultancy firm specialising in project management of wind energy projects in emerging markets, MEM has gained significant knowledge in the risks and issues involved in projects in developing economies,

Through this experience, MEM have observed a number of European investors and developers coming to regions, such as Asia, S. America and Africa, and deploy European methodologies to develop, construct and operate wind farm projects. This approach has led to numerous risks events coming to fruition such as schedule delays, design/quality issues, cost overruns, and decreased IRR and cash flows during operations.

To avoid the increased cost of debt, and to increase the creditworthiness of a project in an emerging market, MEM have teamed up with the insurance broker JLT, and the specialist legal firm WFW and mapped out the development, construction and operations processes of a wind farm project. This team has drawn detailed flow charts that identify key milestones when insurance and legal advisors can be brought in to help the technical and commercial project management team identify and mitigate risks through a mixture of insurance, contractual terms and technical measures.

When employed on wind farm projects in emerging markets, this approach has received significant backing from Lenders; increasing credit enhancement and business case certainty.


Conclusion

It is often the case with European projects that due to the developed nature of the industry, insurance and legal reviews are introduced late on in the Financial Close process. Employing such a strategy in emerging markets is very risky due to the various unknowns when embarking on such a venture. Involving a team of specialist project managers, insurers and legal advisors with emerging market experience and an proven methodology identifies risks earlier. This early identification establishes a stable foundation for the project insurance broker, lawyers and technical and commercial project managers to investigate appropriate insurance cover, technical solutions and contractual terms that will mitigate the risks associated with a project in an emerging market; this reduces development costs and improves the bankability of the project.


Learning objectives
The primary aim of the presentation would be to bring awareness to the delegates of the early milestones that legal advisors and insurance brokers can be brought into a project to assist with credit enhancement; increasing the business case certainty of a project in an emerging market. In addition, the aim would be to give an understanding that emerging market risks can be identified and mitigated.

The secondary objective would be to show the delegates that employing a standard ‘European approach’ is risky due to the low level of wind farm knowledge in country, and the immature and sometimes contradictory regulatory and legal framework