Decc discussion slides investor simulation workshop breakout_onshore large-scale_v 1

Mapping the developer and CfD
lifecycles
Breakout session:
Onshore wind (>50 MW)
21 May 2013
DRAFT – This should not be taken to represent DECC Policy

Agenda for the breakout session
2
Time Topic
Indicative time
available
10:55am Introduction 10 minutes
Developer lifecycle by
technology
30 minutes
Pre-development 15 minutes
Development 15 minutes
Financing 15 minutes
Construction and
Commissioning
15 minutes
12:40pm Collate feedback 15 minutes

Agenda
3
1. Introduction and session organisation
2. Development lifecycle by technology
3. Pre-development
4. Development
5. Financing
6. Construction and Commissioning
7. Collate feedback

Introduction
4
• Recap objectives for this session:
1. To understand the developer lifecycle for different low carbon technologies,
2. To explain the current CfD policy position across the developer lifecycle, as
well as present some additional options for discussion,
3. To take on board views on the degree to which the CfD policy logically
maps with the developer lifecycle for different low carbon technologies
• At the end of the session we will collate views and then feedback to
the wider group

Key CfD issues to be covered across the
developer lifecycle
5
Pre-
development
Development Financing
Construction
and
commissioning
• CfD strike price
visibility
• CfD allocation
budget
• Statement of how
much allocation
budget remains
• Conditions
Precedent for CfD
payment start
• TCW and LSD
• Force majeure and
other exceptions
• Substantial financial
commitment (SFC)
• Contractual
obligations, and
consequences
• CfD eligibility
process
• Allocation
mechanisms
• Constrained
allocation process

Agenda
6
3. Pre-development
4. Development
5. Financing
7. Collate feedback

Comparing DECC and Roadmap lifecycle assumptions
4 years 2 years
Pre-development ConstructionSource: DECC (2012)
Applicable to onshore wind (>50
MW)
Source: Renewable Roadmap
Applicable to onshore wind

Spend profile:
8
Note: Grid and other infrastructure costs assumed to be part of pre-development
Assumed incremental spend 0.7% 1.3% 4.6% 6.5% 43.5% 43.5%
Assumed cumulative spend 0.7% 2.0% 6.5% 13.0% 56.5% 100.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
Assumed incremental spend
Assumed cumulative spend
Pre-development Construction
Overall, does our
assumed spend profile
look accurate for your
technology? If not, why
not?

Agenda
9
3. Pre-development
4. Development
5. Financing
7. Collate feedback

CfD strike price visibility
10
CfD strike price visibility
• NG will provide analysis to inform the Government’s CfD strike price decisions in the Delivery Plan
• At the time of CfD allocation, strike prices are locked in for the year of commissioning
• Strike price setting for the second Delivery Plan may involve some competitive elements

CfD budget allocation
11
CfD budget availability by technology
• The LCF will increase to £7.6b in 2020 (real 2012 terms)
• This covers the costs of the CfD as well as existing policies (including the RO, small-scale FiT and the
Warm Home Discount)
• Ahead of allocation commencing, developers can expect to know the annual CfD budget as well as any
constraints applying to their technology
• Set by DECC, managed by NG
• Single budget ‘pot’ for all renewable
technologies
• Potential minimum/maximum
constraints for individual
technologies (e.g. maximum for
technologies deemed capable of
ramping up deployment
quickly, such as solar and biomass
conversions)
• Strike prices remain the main driver
of investment by technology
CfD allocation
budget for
renewables
(non-FID)
CfD allocation budget by technology
Wider LCF
(managed by
DECC)

Forecasting budget headroom
12
CfD budget headroom forecast
• The CfD allocation budget constraint will apply on an annual basis, subject to the total period budget
• The SO will be responsible for publishing CfD budget updates throughout the year:
 Taking into account the changing value of existing contracts
 Could be real-time available data if CfDs are allocated on a First Come First served (FCFS) basis
• Any underspends in a given year will be available in the following year’s CfD budget
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2020/212019/20
CfD Budget by
year between
2014/15 and
2020/21
CfD budget will be allocated
on a forward-looking basis for
the anticipated
commissioning year

Questions for consideration
13
• How often should NG provide information on CfD budget availability?
 How should the information be provided and how often should the assumptions be
consulted on?
 How should progress against any technology-specific CfD budget constraints be
communicated?
• Is there sufficient visibility of CfD strike prices?
 When do developers need to know DECC’s decision on whether administrative pricing will
continue beyond 2020?
 How will developers deal with a situation in which later phases are forecast to occur
outside the window of CfD strike price visibility (e.g. offshore wind)?

Agenda
14
3. Pre-development
4. Development
5. Financing
7. Collate feedback

Applying for a CfD
15
Eligibility criteria Requirement
Eligible technology? Detail of the type of generation intended to be built (with appropriate
confirmation that it will be a form of generation eligible for the CfD).
Eligible company? Company registration and VAT number.
Planning permission? Copy of the planning permission decision note, as given by a competent authority
(SoS or Council Planning). Can be subject to conditions.
Grid connection? Copy of a grid connection acceptance letter which has been signed by both
National Grid (or DNO if applicable) and the developer.
Target commissioning date? Grid connection acceptance letter must include a connection date no later than
Target Commissioning Date (TCD)
Intended generation capacity? Details on the intended MW size of the of the project
CfD application process
• Developers will be assessed by the SO against eligibility criteria at the time of applying for a CfD
• Two key requirements: signed grid connection offer, and planning permission
• Period between CfD allocation and Target Commissioning Date (TCD) will be left to developers, but is
constrained by visibility of strike prices or competitive process

CfD allocation mechanisms
16
CfD allocation
• We have committed to a period of First-Come-First Served (FCFS), to avoid unnecessary costs
and constraints on development timings
• Once a pre-defined threshold is passed, allocation rounds will commence and then remain in
place (on either an unconstrained or constrained basis)
First-Come-First-Served
Applications submitted when
developer chooses, and considered
in order of receipt
Unconstrained Allocation Rounds
Application window, within which
all applications are assessed
equally, but no expectation of
rationing
Constrained Allocation Rounds
Application window, within which
all applications are assessed
equally, but with an expectation of
rationing

Application of triggers
17
Application of triggers to move from FCFS to allocation rounds
What level should the trigger be set at?
 Our current working assumption is that the trigger will be set at a conservative level
 This would imply circa 40% - 60% allocated through FCFS
 An additional trigger may apply for the move to constrained allocation rounds (see next slide)
How should progress towards the trigger be calculated?
 Our current working assumption is that the trigger would be met when actual applications
show a specified percentage of the CfD Budget has been allocated
Can allocation return to FCFS once a trigger has been activated (e.g. if electricity prices increase)?
 No, moving through the various allocation mechanisms will be a ‘one-way street’

Constrained allocation
18
Constrained allocation windows
• Once a significant portion of the CfD allocation budget has been committed and DECC is a long way
towards achieving its targets, more projects may come forward in a particular round than can be
supported
• In such situations CfDs may need to be rationed through constrained allocation windows
• The rules for rationing must be defined upfront to enable visibility for developers
• Developers will need to submit additional information ahead of a constrained allocation window
• Two rationing options are currently being considered: price-based and discount-based
Rationing option Description Advantages Disadvantages
Price-based Stack projects by the price they
would be willing to accept
Least cost overall
deployment
Reduced diversity
of generation
Discount-based Stack projects by the % discount
on the relevant strike price that
they would be prepared to offer
Allows for least cost
projects by
technology,
enabling diversity
May result in
greater cost of
deployment
overall

19
• Are the suggested eligibility criteria appropriate? Are there any additional criteria you would recommend?
 What criteria should apply for biomass conversions which demonstrates genuine commitment to deliver the project?
 Is it feasible for marine developers to have grid connection acceptance prior to CfD allocation, given the high local
content and thus significant level of securities/liabilities?
• What conditions could be applied alongside ‘planning permission’?
 For example, how to determine whether the condition detracts from readiness (i.e. radar / MOD)?
 Should environmental consents also be required at this stage?
 What flexibility could be applied in cases where permission is classed as ‘pre-approval’?
 Are separate planning consents required for generation and grid?
• What type of contingencies may be contained in the grid offer?
 Does the grid offer need to be firm for all phases of the project?
 How should interdependencies and conditionality in offers be taken into account in the CfD application process?
• How often should allocation windows take place? Is twice annually often enough?
• In the context of allocation under constraint, would you prefer projects to offer the price they would be
prepared to accept via sealed bid process or via a descending clock auction process?

Agenda
20
3. Pre-development
4. Development
5. Financing
7. Collate feedback

Substantial Financial
Commitment [1]
21
Reaching the SFC milestone
• Within 1 year of signing the CfD, the developer must demonstrate to the Counterparty Body
(CpB) that it has made a Substantial Financial Commitment (SFC)
• Failure to meet the SFC within the prescribed timeframe after CfD allocation will constitute an
early termination event in favour of the CpB
 No termination payment shall be due by either party
 The generator can reapply for a later CfD
• The evidence required to demonstrate SFC may differ according to the financing structure of the
project in question, for example:
Project
Finance
• ‘Financial Close’
• Evidence required: Firm contractual commitment to undertake
expenditure (i.e. with equivalent milestone or termination
payments if the commitment is breached)
Balance
Sheet
• Actual or approved Board expenditure
• Evidence required: Invoices or Directors’ certificate for
expenditure

Substantial Financial
Commitment [2]
22
Minimum spend threshold
• SFC will be defined according to a minimum spend threshold, which is yet to be
determined
• The SFC milestone is intended to represent ‘the point of no return’ for a project
 After this point, either construction proceeds or the developer will have incurred significant
unrecouped costs
• We recognise that the minimum spend threshold may differ by technology, for
example depending on:
 Capex profile pre-commissioning
 Extent of development costs as a proportion of total spend

• What does Substantial Financial Commitment (SFC) mean for different investors?
 Project finance?
 Balance sheet financed?
• What do you regard as the best means of providing evidence of SFC?
• What minimum spend threshold is appropriate by technology?
 How can we relate this to the spend profiles by technology?
• How should phased projects be treated?
 For example, if separate CfDs are allocated to individual phases, but financing of the
whole project is completed upfront
23

Agenda
24
3. Pre-development
4. Development
5. Financing
7. Collate feedback

Payment start date
25
Conditions Precedent
• Eligibility for CfD payment can commence once the Conditions Precedent are satisfied
• Actual payments then commence on the basis of eligible metered output (MWh)
Condition Requirement
Passed eligibility test? Evidence of compliance with the published eligibility criteria at the time of CfD
allocation
Planning permission
remains valid?
Copy of the detailed planning permission and confirmation that it has not lapsed,
expired or been terminated, revoked or withdrawn and any conditions have been so
satisfied
Authorisations obtained? Copies of all required licenses, accreditations, permits, consents etc required to
operate the facility
Grid Code compliant? Confirmation from SO that Grid Code Compliance process has been satisfied (or from
DNO – Distribution Code) – includes commissioning acceptance tests
Settlement ready? Confirmation from the Settlement Agent that it has received information it requires to
undertake settlement (includes metering) – includes collateral
Installed generation
capacity?
Confirmation from generator that installed capacity is not less than a pre-specified
[85%] of the adjusted contracted quantity

Building to schedule [1]
26
Target Commissioning Window (TCW) and Long-Stop Date (LSD)
• Generator will receive full duration of CfD support if the Conditions Precedent are met within the TCW
• Clock starts ticking once outside the TCW
• CfD is terminated if the Conditions Precedent are not met by the Long-Stop Date
CfD
grant
Evidence of Substantive
Financial Commitment:
Obligation to demonstrate
financial commitment by reaching
financial investment decision, or
reaching a minimum spend
Target Commissioning
Window:
Window within which the developer
must commission the generator to
secure full support of the CfD.
Long-Stop
Date
Target Commissioning
Date
The CfD is terminated
if construction
surpasses a specified
long-stop date
15 year right to payment
automatically begins at
end of TCW

Building to schedule [2]
27
Indicative TCW and LSD, by technology
• We would like to explore some indicative timeframes by technology:
Technology TCD TCW
LSD
(following end
of TCW)
Biomass conversion
Specified by
developer
1-2 years 6-18 months
Onshore wind 6-12 months 6-18 months
Offshore wind 1-3 years 1-3 years
Solar PV 6-12 months 6-18 months

Capacity delivered
28
• As explained, we are currently exploring the potential to allow a limited
degree of flexibility on the contract quantity
• We would like to test this thinking for different technologies
CfD
grant
Evidence
of SFC TCW
CfD may be terminated if capacity
delivered is below a pre-defined
threshold (e.g. 85%).
Potential strike price reduction for
under-delivery (e.g. between 95 and
85% of adjusted capacity), s.t. FM
Initial
Application:
100%
Obligation to deliver:
100-95% (of adjusted
capacity)
Can
Adjust:
100-95%
Delivered
capacity
(before strike
price reductions)

Force majeure and other
exceptions
29
Exceptional circumstances affecting build timeframes
• The Long Stop Date may only be extended in limited circumstances:
1) The generator is affected by a Force Majeure event, or
2) Grid connection works are not delivered on time (except if due to the fault or negligence of
the generator)
• Force Majeure: “any event or circumstance that is beyond the reasonable control of
the generator which could not reasonably have been avoided or overcome and which
is not due to the fault or negligence of the generator or its contractors, sub-
contractors or agents.”
• Is bad weather covered?
 Current thinking is that extreme one-off weather events would be covered (e.g. a
hurricane), but a rainy summer would not be covered (i.e. this would be picked up by the
TCW)

30
• Do the suggested TCWs and LSDs look acceptable for each technology?
• Do you agree with our proposed approach to enabling flexibility in the delivered capacity at the
time of SFC as well as commissioning?
• What feasible scenarios could be envisaged in which delivered capacity is less than contracted?
• Force majeure and other exceptions:
 How should weather-related risks to commissioning be captured?
 Are there any other events that should be considered as exceptional warranting an extension to the
LSD?
• As a whole, does the suggested approach mitigate developer / investor risk?
• If there are other risks you feel should be covered in this approach, please explain why would
Government or the consumer be best placed to bear or manage them?

Agenda
31
3. Pre-development
4. Development
5. Financing
7. Collate feedback

Thank you

Timing assumptions
33
Technology Pre-development
Period (years)
Construction
Period (years)
Biomass Conversion 2 1
Offshore wind (~1000 MW) 5-6 3
Onshore wind and solar (10-15 MW) 4 2
Onshore >5 MW 4 2
Marine (~20 MW)* 5-6 3
Pre-development and construction timings per technology
(Annex 1, DECC , Electricity Generation Cost, Oct 2012)
*In the absence of specific information, we have assumed that marine and tidal will have similar timelines to offshore wind

Capital cost breakdown across Pre-development
and Construction phases
34
Capital cost item Onshore
wind >5MW
Offshore
wind
Dedicated
Biomass
Biomass
Conversion
Marine*
Pre-development 3% 2% 1% 3% 2%
Construction 87% 91% 95% 68% 91%
Grid costs 5% 2% 2% 0% 2%
Other infrastructure 5% 5% 2% 29% 5%
Source: DECC/ARUP, Review of the generation costs and deployment potential of renewable electricity technologies in the UK, Oct 2011)
• Pre-development costs include: public enquiries, licensing, radar mitigation, design
consultancy and habitat enforcement measures
• We have assumed that ‘Grid Costs’ includes the cost of use commitment payments –
securities and liabilities
*In the absence of specific information, we have assumed that marine and tidal will have similar timelines to offshore wind

Drawn-down profile assumptions
35
# of Pre-
development
years
Yr1 Yr2 Yr3 Yr4 Yr5 Yr6
1 100.00%
2 50.00% 50.00%
3 15.00% 35.00% 50.00%
4 5.00% 10.00% 35.00% 50.00%
5 5.00% 10.00% 20.00% 30.00% 35.00%
6 5.00% 10.00% 15.00% 20.00% 25.00% 25.00%
Draw-down profile – Pre-development
(Baringa starting assumptions – to be discussed)
# of
Construction
years
Yr1 Yr2 Yr3 Yr4 Yr5 Yr6
1 100.00%
2 50.00% 50.00%
3 15.00% 35.00% 50.00%
4 5.00% 10.00% 35.00% 50.00%
5 5.00% 10.00% 20.00% 30.00% 35.00%
6 5.00% 10.00% 15.00% 20.00% 25.00% 25.00%
Draw-down profile - Construction
(Baringa starting assumptions – to be discussed)
We recognise that
these profiles may
vary significantly
by technology.

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