Investing in energy transition projects

The rise of giga-scale energy transition projects and what it means for you

Giga-scale energy transition projects are not the traditional project - i.e. projects with a single asset, single revenue stream and single turnkey solution - that we have seen financed by commercial debt providers or undertaken on balance sheets over the last few decades. They are characterised by a number of bespoke features, including: 

• a capital cost in the billions of dollars,
• comprised of a number of facilities that form part of an overall system, and
• one contractor or a contractor joint venture cannot bring all of the required technical expertise, carry the contingent liability on their balance sheets and raise the required security and insurance.

We discuss these key aspects, including what is required to meet investment and financing criteria imposed by commercial banks, export credit agencies and multi-lateral financiers throughout the lifecycle of a project and in the current energy transition landscape.

How to identify, analyse and mitigate risk

Developers, equity investors and debt financiers now also need to consider the management of human capital, supply chain transparency and resilience, governance structures and the importance of a culture of collaboration and compliance.

Our detailed position papers provide strategies from a financial, commercial and legal perspective for identifying, analysing and mitigating risks, including:

• both early and during the project lifecycle, and
• greenfield risks relating to time and delay, liability, cost, payment, security, defects, force majeure, remedies, dispute resolution and underperformance.

Maximising value via development, procurement, contracting and delivery phase strategies

A key feature of this section is our guide to different delivery models (with a particular focus on models attached to disaggregated packaging structures in giga energy transition projects in a project finance context), designed to enable developers, equity investors, debt financiers and other project participants to undertake a more informed assessment of the delivery model that suits the scale and complexity of the project, the asset type, the relevant timelines and overall risk appetite.

In terms of human capital, developers, equity investors and debt financiers look for processes and systems to be in place to ensure regulatory compliance, strong governance, and technology options that improve safety and reduce cost and risk. These issues should all be considered in developing the all project agreements underpinning the development and delivery phases and also the operations phase.

In addition, there is a greater need for supply chain transparency and for local optionality which avoids the climate change cost of long haul transport. Developers and operators will rely more heavily on stock and inventory, and on clear access to IP and technical data for maintenance activities and mid-life upgrades.

Delivery models, strategies, plans and interface management

We provide guidance on these key issues and commentary on how to navigate challenges that might arise, including:

• Assessing and selecting appropriate delivery models
• Developing overarching financing, project execution, packaging, procurement, risk register and action plans
• Developing logistics, supply chain, procurement and contracting and interface and revenue and funding strategies and corresponding insurance strategies
• Managing development, construction, commissioning, operation and, importantly, offtake interfaces

Commissioning and performance testing risks pre completion and operational risks post completion

If the asset underperforms in the generation of revenue prior to commercial operation and during the early stages of operation, then the developer’s development service fee and equity investors’ return and debt financiers’ debt provision is at risk. These can include output and efficiency risks, outage risk, supply chain, logistics and workforce constraints, regulatory and political risk which have all been heightened by COVID together with the increased focus on the environmental and social elements of an ESG decision making framework.