London, United Kingdom

The Challenge

CDPQ sought to purchase a 25% stake in the 630 MW London Array offshore wind farm from DONG Energy. An important element of the transaction was the provision of an Investor Power Purchase Agreement (IPPA) under which DONG would purchase CDPQ’s share of generation and associated green benefits from the wind farm for a 15-year term from the start of commercial operation. CDPQ required a comprehensive analysis of the wholesale electricity market in the United Kingdom and a detailed understanding of the underlying policy environment to support their bid. This was particularly challenging as the Electricity Market Reform (EMR) plans were under continuous development through the period of the transaction, which necessitated regular updates for the client and revisions to our analysis to reflect the latest outlook.

Our Solution

IPA provided comprehensive commercial advisory to CDPQ through the duration of the transaction, which included the following:

  • Overview of GB electricity market structure and expected changes under EMR, covering the interaction of the carbon price floor, ROCs, CfDs, FiTs and capacity market, and an assessment of the likely impact on the project.
  • Review and critical appraisal of DONG Energy price forecasts and assumptions regarding intermittency factors, proposing alternative assumptions as appropriate.
  • Forecasts of electricity market development and wholesale electricity prices under various scenarios (base, high and low, as well as various sensitivities) to 2040.
  • Corresponding revenue forecasts for the project from electricity sales, ROCs and LECs both on a merchant basis and under the proposed terms of the IPPA.
  • Due diligence advice on the IPPA terms, including commercial review, identification of the risk/reward sharing between the parties and any operational or implementation issues which could arise in the future, and a valuation of the cap and floor mechanism to determine credit collateral and termination payment calculations.
  • Support for the client in their face-to-face negotiations with the counterparty, and advice on contractual drafting changes to better reflect the commercial intent of the agreement.

The sale successfully concluded in January 2014.