Offtake and feedstock, concession, and insurance

Question 1

Offtake contract example (4)

Answer 1

• Power sector: PPA, toll
• Road sector: shadow toll
• shipping sector: time charter
• public health fee

Question 2

Offtake additional consideration (6)

Answer 2

• take or pay: offtake must make payment to SPV even if it does not need or take the delivery output
• take and pay: offtake must take delivery and pay SPV even if it does not need output
• throughput and deficiency: ship enough to SPV to generate revenue
• tolling agreement: paid toll for processing raw material into another product ‘mechanism to reimburse project for building an asset’
• long term sales agreement: purchase a specific quantity
• contract for difference: pay or receive difference between market price and agree price level (hedge sales and purchase price against market convenant)

Question 3

purchase power agreement (2)

Answer 3

• fixed component (capacity charge) serve to cover fixed, return on investment of sponsor, debt service
• variable component (energy charge) serve to cover OM contract, fuel cost

Question 4

Difference between American and British PPA (2)

Answer 4

• American: sell into designated area

- British: sell into exchange pool

Question 5

Unique feature of toll (4)

Answer 5

• market risk of toller
• rely on predictable cash flow
• availability and provide applicable service
• project only expose to operating risk

Question 6

Offtake agreement- toll (3)

Answer 6

• toller pays toll and provide input to SPV
• SPV provides process fuel to offtaker
• offtaker pays commodity price to toller

Question 7

offtake risk (2)

Answer 7

• risk: length of contract, price uncertainty, quality of delivered product
• mitigant: quality assurance, strong credit, price risk and hedge program

Question 8

Concession type (4)

Answer 8

• Build Operate Transfer (BOT): greenfield project in which private sector firm agree to construct, finance, and maintain facility during specific term
• Build Own Operate Transfer (BOOT): operate the firm’s facility in addition to owning
• Build Own Operate (BOO): concession for a project entire economic life
• Build Lease Transfer (BLT): lease from government for the term of concession

Question 9

Equator principle (5)

Answer 9

• set voluntary social and environmental guidelines agree by equator principle financial institution
• 10 principles to help assess social and environmental risk
• corporate loan, certain bridge loan, and project financing
• borrower conduct a social and environmental assessment , then conduct stakeholder engagement
• no enforcement mechanism, only grievance procedure