GRID CONNECTIONS
FEATURE SPONSOR
FAILURE TO GET YOUR PAPERWORK IN THE NAME OF THE CORRECT COMPANY MAY RESULT IN DELAYED FUNDING
The introduction of the UK Government’s Feed in Tariff Scheme in 2010 has resulted in an increase in the number of small renewable generation projects which are seeking access to the Grid. Like the larger renewable projects (mainly onshore wind farms) that came before them, these small renewable developments require to seek an ‘Offer’ for connection to the distribution system from their local Distribution Network Operator (DNO) in order to export ultimately onto the Grid. It is common for such projects to be project financed. One issue which is arising time and time again relating to securing such finance, is that the Offer and associated ‘Acceptance’ are not in the name of the borrowing legal entity.
SEEKING PROJECT FINANCE Often at the time of seeking a connection Offer the project developer (or alternatively its energy consultant acting as agent for the project developer) has sought an Offer and accepted that Offer, securing all important access to the Grid for its generation.
When it comes to seeking project finance the lender will want to ring-fence the project by ensuring a new Special Purpose Vehicle (SPV) is set up to hold all the project documents (and from the lender’s perspective that will also include the connection Offer and Acceptance) over which the lender will then take security.
The Offer and Acceptance which creates the binding agreement under which the DNO will construct the connection, is a vital part of the project to the lender. For the lender to take effective security in a project financed transaction the offer and Acceptance would need to be signed up with the SPV as the borrower so as to provide a clean and effective security package to the lender. Failure to address this issue results in frustration for the lender and a delay in funding.
THE SOLUTION IS RELATIVELY SIMPLE All DNOs have experience of developers seeking connections as early as possible within their project and therefore concluding a contract re the connection before the establishment of the actual generator. Most DNOs have standard novation agreements which will enable their connection Offer and its subsequent Acceptance to be novated from the original counterparty to the SPV.
It is therefore recommended that, as soon as the SPV is known, the developer checks whether its connection Offer and Acceptance relates to that legal entity. If not the developer should engage with the DNO as soon as possible to facilitate the novation of the Offer and Acceptance to the SPV and ensure that the lender is comfortable with such novation. This will make life easier for the lender and prevent any unnecessary delays in meeting conditions on which funding is based.
BE A STEP AHEAD
Finally, if developers want to really impress their lender, at the same time as seeking a novation they should also seek consent to the assignment in security as required by the lender to the extent that their Offer’s terms requires such DNO consent.
Louise Macleod Dundas & Wilson
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