Sequoia Investment Management Have Financed a 55 MW Solar Portfolio Located in Poland

Watson Farley & Williams and Solivan Pontes have advised Sequoia Investment Management on the project financing of a 55 MW solar portfolio located in Poland. Janyszek Legal advised the borrowers.

The transaction is the first large project financing under the newly implemented auction support systems in Central-Eastern Europe.

Construction of the entire portfolio is expected to be complete at the end of August 2018.

Sequoia, based in London, is a specialist infrastructure debt asset management company.

The WFW London team advising Sequoia was led by Finance Partner Daisy East, assisted by Associates Jessica Greenwood, Suki Rees, and Adam Blythe. The Solivan Pontes team advising on Polish legal matters was led by Christian Schnell, head of the firm’s Energy M&A team, and Banking & Finance Partner Justyna Chabocka, joined by Associates Piotr Dziwniel and Olga Wasilewska.


Interview with Dr. Christian Schnell, Partner, Solivan Pontes, Warsaw

What unique challenges did this transaction present and how did you overcome them?

This financing of a 55 MW solar portfolio located in Poland is the first project financing under the newly implemented auction support systems in Central-Eastern Europe. At the end of 2016 and mid-2017, the Polish Energy Regulatory Office organised so-called ‘test auctions’, which were mainly dedicated to up to 1.0 MWp ground-mounted PV generators. Approximately 300 MWp succeeded at auction, and will benefit from a 15-year indexed feed-in premium via Poland’s new Contracts for Difference (CfD) subsidy. Renesola, a NYSE listed worldwide solar project developer, and a BNEF tier 1 solar module manufacturer with its headquarters in China, successfully bid for 55 projects. However, due to recent experience with the unstable green certificate support system, a quota system which was phased out for new entries on 1 July 2016, Polish banks are reluctant to finance renewables under the new auction support system. Risk departments block new investments, although the CfD subsidy provides a predictable cash flow, and the CfD is concluded with a fully state-owned settlement company.

As a result of negative press, many banks do not recognise that the ‘political climate’ for RES in Poland starts to change. The new auction support system is the only support system in Poland notified with the EU Commission (subject to implementation of changes to the support system), and Poland is far behind its 2020 RES targets. With missing the RES-heat and RES-transportation targets, Poland is in good company with major players like Germany or France, but there is no excuse for missing the RES-electricity target. The EU Commission requires Poland to at least contract in feed-in premium auctions between mid-2018 and the end of 2020, such production volume which is required to fulfil the RES-e target, i.e., further increase by 10 – 12 TWh annual production.

London-based Sequoia as a specialist infrastructure debt asset management company with four decades of experience was willing to take the risk as an early market mover. As Sequoia has already been advised by Watson Farley Williams in various jurisdictions, the relationship of trust based on strong regulatory experience helped to overcome general uncertainty with the new support system.


How did you ensure due diligence was effectively done for this?

The legal due diligence was accompanied by a technical due diligence performed by WindProspect, and the longstanding working relationship between the legal and technical advisor helped overcome typical information gaps between advisors. As in many jurisdictions, the qualification of a project for auction does not mean that this project is also ready to build. Therefore, weekly tracking of open issues was required, e.g., securing the cable line connection between the PV generator, and the connection point to public grid, to successfully close the conditions precedent list in due course.

Further, Renesola engaged an experienced EPC for construction work, which is advisable to clear last-mile technical issues prior to drawdown. Our firm’s role was also to coordinate and cross-check other service providers, so that Sequoia were confident that the projects were prepared for construction and subsequent commissioning.


What do you think were the top pieces of advice for Sequoia Investment Management when advising them through the project?

Sequoia had to understand how the support system functions. At first glance, the Polish auction support system has been designed by utilities, and is therefore less transparent than the CfD support system in the UK, which was designed with remarkable input from the financing sector. For example, the CfD is not based on a written contract, but on an instruction issued by the settlement company. Therefore, it must be understood that ultimately the Polish state is liable for any malfunctioning of the support system.

Further, the new support system has not been formally notified with the EU Commission prior to signing the term sheet, although it was clear that the EU Commission will accept PV auctions organised by the Polish government as ‘test’ auctions. However, in parallel to closing, an appropriate notification decision had been issued. Finally, due to shortages of PV modules, at the end of 2017 delivery contracts required major changes with very short notice, and an immediate response from Solivan was required to evaluate the related risks.


Did the Polish legal matters ever clash with the other international jurisdictions involved? If so, how did you navigate your team around this?

The Polish project financing market is accustomed to English law facilities agreements. Therefore, security packages typically require a more non-standard approach, as securities which under English law may require only one document, require a large set of documents under Polish law. Polish law, as with the law of other CEE jurisdictions, is by far less flexible than English law.

Therefore, Solivan and WFW had to develop an optimal security package, which on the one hand provides required security to the lender, but on the other hand does not provide an excessive number of documents and enormous costs for notary and court fees borne by the borrower.

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