Robotics Project Financing

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Robotics Project Financing

The use of an extended time horizon, the incorporation of a tailored force majeure clause and the selection of the right type of offtake agreement are three of the most widely discussed best practices in structuring capital-offtake agreements for any industry.

Identification of Best Practices

Extended Time Horizon

Force Majeure Clause

Right Variety/Type of Offtake

  • Meanwhile Global Trade Funding, ReedSmith, Bracewell, Lexology and Project Finance International are among the industry experts that highlight the variety of existing and emerging types of capital-offtake agreements, and the relevance of selecting the format that best fits the particular industry/business need.
  • For example, Global Trade Funding reports seven major forms of capital-offtake agreements:
    • Take or pay contracts, which require the off-taker to satisfy payment requirements irrespective of product delivery.
    • Take-and-pay contracts, a slightly less common format the requires the off-taker to pay only for the product it receives.
    • Throughput contract s, which apply to pipeline agreements and involve minimum volume requirements.
    • Power purchase agreements (PPAs), which are most "commonly" associated with "electrical power projects in developing countries" and frequently involve a government off-taker.
    • Contract for differences, which is more like a synthetic or virtual offtake, wherein the project company sells its product directly to the market (rather than the off-taker), and the off-taker or project company makes a separate payment to their counterparty if market prices are lower or higher than agreed upon levels (similar to a short or long stock sale).
    • Hedging contracts, which are typically used for commodity products such as oilfield projects.
    • Long-term sales contracts , which establish volume exchanges but do not predetermine associated prices. Instead, prices are based on market prices or an agreed-upon market index.
  • Project Finance International adds that a "new wave of unorthodox offtake arrangements are being underwritten and financed," that involve more flexible pricing, project reserves, cash sweets, unique amortization profiles.
  • Meanwhile, Bracewell and Lexology suggest that selecting the right type of capital-offtake form is critical given that "different market participants prefer different offtake structures."
  • For example, corporate purchasers generally prefer synthetic or "contract for differences" formats, whereas risk solution providers are attracted to hedging contracts.
  • Similarly, TerraForm Power CEO Carlos Domenech asserts that creating "solid" offtake agreements that are "well-built" for the intended audience is essential for attracting "high-quality off-takers," thereby limiting risk and creating project predictability.
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Sources