Supply chain finance can be used as a tool to help optimise bids for windfarm concessions, says Michiel Deurwaarder, senior strategic buyer at European energy company Vattenfall speaking at the Working Capital Forum Europe on 1st December.
Ahead of putting together a bid, the Sweden-based company qualifies its suppliers and offers them opportunity to participate in a SCF programme. It signs memorandums of understanding (MoUs) with top suppliers to consider SCF for any project.
Supplier participation in the programme allows Vattenfall to better manage its cash flow and boost its return on capital employed (ROCE) helping the company put together a competitively priced bid for the concession.
“It delivers a competitive edge for Vattenfall to acquire the strategically important projects to shift energy generation from fossil to renewables,” Deurwaarder’s presentation stated.
Depending how long the windfarm takes to build, what payment terms are achieved with suppliers and the expected payback of a project, the expected ROCE is increased by 0.2 to 0.4 percent. This improvement could be key in winning a concession.
Under the terms of the SCF programme, payment terms could be extended to 120 days.
However, those suppliers on the platform benefit by accessing much earlier payments while Vattenfall enjoys extended payment terms.
Vattenfall first launched its SCF programme in 2017. Since then, it has financed €4,377 million-worth of transactions. It has 95 suppliers live and trading on the platform.
It partnered with tech company CRX Markets to provide the platform and works with banks including ING, Helaba, BNP Paribas, RBS and SEB.
The company is looking at how to add a “real and verifiable” ESG component to the programme.
However, Deurwaarder sees some challenges on horizon. SCF could be undermined by changes in IFRS rules and how SCF is treated on balance sheets. Rising interest rates could threaten the appeal for suppliers to participate in programmes.
Furthermore, governments could decide to ban longer payment terms which would lessen the benefit for Vattenfall.
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