Financing of Renewable Energy Projects

1. Presentation of the Green for Growth Fund

2. Introduction to Renewable Energy

Agenda

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2. Introduction to Renewable Energy

3. Introduction to the specifics of Hydro Power Plants

4. Case study of a hydro project

5. Financing of Renewable Energy Projects

6. Regulatory Conditions for Bankability

1

Preparatory Summary (from previous presentations)

Project Participants

• Developer / Sponsor

• Landowners / Concession

• Authorities / Regulatory

Bankable documents

• Feasibility study

• Business plan

• Site, design, project participants

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• Authorities / Regulatory

• EPC / Turnkey construction

• O&M contractor

• Raw material provider

• Offtaker

• Debt provider

• Capital expenditures (CAPEX)

• Energy Revenues

• Operating expenditures (OPEX)

• Cash flow calculations with tax

assumptions

• Financing strategy

• Legal documentation

Preparatory Summary

Corporate Finance

Bank(s)

Disbursement of funds

Provision of investor data

for corporate due diligence

InvestorInvestment (with bank funds

and own equity)

Investor develops the project and/or

evaluates the project risk

Biomass Project SPV

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Project Finance

Disbursement of senior and/or

mezzanine funds directly to the SPV

Provision of project data

for project due diligence InvestmentBiomass Project SPV

Bank(s)

InvestorGGF

Equity

Debt



Preparatory Summary

Corporate Finance

Bank(s)


Provision of investor data

for corporate due diligence

InvestorInvestment (with bank funds

and own equity)



Biomass Project SPV

for

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Project Finance

Disbursement of senior and/or

mezzanine funds directly to the SPV

Provision of project data

for project due diligence InvestmentBiomass Project SPV

Bank(s)

InvestorGGF

Equity

Debt



Project Finance

Project data

Bank(s)

GGF

What means Project Finance?

• Project company (SPV)

• Capital structure (Debt Capacity � Equity)

• Debt Structure (Syndication, Sub debt…)

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Project SPV

Energana d.o.o.

Investor

Equity

Debt

• Cash flow waterfall

• Due diligence

• Technical

• Legal & Tax

• Economic

• Project collateral

• Non-recourse vs. limited recourse

• Insolvency Proceedings

Eligibility of Financing (Bank‘s perspective)

Renewable Energy Technology must be eligible by the Bank, here GGF:

• Solar (thermal and photovoltaic)

• Small hydro (<30 MW)

• Biomass (including Biogas)

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• Geothermal

• Small wind farms (<30 MW)

Limitations for Bank’s:

• Bank’s long term funding is condition for long term funding to the project

• Long term fixed interest rate hedging (interest swaps provided by Bank)

• Credit margin according to project & country risk

• Exposure limitations (regarding technology or client )

Typical Capital Structuring

for

Total invest = 10mn

Senior Debt

Total invest = 20mn

Senior Debt divided

among different

Lenders

Total invest = 20mn

Senior Lender

con

stru

ctio

nC

ash

flow

wa

terfa

ll

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Equity

3mn

Senior Debt

provided by one

Lender

7mn Bank

8mn

Equity

4mn

Lenders

GGF

8mn

Equity

4mn

Senior Lender

12mn

Ca

sh in

ject

ion

du

rin

gco

nst

ruct

ion

wa

terfa

lld

urin

go

pe

ratio

n

Mezzanine Lender

4mn

Setting up a Cash flow Model

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Define Input Data

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Create (semi-) annual model

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Extend this model with the

periods of project lifetime


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Calculate Debt Service Cover Ratio (DSCR)

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• DSCR measures how many times the cash flow

after debt service (CFADS) can repay the

scheduled Debt Service – here 1.20 and 1.22

• Minimum DSCR are usually defined in the bank‘s

risk policy with consideration of the financing

Debt Service Cover Ratio (DSCR)

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risk policy with consideration of the financing

structure, resource & technology risk

• The higher the risks, the higher the DSCR should

be to have more cushion in downside years

• The DSCR can be used as loan covenant and

prevent dividend payments (distribution lock-up)

• With the min. DSCR the debt capacity can be

calculated � in any year the minimum DSCR may

not fall below the DSCR threshold

11

Cashflow Available for Debt Service

Debt Service (Repayment+Interest)

Debt Capacity

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How much debt can be burdened to the project?

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Adapt the loan amount until the min. DSCR has been reached

Content of more detailed Cashflow Models

Consideration of Reserve Accounts

• Debt Service Reserve

• Maintenance & Repair Cost Reserves

• Decommissioning Reserves

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• Interest / FX Risk Reserves

Debt Structuring

• Grace periods

• Linear Repayment / Annuity Debt Service / Debt Sculpting

• Cash Sweep

• Other lenders (pari passu, subordinated)

Content of more detailed Cashflow Models

Scenario Analysis (Impact on Cashflow)

• Construction Delays

• Changes in Interest Rate

• Changes in Foreign Exchanges

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• Unexpected Increase of OPEX

• Cut-down of Feed-in-Tariff

Other

• Tax modelling (loss carryforward, depreciation methods…)

• Income statement & Balance Sheets (regarding overindebtedness)

Structuring of a Debt Service Reserve Account

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Structuring of a Debt Service Reserve Account

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Thank you for your attention!

CONFIDENTIALContact: Dominic Hereth, Phone: +49 (0) 69 977 876 50-88, Fax: +49 (0) 69 977 876 50-10, E-Mail: [email protected]

Documents

Financing of Renewable Energy Projects