FINANCING WIND POWER PROJECTS
Project Financing is the financing of long term projects based upon a complex financial structure where project debt and equity are used to finance the project rather than the balance sheet of the project sponsors.
Corporate Financing is the financing where past financial statements of borrower, especially balance sheet, is evaluated for the repayment of the loan.
Environmental Aspects
Design/Construction/Commissioning
Inputs
Performance
O&M and Staffing
Financing
Political & Regulatory Environment
•Equipment/Technology•Technology Supplier•Pot. Contractual Frustration•Quality of planning by developer
Compliance with: •Current local regulations•Equator Principles•Changes in regulations and public perception
•Likely ramp up of production•Performance during steady state of operation for the production of electricity•Life span of assets
Production Unit
Sale of Production
•Demand•Duration of PPA contract•Fixed price vs Revisable Price•Payment conditions•Credit worthiness of purchaser
•Depending on the nature (wind, solar, hydro)•Resulting from human activity (by product of other production or specific production)
•Health & Safety•Support from Suppliers•Contractual Agreements•Availability of Equipments•Quality of organisational chart•CVs of key management personnel•Training programmes
Lenders’ Perspectives on a ProjectLenders’ Perspectives on a Project
Lenders’ Perspectives on a ProjectLenders’ Perspectives on a Project
Financing:
Structure of debt financing requiredo Currencies, amounts maturitieso Hedging (interest rates, biofuel contracts)
Credit enhancement mechanismso Covenants on debt, including minimum debt service coverage ratioso Contingency funding for delay in start upo Possibility to use free cash flows above debt service to repay debt in advance, rather than to
distribute dividendso Guarantee of part of all of debt by project developer or other entity, backed by assets of cash
flows
Sources of financing available based on appetite, regulations, timing of transaction.*** o Local bankso International banks with project finance desks and knowledge of the renewable energy sectoro Export agencies which guarantee up to 85% of the debt used to buy equipment and/or services
from their home countryo Dedicated funds
*** Especially important for large projects, since the bank initially providing the funding will then syndicate most of the debt to retain only partial exposure
Lenders’ Perspectives on a ProjectLenders’ Perspectives on a Project
Political & Regulatory Environment:
Political Stability
Minimization of Contingencies
Transparency of Regulatory Environment
Reliable Long Term Tariff
Governmental Obligations and Local Laws
Project Finance Steps for Wind Power ProjectsProject Finance Steps for Wind Power Projects
Wind Consultancy(Reliability of Wind Data)
Equipment/Technology Consultancy
Environmental Consultancy
Insurance Consultancy
Local Legal Consultancy
International Legal Consultancy
Financial Consultancy
Wind Consultancy(Reliability of Wind Data)
Equipment/Technology Consultancy
Environmental Consultancy
Insurance Consultancy
Local Legal Consultancy
International Legal Consultancy
Financial Consultancy
Main ContractorMain Contractor
PurchaserPurchaser
RegulatorRegulator Project FacilitatorProject Facilitator
GovernmentGovernment
O&M ContractorO&M Contractor EPC ContractorEPC Contractor
GuarantorGuarantor
Technology Supplier
Technology Supplier
Project CompanyProject Company
Project Finance Scheme Project Finance Scheme
ZORLU ENERGY
PAKISTAN
49.5 MW
WIND FARM PROJECT
9
Pakistan Power Sector – Total Installed CapacityPakistan Power Sector – Total Installed Capacity
10
Peak Demand ProjectionPeak Demand Projection 2007–2032007–20300
•First Wind Power Project in Pakistan.
•Located at District Thatta, Jhimphir (app.
100 km east of Karachi)
•49,5 MW capacity consisting of 34 WTGs.
•Indigenous Electricity Generation
•125 Mio USD expected costs.
Zorlu Energy Pakistan Wind Power ProjectZorlu Energy Pakistan Wind Power Project
LOI receivedLand allocated to ZORLUPre- and Final Feasibility study completedSoil study completedSeismic study completedEIA study completedTransportation study completedGrid study completedGeneration License received Tariff agreedConstruction on going
60,000 HOUSHOLS IN PAKISTAN WILL BE USING ENERGY OF THE WIND BLOWING IN PAKISTAN TOTALY :
INDIGENEOUS RENEWABLE
GREEN
ProjectProject StatusStatus
Why Invest in Pakistan in Wind Farm ?
Because Pakistan !
No Hostile Environment for Foreign Investors
Friendly and Efficient Government Bureaucracy
Independent Regulator
Attractive Demand and Supply Scenarios
Level of Commitment for Higher Use of Renewable Energy
Government Strategy to Utilize Indigineous Resources
Available Infrastructure
The system AEDB, NEPRA and WAPDA designed is very suitable for project financing...
Regulatory Policy-maker
Tariff Structure
Loan Power Purchase Agreement
Governm
ent of Pakistan
Governm
ent of Pakistan
Regulated Market With State Control
-Non-escalable Energy Component-Debt Service: the principal and interest payments expressed in PKR of the part of total project debt libelled in foreign currency.-Return on Equity: the dividend expected to be distributed each year of the project before payment of the withholding tax, in order to achieve a 15% IRR over the life of the project post withholding tax
-Escalable Energy Component
-O&M Costs – Local: the amount of cash outflows linked to operations and maintenance taking place directly in PKR and expected to take place-O&M Costs – Foreign: the amount of cash outflows linked to operations and maintenance expressed in PKR but effectively taking place in foreign currency and expected to take place-Insurance
Tariff StructureTariff Structure
Possible Concerns for Investors In General:
Regional Risks Political Unstability State of Unrest/Violence in The Country Economic Problems
In Particular: Land Ownership Claims Possible Delays in Due Payments by NTDC Security Timely Grid Connection Reliable Wind Data Unrealistic Loan Conditions Accepted in The Tariff
Complications in Financing the Project Complications in Financing the Project
Being the first wind power project in Pakistan
Political risks in Pakistan
Increase in perceived riskiness of Pakistani debt on
financial markets
Obligatory interest rate(LIBOR+3%) for financing
the Project
Thank you very much for your kind attention...