Renewable Energy Project Financing

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    17-Jun-2015
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This presentation focuses on risk assessment and financing options for renewable energy projects. Learn about carbon finance prospects for renewable energy projects.

Transcript of Renewable Energy Project Financing

  • 1. Energy Management ConferenceRenewable Energy and ProjectFinance

2. Presentation1. Introduction to Viability Africa2. Project Components for Success3. Energy Finance Sources4. Venture Components for Success 3. Our VisionViability Africa, LLCs overriding objective is to operate as theleading development and financial advisory firm for cleantechnology projects and ventures across East Africa. Viability Africawill support investments that exhibit economic, technical,environmental, and social viability and sustainability. The growth ofour team will focus on the recruitment and development of EastAfricans seeking to become the future business and political leadersof their country and region. Our Founders have committed toreinvesting a significant portion of the companys earnings to ensurethe company will have long-term sustainability and impact, and tosolidify Viability Africa as a resource available to the market foryears to come as the clean technology sector grows in relevanceand impact across East Africa. 4. Viability Africa, LLCCarbon Energy Environment Asset Development Transaction Management Asset Monitoring Feasibility Studies Project Financing Financial Advisory Project Management Environmental and SocialImpact Assessments Environment AuditsFounded in 2009, Viability Africa has headquarters in Nairobi,Kenya with near term expansion plans to establish offices in Dar esSalaam, Tanzania. Our current portfolio crosses a number ofcountries in sub-Saharan Africa and includes a diverse range ofinnovative technologies and solutions. 5. Presentation1. Introduction to Viability Africa2. Project Components for Success3. Energy Finance Sources4. Venture Components for Success 6. Clean Technology Project Finance insub-Saharan Africa Fundamentals Project Company High leverage (60-80%) Debt service dependent on future cash flows, not necessarilyassets Non-recourse Financing Main security in project contracts Investors Equity Lender Developer 7. Project Finance Characteristics Special purpose vehicle (SPV), ring fenced project Finite life Often formed in later stages of development and assetsare transferred (not recommended if can be avoided) Appealing as it keeps financing exposure limited to theproject Traditional for infrastructure projects such as powerplants, toll roads, etc but also can be applied toagriculture projects and innovative distributionprograms (financing against fixed service or productdelivery contracts) 8. Project Documents Traditional Required Documentation Feasibility Study EPC Contract Off-take (PPA) Land Agreements Environmental Requirements (EIA, Licenses, WaterPermit, etc) Input Supply (Biomass Project) Operations and Maintenance Contract Government Support Agreement 9. Project Example 5 MW Hydro Project Documents EIA Approved Feasibility Study EPC Draft ERPA Signed PPA Executed However Timeline Delays that should have been anticipated Trust your partners (lender, adviser, sponsor) Government Negotiations 10. Lessons from Project Finance Transactionin sub-Saharan Africa Bring a lender into conversations on PPA and otherproject documents (EPC) before execution Ensure land is acquired/rights secured early Do not underestimate importance of EIA Be prepared to review and revise almost every documentto meet satisfaction of financiers Accept that as a developer with limited funding you willhave to give up majority ownership Do not get greedy! 11. Project Finance: Recommendations As a Developer Make a checklist and be realistic in what you willneed to develop a project and what you willultimately receive when it is fully financed Many developers spend all of their money, fall short ofgetting the project to a bankable state, and ultimatelymake nothing As a Lender/Investor Diligence, diligence, diligence Land, PPA, EPC, Developer Capabilities, DeveloperAttitude 12. Presentation1. Introduction to Viability Africa2. Project Components for Success3. Energy Finance Sources4. Venture Components for Success 13. Energy Finance Sources1. Focused Equity Funds2. Commercial Banks3. Carbon Markets4. Grants5. Other 14. Focused Equity Funds Impact Equity Investors Social Metrics Environmental Metrics Financial Returns Additional Focus Renewable Energy Clean Technology Climate Innovation Most investors are cautious to base investments onreturns from carbon markets, so underlyinginvestment must provide viable returns andsustainability 15. Focused Equity Funds Jacana East Africa Climate Venture Fund $10-20 million in size Focus on early stage investments in promisingclimate friendly projects and ventures Average initial investment size $200,000 Average investment size $1,000,000 Experienced team in investing locally and in cleantechnology space 16. Energy Finance Sources1. Focused Equity Funds2. Commercial Banks3. Carbon Markets4. Grants5. Other 17. Commercial Banks Energy Finance New Space/Lack of Capacity at InstitutionalLevel Development Finance Institutions Acting as Catalyst AfD Facility (CfC Stanbic Bank and Co-Operative Bankof Kenya) Uganda Global Energy Transfer Feed in Tariff (GET FiT)Program Allow Banks to Build Capabilities 18. Commercial Banks Energy Finance Strong Level of Interest Nearly ever local commercial bank in the markethas an interest in exploring energy transactions Key Variables Insurance Guarantees Equity Sponsors Balancing act between market and lenderrequirements 19. Energy Finance Sources1. Focused Equity Funds2. Commercial Banks3. Carbon Markets4. Grants5. Other 20. Carbon Markets Regulatory Markets Clean Development Mechanism Price Volatility Registration Risk General Viability Voluntary Markets Gold Standard Premium Pricing Sustainable Impact Monitoring and Measurement Verified Carbon Standard Popular Mechanism Lower Price Point Others 21. Carbon Markets Commonalities Challenging and costly registration process Intense data monitoring requirements Requirements for external parties (Consultants,Auditors, Brokers, etc) Uncertainty 22. Carbon Markets Transaction Structure Difficult to get creative with todays pricing, buttraditionally: Fixed Forward Floor + Floating Percentage Pure Floating Floor + Floating Percentage with Cap Forward Payments (Rare) Costs Covered 23. Carbon Markets Sub-Saharan Africa Premium Few projects Sustainable impact Least Development Countries (LDCs) Innovative Solutions for Rural Populations Market Drivers Demand Participants Supply Constraints/Regulations 24. Energy Finance Sources1. Focused Equity Funds2. Commercial Banks3. Carbon Markets4. Grants5. Other 25. Grants Number of programs, large and small USTDA (United States Trade DevelopmentAgency) AECF (Africa Enterprise Challenge Fund) Typical Characteristics of Grant Programs Free money, so many bidders/applicants Timely process for review Are subsidies sustainable? For the right projects 26. Energy Finance Sources1. Focused Equity Funds2. Commercial Banks3. Carbon Markets4. Grants5. Other 27. Other Clean Energy Finance Mechanisms High Net Worth Individual Donations Foundation Support Direct Corporate Support Intergovernmental Financing Micro-finance Climate Programs Crowd Funding New Mechanisms on the Rise 28. Presentation1. Introduction to Viability Africa2. Project Components for Success3. Energy Finance Sources4. Venture Components for Success 29. Small and Medium Size Businesses insub-Saharan Africa Investment Criteriao Quality of Management Teamo Business Caseo Growth Potentialo Unique Competitive Advantageso Exit Potential 30. Small and Medium Size Businesses insub-Saharan Africa Barriers to Access to Financeo Unclear Vision/Strategyo Lack of Competitive Advantageo Incomplete Business Plan and Modelo Unprofessionalo Recommend Consultanto Proof of Concept 31. Small and Medium Size Businesses insub-Saharan Africa Funding Optionso High Net Worth Individual/Angel Investoro Venture Capitalo Private Equity/Growtho Debt Groupso InReturn Capitalo GroFino Invested Developmento Many options emerging in the market 32. Small and Medium Size Businesses insub-Saharan Africa Negotiation Tipso Seek a Fair Deal for both Partieso Accept Helpo Consultants and Investorso Weigh Optionso Give Yourself Timeo The more in a rush you are, the more you willeither agree to terms that are not in your favor orscare away the investoro Be Prepared from the Start 33. Questions?Kyle DenningManaging DirectorViability Africa, LLCwww.ViabilityAfrica.comKyle.Denning@ViabilityAfrica.com