Small Hydro Power in Austria Advisory Monrovia, April 2012
Small Hydro Power in Austria
Advisory
Monrovia,April 2012
Agenda
1. Market Overview
Austria:mountains & water
2. SHP in Austria
3. Operator Models
4. SHP vs. Diesel
BREAK
6. Business Plan
7. Case Study: 7. Case Study: “Cost effective analysis“
Small Hydro Power in Austria 2
General overview of the Austrian electricity market
PwCSmall Hydro Power in Austria 3
Hydro power plays the major role in Austria’s production mix for electricity
Gross electricity production vs. consumption in Austria
40 TWh
50 TWh
60 TWh
70 TWh
80 TWh
90 TWh
100 TWh
(1945 – 2010)
Imports
Wind, PV
Consumption
Thermal Power
68 TWh
Small Hydro Power in Austria 4
0 TWh
10 TWh
20 TWh
30 TWh
40 TWh
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Power
Hydro Power58.5 %
Source: E-Control Austria (2011)
Austria generates 7 % of its gross electricity production with the help of small hydro power plants (2010)
Gross electricity production in Austria 2010by technology
Hydro Power51.5%
Small Hydro
Wind2.9%
Others0.1%
by technology
Hydro Power 7.0%
Thermal Power (fossile)32.1%
Thermal Power (biogene)
6.4%
2.9%
Source: E-Control Austria (2011), Analysis PwC
Small Hydro Power in Austria 5
Overview of SHP in Austria
PwCSmall Hydro Power in Austria 6
SHPPs play a vital role in supplying Austria’s private households with electricity
around
supplying
around
3,381 SHPPs
producing
~ 5,000 GWh
supplying
1.7 mn households(50 % of Austrian households) Source: Verein Kleinwasserkraft Österreich
Small Hydro Power in Austria 7
A brief History of hydro power in Austria
Water wheels as a source of mechanical energy in mills
Up to 18th century
mechanical energy in mills
Existing wheels transformed for electricity production
Turn of century 18th /19th
Act for the nationalization of hydro power plants in AUT
1947 2nd Electricity Nationalization Act
Intensive development phase of large-scale HPP’s
Between 60’s until 90’s
End of 90’s until today
Partial privatization, modification of the 2nd
Electricity Nationalization Act
1987
ELWOG
1998
Extension and rejuvenation of SHPPs, pump storage HPPs
End of 90’s until today
Today
8
Electricity market liberalized, also for private households
2001
Small Hydro Power in Austria
Turnover of EUR 1.2 bn and 7,500 direct employees in HP
2010Source: BMLFUW, Erneuerbare Energien in Zahlern 2010
Relative to its size, Austria already has a large amount of SHPP installed – with potential for extension
Installed capacity of SHP in Austria vs. EU states + additional potential for SHPPs through upgrading and constucting (2004) SHPPs through upgrading and constucting (2004)
~750 MWinstalled + 970 MW
potential1.000
1.500
2.000
2.500
Inst
alle
d C
apac
ity 2
004
[MW
]
Small Hydro Power in Austria 9
-
500
Italy France Spain Germany Sweden Austria Portugal Finland Czech Republic
Poland
Inst
alle
d C
apac
ity 2
004
[MW
]
Installed Capacity Additional potential (new and upgraded SHPP)Source: European Small Hydropower Association (2005), Pelikan (2010), Analysis PwC
SHPPs (smaller than 10 MW) receive investment grants; in addition they can apply for a feed-in tariff
Specific programs of
Gr
an
ts
Investment grants for SHHPs
13.614.1
16
20
EU
R c
ent p
er k
Wh
Biogas
Specific programs ofAustria‘s provinces
• Direct subsidies
• Consultancy programs
in T
ar
iffs
Gr
an
ts Capacity of SHPP
Grant for total costs
Max. Grant in EUR/kW
< 0.5 MW 30% 1,500 EUR/kW0.5 to 2 MW 20% 1,000 EUR/kW2 to 10 MW 10% 400 EUR/kW
4.75.1
7.8
13.6
0
4
8
12
2003 2004 2005 2006 2007 2008 2009 2010
EU
R c
ent p
er k
Wh
Solid BiomassWindSHP
Market price
Small Hydro Power in Austria 10Source: E-Control, Ökostrombericht 2011
Fe
ed
-in
Ta
rif
fs
Austrian companies have a leading position in producing, installing and servicing system components
Austrian turbine-producers
Source: Verein Kleinwasserkraft Österreich
Small Hydro Power in Austria 11
Besides turbine-production other Austrian companies work in the fields of designing, constructing, electrically engeneering and operating HPPs
Operator models
PwCSmall Hydro Power in Austria 12
Utility with/ without own grid or connected
Industrial plant Isolated application
Operator models for HPP’s mainly differ by grid connection and utilisation of produced electricity
own grid or connected with public grid
• Own distribution grid (y/n)
• Supply of end customers (y/n)
• Own production facility (y/n)
• Production plant not connected to grid
• Outage = black out –Back-up needed (e.g. diesel generator, PV or battery-system)
• Own consumption (balance of electricity production and own consumption)
• Sale of SHPP-electricity to market (higher selling price
Small Hydro Power in Austria 13
facility (y/n)
• Only SHPP or IPP (Independent power producer)
• Appropriate for African rural areas
• AUT: Only used in detached houses (e.g. alpine cabins)
(higher selling price with proof of origin)
• Own grid, industrial use
no grid charges
Cost analysisComparison between SHP and Diesel
PwCSmall Hydro Power in Austria 14
General assumptions
100 kW - 4,000 full-load hours/year - 60 years time period
SHP is both economically and ecologically smarter
• Lower CO2-emissions
SHPP Diesel-electricity generator
• Capital expenditure: EUR 250/kW (exchange of generator: two times)
• Life cycle: 20 years
• Diesel consumption: 0.28 l/kWh ~ 0.305 EUR/kWh
• Cost of Diesel 1.09 EUR/l
• CO2-emissions/kWh: 0.734 kg
No maintenance costs included
• Capital expenditure: EUR 3,000/kW (once)
• Life cycle: 60 years
• Operation and maintenance costs: 0.025 EUR/kWh
(vary between 0.015 and 0.025 EUR/kWh)
• CO2-emissions/kWh: 0.040 kg
• Lower CO2-emissions
• Local economicdevelopment (construction, rejuvenation, local manufacturers)
• Strengthens national economy and reduces the dependence from others (no import of fossil fuel needed)• No maintenance costs included
Small Hydro Power in Austria 15
fossil fuel needed)
• Multi-purpose planning: power generation, drinking water supply, flood protection, irrigation
Total costs (60 years) SHPP
Diesel
generator
Capital expentiture in EUR 300,000 7 5,000
Operational expenditure in EUR 600,000 7 ,332,000
Total costs [EUR] 900,000 7,407,000
CO2-emissions [t] 960 17,591
Source: European Small Hydropower Association, PwC Analysis
3,000
Break Even analysis of SHPP and diesel electricity generator
After 2.5 years the SHP is more profitable than a diesel electricity generator – not to mention the CO2-emission
1,000
1,500
2,000
2,500
3,000
in k
EU
R
-
500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Cumulated costs SHPP Cumulated costs diesel electricity generator
Small Hydro Power in Austria 16
Business plan
PwCSmall Hydro Power in Austria 17
The business plan needs to reflect all financial and technical aspects in order to inform potential investors
General information
Corporate structure, Human Resources (staff,…), IT (hardware/software)
Technical information Financial information
Corporate structure, Human Resources (staff,…), IT (hardware/software)
• EPC (Engineering, Procurement, Construction) and any sub-contracts
• Feed-in tariffs, contracts regarding sale of electricity, projected prices and quantities
• Projected Capital Expenditure,
• Location, plan of site, property
• Planning and authorisations (permits, operating license, etc.)
• Technical data of all components
• Hydrology /geology of HPP and
Small Hydro Power in Austria 18
• Projected Capital Expenditure, Operation and Maintenance costs per year (costs of small and large audits)
• Taxation
• Bancable financial model with projected Profit and Loss statement, Balance Sheet, Cash flow
• Hydrology /geology of HPP and catchment area
• Precipitation stations in the area
• Projected full load hours and annual electricity production
Cost effective analysis / feasibility study (case study, financial model)
PwCSmall Hydro Power in Austria 19
Definition Project Finance
“Project Finance is financing the development or“Project Finance is financing the development orexploitation of a right, natural resource or otherasset where bulk of the financing is not to beprovided by any form of share capital and is to berepaid principally out of revenues produced bythe project in question.“(Vinter, Graham: Project Finance. A legal Guide. London 2006, p.1.)
Small Hydro Power in Austria 20
Financial Modelling is the basis for Project finance
• Establishment of an independent • Illustrate complex projects in a
Financial Modelling – Goals Characteristics of project finance
• Establishment of an independent project company („SPV”)
• Off-balance-sheet financing (newly established SPV acts as a debitor)
• Cash-flow-related lending (future cash flows affect financing)
• Risk sharing (risk allocation reduces individual risks)
• Illustrate complex projects in a structured manner
• Determine KPIs/ target figures for the valuation of the project
• Provide insight of effects of changed framework conditions
• Understand cause-and-effect
• Assess certainty of planned result
Small Hydro Power in Austria 21
reduces individual risks)
• Non-recourse vs. limited-recourse (no or limited liability of investors)
• Inexistence of payment guarantees (Sovereign, banks, corporation)
• Assess certainty of planned result
• Decision and controlling support
• Evaluation of the economic viability of projects
• Analysis of risks / opportunities
Different Project Structures require different Financing Plans
Corporate Finance Model Project Finance Model
• Financing partner provides funding to the corporate/ consortium (promoter)
• Provision of funds to the Corporate
• Exposure to credit risk of the corporate
• Project is realised and financed by a legally and financially stand-alone entity
• The company / consortium contribute equity as “sponsors”
Bank
DebtNon-/limited
recourse
Share-holders
Grants
State
Equity, Cash flow
Bank
DebtGrants
State
CollateralCash flow
Corporate
Small Hydro Power in Austria 22
Project
Collateral
Corporate (Sponsors)
Equity
SPV
Project
Typical process of project finance transactions
Development stage
Project analysis, negotiation of
project contracts
Financial modelling, structuring
Funding competition
Negotiations with
financiers
Technical feasibility
Financial feasibility
Mandate / lead group
Bank terms/ conditions
Market feasibility
project contracts structuringcompetition
financiers
Mandate / lead group
Syndication
Documentation
Financial Close
Small Hydro Power in Austria 23
Project assessment process and development of the Financial Model
Step 1: Market Analysis & Qualitative Risk assessment
Step 2: Business Planning – Cash flow Modelling
Step 3: Quantitative risk assessment - Rating
Step 4: Financial structuring - Covenants
Co
mp
lex
ity
of
the
fin
an
cia
l m
od
el
assessment Modelling
Cashflow
Cashflow calculation & waterfall
Total revenuesInterest income from cash balance- Total OPEX- Interest senior loans, junior loan & refinancing loan- Interest shareholder loan- Interest working capital loan- Taxes+/- Change in working capital+ Cash from MRA+/- Change in liabilities for unpaid interestOperating cashflow
Investments (incl. capitalized financing costs)Initial funding of DSRAInitial funding of MRAInvestment cashflow+ Drawdown equity+ Drawdown senior loan 1+ Drawdown senior loan 2
Risk Bucketing of Qualitative Factors
Gross Scorecard on Subfactor Scoring
Rating Class Lower limit Upper limit
Aaa 0,00% 0,00%
-
2.500
5.000
7.500
10.000
12.500
15.000
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
CFADS vs. Debt Service
CFADS Interest senior and refinancing loan
Repayment senior and refinancing loan
7.500
10.000
12.500
15.000
CFADS vs. Debt Service
Annuity
Constant
Result:���� Quantified
default risk and rating
Result:���� Credit
conditions
RUNmax
n= 5000 5000
Iterations 5000Median 48287Avereage 48335Standardab 3351
Min 34345Max 61169coefficient of variation6,9%Standard er. 47,4Kurtosis 0,048Schiefe 0,014
1 Monte Carlo
2 FALSE
3
5% f()@R
42.845
erw artete Abw eichung vom erw arteten Wert
Annuity Repayment faster
Constant Repayment is slower
n=2000 ca. 3min
Der Cash Flow at Risk ist die maximal
mit einer Wahrscheinlichkeit von 95 %
oder => CF Minimum mit 95% W
0%
1%
1%
2%
2%
3%
3%
4%
4%
3434
5
3542
9
3651
3
3759
7
3868
0
3976
4
4084
8
4193
2
4301
6
4409
9
4518
3
4626
7
4735
1
4843
5
4951
8
5060
2
5168
6
5277
0
5385
4
5493
7
5602
1
5710
5
5818
9
5927
3
6035
6
rel Häufigkeit
RUNRUN
var_setvar_set
7.408
369
384 415 456
2.321
2.750 2.250 2.250
719
867 700 500
150
217 258 303
878
1.600 2.500 3.400
990
1.353 1.705
2.142
520
877 1.557
2.113
3.274
3.451
4.188
5.121
5.000
10.000
15.000
20.000
25.000
in M
W
14.998
16.629
7.257
17.073
Plan
Co
mp
lex
ity
of
the
fin
an
cia
l m
od
el
Development of the project / timeline
+ Drawdown senior loan 2+ Drawdown junior loan+ Drawdown shareholder loan
Result:���� Bankability
Result:� Pre
Feasibility yes/no
Aa 0,00% 0,05%A 0,05% 0,35%Baa 0,35% 1,20%Ba 1,20% 6,80%B 6,80% 18,13%Caa 18,13% 43,88%
Fundamental Project Risk Scoring Range Bucket of Risk
Aaa-A 0,4% Low
Baa 1,2% Low-MediumBa 6,8% Medium-HighBelow Ba 6,8% High Risk
Fundamental Project Risk
Fundamental Project Risk Bucket Low
-
2.500
5.000
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
CFADS Interest senior and refinancing loan
Repayment senior and refinancing loan
-
2.500
5.000
7.500
10.000
12.500
15.000
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
CFADS vs. Debt Service
CFADS Interest senior and refinancing loan
Repayment senior and refinancing loan
Sculpted / Sweep
3.806
7.408
3.500 3.500 3.500
384 415 456
-2009 2010 2011 2012 2013
Small Hydro Power in Austria 24
Value Drivers, influencing the profitability of SHPPs
SHPPSHPP
Technical character-
istics
Site character-
istics
Operation and maintenance costs per year
Cost of capital per year
Costs of capital
Project duration
Costs of site construction,
turbines
Profit / Loss
Annual energy production
Total costs per year
Feed-in tariff/ Green
Certificates
Small Hydro Power in Austria 25
Case study
PwCSmall Hydro Power in Austria 26
Definition Financial Model
„A financial model is a simplified illustration of reality that focuses on specific aspects and of reality that focuses on specific aspects and allows the analysis of different scenarios.“
BUT a Financial Model can not illustrate the reality 1:1!The decision what shall be considered is crucial:
− Only various aspects of the reality and their consequences can be considered
− Too little inputs: Results are not representative
Small Hydro Power in Austria 27
− To many inputs: Model is too complex and vulnerable to errors
“A model is only as good as the assumption behind it.”
Major inputs for deriving the profitability
PwCProject Monrovia - Example SHPP in AustriaInputs
General InformationGeneral InformationProject nameCountryCurrency (of financing)Corporate Tax Rate
Project key datesStart End
Model timing 2012 2072Construction period 2011 2012Operational period 2012 2072Duration of operation 60Installed capacity MW 2Annual production/MW MWh 4,000Total annual reference productionMWh 8,000
MonroviaAustriaEURk25.00%
Small Hydro Power in Austria 28
Total annual reference productionMWh 8,000Investment cost for 1MWkEUR/MW 2,300Investment grant (20% for <2MW)kEUR/MW 460Total Investment cost kEUR 3,680
Electricity price EUR/MWh 51.3Cost of Debt 4%Equity Share 40%Debt Share 60%Operational expenditure ct/kWh 2.5Operational expenditure kEUR/MW 0.0250
The Financial Model calculates the NPV and the IRR for the investment depending on the inputs
2068 2069 2070 2071 2072Calculation of the NPV and IRRYear 2011 2012 2013 2014 2015 2016
8,000 8,000 8,000 8,000 8,000148.1 151.1 154.1 157.2 160.3
1,184.9 1,208.6 1,232.8 1,257.5 1,282.6(200) (200) (200) (200) (200)984.9 1008.6 1032.8 1057.5 1082.6
83.12% 83.45% 83.78% 84.10% 84.41%
(61) (61) (61) (61) (61)923.6 947.3 971.5 996.1 1021.3
77.95% 78.38% 78.80% 79.22% 79.63%
(230.9) (236.8) (242.9) (249.0) (255.3)692.7 710.5 728.6 747.1 766.0
- - - - -- - - - -
61.3 61.3 61.3 61.3 61.3
Year
Annual production MWh 8,000 8,000 8,000 8,000 8,000Electricity price EUR/MWh 51.3 51.3 51.2 51.5 53.1Revenues kEUR 410.4 410.4 409.6 412.0 425.0 - OPEX kEUR (200) (200) (200) (200) (200)EBITDA kEUR 210.4 210.4 209.6 212.0 225.0EBITDA margin 51.27% 51.27% 51.17% 51.46% 52.94%
- Depreciation kEUR (61) (61) (61) (61) (61)EBIT kEUR 149.1 149.1 148.3 150.7 163.6EBIT Margin 36.32% 36.32% 36.20% 36.57% 38.50%
- Adjusted taxes kEUR (37.3) (37.3) (37.1) (37.7) (40.9)NOPLAT kEUR 111.8 111.8 111.2 113.0 122.7
- Interest Expenses kEUR (75.7) (72.6) (69.6) (66.5) (63.4)- Repayment kEUR (88.3) (88.3) (88.3) (88.3) (88.3)+ Depreciation kEUR 61.3 61.3 61.3 61.3 61.3
Small Hydro Power in Austria 29
61.3 61.3 61.3 61.3 61.3- - - - -
754.0 771.8 789.9 808.4 827.3
0.11 0.10 0.10 0.10 0.09
80.6 79.4 78.1 76.9 75.6
+ Depreciation kEUR 61.3 61.3 61.3 61.3 61.3- Investments kEUR (3,680.0) - - - - -Net Cash Flow kEUR (3,680) 9.1 12.2 14.7 19.6 32.4
Discount rate 4.0%Discount factor 0.96 0.92 0.89 0.85 0.82
Net Present Value kEUR 5091.1 8.7 11.3 13.0 16.7 26.6
IRR 5.0%
EBIT Earnings before interest and taxes IRR Internal rate of returnEBITDA NOPLAT Net operating profit less adjusted taxes
NPV Net present valueOPEX Operational expenditure
Earnings before interest, taxes, depreciation and amortisation
7,000
Sensitivity analysis - NPV vs investment costs
9,000
Sensitivity analysis - NPV vs full load hours
Full load hours and investment costs are highly sensitive to the NPV
5,682.35,497.5
5,312.85,128.1 4,943.3
4,758.64573.8
2,000
3,000
4,000
5,000
6,000
7,000
kEU
R
2,544.6
3,393.4
4,242.3
5,091.1
5,939.9
6,788.8
7,637.6
3,000
4,000
5,000
6,000
7,000
8,000
9,000
kEU
R
-
1,000
2,000
1,500 1,750 2,000 2,250 2,500 2,750 3,000
Investment costs
2,544.6
-
1,000
2,000
2,500 3,000 3,500 4,000 4,500 5,000 5,500
Full load hours
Small Hydro Power in Austria 30
Michael Sponring - Contact details
Michael SponringMichael Sponring
Erdbergstrasse 2001030 Vienna, Austria
Phone: +43 1 501 88-2935 Mobile: +43 699 111 98 902
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