Wind Energy Project Financing – Past Experiences and Possibilities for Turkey Wind Energy Seminar Marcel Gerritsen Global Head of Renewable Energy and Infrastructure Finance Strictly confidential Rabobank International
Wind Energy Project Financing –Past Experiences and Possibilities for Turkey
Wind Energy Seminar
Marcel Gerritsen
Global Head of Renewable Energy and Infrastructure Finance
Strictly confidential
Rabobank International
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Contents
• Rabobank Structure, Group and Network
• Renewable Energy and Infrastructure Finance
• Overview of the Wind energy sector
• Financial Markets
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Rabobank International3
Rabobank Group offices and rankingsRabobank Group has operations in over 43 countries
Rabobank Group has operations in over 43 countries (RI offices in 29 countries), 349 foreign places of business,55,000 employees with EUR 570.5 bln assets full year 2007
Expertise driven banking services in a/o Food and Agribusiness and Renewable Energy, supported by dedicated sector research teams
Some of our Rankings• Runner up in the Financial Times 2008 Sustainable Banking Awards• #1 in Bank “Sustainability” (rated by SIRI, 2007)*• #2 globally on Bond Trading platform• #4 World’s Safest Bank in 2007 by Global Finance Magazine; in the Top-10 since 2001 (world safest privately owned bank, others are
guaranteed by governments).• Top-10 companies to work for in Europe by Fortune Magazine (number one in the Netherlands).• #19 largest bank in Tier-1 capital (The Banker, July 2007)• #24 non-publicly listed company in the world, after 13 national oil companies (Financial Times, December 2006) • #25 largest bank in Total Assets (The Banker, July 2007)• Largest retail financial service provider in the Netherlands
• Only privately owned bank with a AAA rating from both Standard & Poor’s (since 1981) and Moody’s (since 1981)
* Sustainability Investment Research International
Rabo Greenbank € 4.0 Rabo Ventures € 0.2 Project Finance Renewable Energy € 1.2 SAM (CH) € 6.5 Robeco Sustainable Engagement € 5.4 Robeco Clean Tech I and II € 0.8 Sarasin (CH) € 0.7 Low energy Real Estate € 0.9 Total € 20
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Rabobank and Clean Tech
Rabobank’s investments in Clean TechIn bln Euros
Rabobanks global clean tech ambitions:
Sustainability is engrained in the genes of Rabobank and all its core activities
Climate is a priority and viewed as a crucial theme in sustainability
Ambition to engage actively in the transition towards a low-carbon economy
A strong focus
Top player in the Europeanrenewable energy finance market
Renewable Energy and Infrastructure Finance
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Renewable Energy and Infrastructure FinanceWind energy credentials
Rabobank has been involved in approx. EUR 3 bln wind transactions; our wind deals in 2007 and 2008 (May 2008) represent a value of EUR 500 mln. We currently have many projects in development.
A few recent examples:• In 2008, Rabobank was MLA on the new tranche of the global financing of the Babcock and Brown wind
portfolio.• In 2007, Rabobank financed the first phase of the Belgian offshore windfarm C-Power (300 MW). Rabobank
provided the mezzanine for the project. • In June 2007, Rabobank completed the largest Dutch on-shore wind farm to date project financing (Growind,
63 MW). The financing includes a mezzanine and derivatives facility (incl. elements of wind and electricity hedging).
• In 2006, Rabobank (together with Dexia and Eksport Kredit Fonden) led the financing of a 120 MW offshore wind farm in Holland (Q7), which we believe is the first non-recourse financing of an offshore wind farm worldwide. Rabobank was the sole provider of mezzanine in this project.
Q7
The Netherlands
2006
120 MW Off-Shore WindfarmEUR 218mln Project Financing Senior Facilities
EUR 166mln Mezzanine FacilityEUR 160 LC Facility
Financial Advisor, Lead Arranger and Joint Underwriter
Growind
EUR 143,000,000
The Netherlands
2007
Onshore Wind farm 63 MW
Mandated Lead ArrangerSenior and Mezzanine facilities
Babcock & Brown
Global Refinancing of portfolio of Wind Farms
EUR 1,690,600,000
2008
Mandated Lead Arranger
Global Refinance
GlobalC-Power
Belgium
2007
First Phase of 300MW Windfarm
Mandated Lead Arranger
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Renewable Energy and Infrastructure FinanceOther renewable sectors in which Rabobank is active
• Biomass
Rabobank has financed over 1500 MWs of combined heat & power (including biomass) globally
- India: 6 cogeneration projects
• Biofuels
- USA: 9 corn based ethanol projects
- Europe: 4 biofuel projects
- Brazil: 4 sugarcane based ethanol projects
• Solar
- Rabobank has participated in and arranged numerous Solar PV plants in Europe
- Rabobank has financed a large solar roof for Nuon
- Rabo Green Bank has also actively funded solar installations
• Methane / Biogas
- Rabobank is active in methane reduction CDM projects in the industry
- Rabobank has also concluded methane reduction and biogas transactions in other countries
20082008
Tereos Lillebonne(France)
Project financing of 240.000 tonnes ethanol
production facility
Madated lead arranger
2007
Abengoa France Biofuels(France)
EUR 160,000,000Project finance debt
180.000 tonnes ethanol production facility
Senior Lead Arranger and underwriter
Market Drivers
Overview of the Wind Sector
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Wind value chain increasingly split upTwo distinct segments developing: onshore and offshore
Componentmanufacturing
Wind turbinemanufacturing
Wind turbineinstallation
Wind farm development
Wind farm O&M
Ownership /Electricitysales
Manufacturing Development/Operation/Ownership
Onshore
Offshore
• Towers and foundations different
• Some specific parts
• Most parts by same select group of providers
• Several new manufacturers specializing in offshore turbines
• Others developingspecific turbines for offshore use
Installation onshore or offshore is very different in both expertise and equipment
Onshore oroffshore projectsrequire different expertise; we see increasing specialization
O&M onshore or offshore is very different in both expertise and equipment
No true distinctionvisible yet; PPAtype depends on governmentsupport system; large utilities will increasingly lookat offshore wind
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Onshore – continued growth, new frontiers
In 2007, fastest onshore wind growth
happened in the US.
China and India are also fast growers.
The rest of the world will overtake
Europe in terms of installed wind
capacity in 2009 or early 2010.
Inside the European market, fastest
growth is expected to move from
traditional wind countries (Germany,
Spain) to new countries (France, UK,
Italy, Ireland).
Most installed capacity still in Europe, fastest growth in US and Asia
Source: Rabobank analysis based on GWEC, EWEA and New Energy Finance
Installed onshore wind capacity In Europe (orange) and globally (orange + blue), in MW
End 2007: Global 94 GWEurope 55 GW
Germany 22 GW
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Total capacity and investment needed
Source: Rabobank Clean Tech Research and EWEA
Rabobank predicts cumulative installed wind capacity in Europe (onshore and offshore) to reach the following levels:
2010 79 GW2015 132 GW2020 184 GW
Based on this, yearly new wind asset investments could increase from € 10 - 15 bln now to € 20 - 25 bln in 2020.
Factors that impact the scenario:- Value chain bottlenecks- Grid access limitations- Legislation / Subsidies- Cost relative to fossil fuels
- Availability of capital (credit crunch)
Money will have to come from other sources than banks alone
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Support system
Total revenuein 2008
(EUR/MWh)
Level of supportin 2008
(EUR/MWh)
Duration of support (years)
Market electricity price estimate (EUR/MWh)
Subsidy decrease and inflation correction
Belgium Hybrid green certificates
140-170(variable)
100 (variable)
20 years1 60-70 Not relevant
France Feed-in-Tariff 82 82 10+52 Not relevant Decrease by 2% per year, partly inflation corrected
Germany Feed-in-Tariff 80.20 80.20 5+152 Not relevant Decrease by 2% per year, not inflation corrected
Ireland Feed-in-Tariff 57 57 15 Not relevant Fixed level, fully inflation corrected
Italy Green Certificates
160-200 (variable)
100-120(variable)
15 60-80 Not relevant
Netherlands Premium payment 110 30-50
(variable) 153 60-80 Fixed level, not inflation corrected
PolandGreen Certificates
95(variable)
65(variable) ? 30 Not relevant
Portugal Feed-in-Tariff 74 74 153 Not relevant Fixed level, not inflation corrected
Spain
Feed-in-Tariff OR Premium payment
73.22OR71.27-84.94
73.22OR29.29
20 50-60 Fixed level, partly inflation corrected
Turkey
Feed-in-TariffORBilateral contracts
50-55OR60-90 (variable)
50-55OR60-90 (variable)
10 60-90 Level adjusted annually, not inflation corrected
UK Green Certificates
90-110 GBP(variable)
50 GBP(variable)
Asset lifetime 40-60 GBP Not relevant
1 Belgian Government guarantees minimum GC price at 80 EUR/MWh for first 10 years2 France and Germany have a subsidy system where the producers receive a high FiT for the first years (10 in France and 5 in
Germany), and after that a lower tariff, depending on site wind level3 In the Netherlands and Portugal, the subsidy is capped at a yearly maximum number of full load hours (1760 for the Netherlands,
2000 for Portugal)
Onshore wind subsidy overviewWind strength and subsidy regime in fact define the onshore wind project economics
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Market drivers from a bankers point of view
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• Turkey’s generally very favourable wind regime, with a long coastline, causes wind farms to register a high average capacity factor of 30-35% (globally 20-25%).This is a very important factor in the economic viability of a wind farm.
• Regulatory drivers:• Climate change concerns• Security of domestic energy supply• Domestic industry support
• Energy prices: • High price paid for electricity on the wholesale market (however state price guaranteed is
hardly sufficient to make projects financially viable in certain locations)• Increasing demand of energy: Turkey may face electricity shortages in the short to medium
term future. Grid strength is an issue, could be solved by partnering
• Selling Carbon Credits to boost revenues:Trading is more profitable for countries that have ratified the Kyoto Protocol. Turkey's ratification of Kyoto is important.
• Export Credit Agencies are positive contributors to making robust projects work in difficult credit environments
• Financial structure:• Combine guaranteed price with upside from wholesale market • Mezzanine tranches (between senior debt and equity) to boost equity returns
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Wind strength and electricity shortages
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Likelihood of success
• Wind resources
• Grid Export CapacityGeographic Location
• Prevailing Tariff
• Counter Party
• Strong PPA (Power Purchase Agreement)
Off take arrangements
• Capex and Opex
• Technology
• Project Life (including re-powering potential)
Turbine Choice
• Project Team and Project Sponsors
• Financing and Security StructureOther Project Specific factors
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Location, turbines, contracts, management
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Opportunities
• Decreasing cost of wind energy generation through technical developments could make it even more economically viable globally
• Many European countries still have large development opportunities
• The need to improve grid access is becoming a focus for governments
• Wind turbine production is increasing globally
• Repowering could be a new market in ‘old’wind countries
• Depending on government support• Public opinion; increasing opposition against
onshore wind farms• Permitting and regulatory challenges
- Landscape and nature conservation- Safety, radar interference, etc
• Grid infrastructure limitations and slow pace of grid improvements
• Electricity price effects• Turbine availability, increasing turbine prices
and other value chain bottlenecks
Risks
Risks and opportunities when financing wind energy
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In general: growth is expected to continue
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Wind energy is • One of the cheapest forms of renewable energy• Large-scale • Fairly mature technology (on-shore)• Quick to install
In principle, wind turbines do not harm the environment but they are not without their public opinion issues
Finally
Wind energy will grow in the coming years, both on- and offshore.
This presents a great opportunity
All in all: a great opportunity
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Looking Forward
Financial Market
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• Banks have become increasingly risk averse and focussed on core clients. Internal approval processes are uncertain and conservative. Bank balance sheets are highly constrained and lending to new clients or new sectors is virtually non-existent. Many banks have now closed their lending books until at least 2009.
• Banks are unwilling or unable to offer underwriting. Given market circumstances, we believe that with specific reference to PF deals in the Renewable sector, transactions will need to be arranged on a club basis.
• Debt financing is likely to remain constrained and will require the collective use of balance sheet across a large group. As a result deals will be smaller to ensure liquidity can be found. This will result in larger lead groups and organised club deals.
• Underwriting will not return until balance sheet constraints are rectified and confidence and liquidity is restored in the market. When this occurs, all underwritten transactions will need to have full market flex-on pricing, fees and structure.
• Limited recourse financing instead of non-recourse financing is an option to enhance availability of debt for strong sponsors.
Market trends – looking forward
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Market dynamics changed in 2008
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• Recent market research indicates that financial institutions involved in the sector expect the following developments:
• A strong focus on quality of the project developer and financial sponsor. Utilities will be in a stronger position to attract finance
• Due diligence will become increasingly important in terms of technology risk and forecast assumptions
• Unproven technology such as offshore wind will prove increasingly difficult to attract debt capital
• Pricing - given banks higher costs of funds and capital costs, margins and fees will need to increase to maintain, let alone attract liquidity
• Tenor - given the cost to banks of sourcing longer term capital, there is substantial pressure to lend on a short term basis only. As a result, transaction tenors are expected to shorten (as much as is feasible)
• Structure – back to basics! There will be stronger focus on forecast assumptions and due diligence. Loan life coverage will increase, there will be a strong desire for amortisation, there will be an increased focus on cash sweeps and dividends and transactions will require more equity
• Cost of credit is a significant driver of value. Given the high cost of capital and shortage of liquidity, transaction IRR’s will come under pressure.
Market trends – looking forward contd
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Limited risk appetite leads to focus on project and sponsor quality
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Contact Details
Rabobank International
Rabobank International TurkeyIstanbul Representative Office
Cenk BorlukVice president
Suleyman Seba Cad. Akaretler Sira
Evleri No:23, 34357, Besiktas,
Istanbul
t. +90 212 326 72 28
Rabobank International
Clean Tech Research
Maartje van den BergSenior Associate Clean Tech Research
Gildenkwartier 199, Utrecht,
The Netherlands
t. +31 (0) 30 21 66193
Renewable Energy and Infrastructure Finance (REIF)
Marcel GerritsenGlobal Head of REIF
Croeselaan 28, Utrecht,
The Netherlands
t. +31 (0) 30 21 64357
Madelon BeckeringhVice President REIF
Croeselaan 28, Utrecht,
The Netherlands
t. +31 (0) 30 21 64669
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