advisory small hydro power in austria - ecreee generates 7 % of its gross electricity production...

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


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


Overview of SHP in Austria


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


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

]


-

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


Besides turbine-production other Austrian companies work in the fields of designing, constructing, electrically engeneering and operating HPPs

Operator models


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


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


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


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


Business plan


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


• 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)


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.)


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


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


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


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


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

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22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32



-

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




Sculpted / Sweep

3.806

7.408

3.500 3.500 3.500

384 415 456

-2009 2010 2011 2012 2013


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


Case study


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


− 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%


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


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


Michael Sponring - Contact details

Michael SponringMichael Sponring

Erdbergstrasse 2001030 Vienna, Austria

Phone: +43 1 501 88-2935 Mobile: +43 699 111 98 902

[email protected]

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC Corporate Finance Beratung GmbH, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2012 PwC Corporate Finance Beratung GmbH. All rights reserved. In this document, “PwC” refers to PwC Corporate Finance Beratung GmbH which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

advisory small hydro power in austria - ecreee generates 7 % of its gross electricity production...

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