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Facilitator

Financing & Funding RE Projects

Decentralized Power and Heat Supply in Peru

• Introduction / Types of Financing

• German public financing programs

• International public financing programs

• Regional and country-specific financing

• Conclusions.

Overview

Types of Financing according to value chain

Olaf Mecke, DFIC | Financing RE in Peru | 05.04.2016 | Seite 3

Planning

• Promotion schemes

Project development


Procurement

• Export financing

Construction

• Debt financing

• Project financing

Operation & Maintenance


Specific and adpated project support opportunities through

• Funding programs

• Financing sources.

Planning and Project Development Phase


• Non-investive support

• For market and project development phase

• Accompanying services

• Funding/grants for:

• Consulting

• Feasibility studies

• Training and advanced education measures

• Workshops.


Financing of Investments

Debt financing Project financing

Based on balance sheets Foundation of a legally

independent project company

Different project periods

(short, medium, long term)

Long-term financing

of economically self-sustaining

projects (through project cash

flow)

All types of projects Suitable for large projects with

high invest volumes

Moderate transaction costs High transaction costs

• Peru is one of focus partner countries within the German development

cooperation policy

• GIZ focuses on project development and monitoring

• Environment and climate is a focal point in South America

• Rural electrification is a focus in Peru

• develoPPP.de – companies cooperations

• "Ideenwettbewerbe" (up to 200,000 EUR; application every 3 months)

• Strategic alliances (Substantial grant for projects > 750,000 EUR)

• Qualification + mediation of trained personnel (cooperation mit CIM)


GIZ – Support

• "Hermes Cover“ by mandate and account of the German Federal

Government

• No administration fees payable for Hermes Cover

• Special SME product within this export credit gurantee scheme

“Buyer Credit Cover – express”

• Up to 5 M. EUR contract value, payment periods up to 5 years

• Grace period up to 18 months after completion

• Detailed information: www.agaportal.de (Consortium: Euler

Hermes and PwC)


Euler Hermes Export Credit Guarantee

http://www.agaportal.de/


Hermes Cover Conditions Peru

• Category 3 (from 0 low to 7 high)

in the EH (OECD) country category of risk assessment

• Premium rates for cover facilities vary with horizon of risk (HOR), %

of risk cover and buyers rating/ project risks

• For Peru related premium fees likely vary in a range of ~

0.64% (low risk, short HOR) to

5.61% (high risk CC5, 95% cover, 5 years HOR);

will increase with longer HOR

• No other formal restrictions for Peru

• Neither for short, medium or long term nor for collaterals.


• Dena RES – Renewable Energy Solutions program (PPP projects)

• State of the art projects in attractive target markets

• Highly visible RE technology, prestigious institutions

• Co-financing of 235,000 EUR projects costs

• Incentives of 45 % (company’s share: 55 %)

• RE installation (~95,000 EUR)

• Qualification and training concept (~95,000 EUR)

• Accompanying PR and marketing activities (~45,000 EUR)

• Incentives totalling ~ 106,000

*energy solutions MADE IN GERMANY (Exportinitiative Erneuerbare Energien)

Support in the Context of EEE*


DEG Funding Products

In addition to develoPPP.de (see GIZ above)

• Feasibility studies

• up to 50% of costs, max. EUR 200,000

• Climate partnerships with the private sector

• max. 50% of costs, max. EUR 200,000

• Up-Scaling

• 25% equity requirement, max. 50% of costs, max. EUR 500,000

• for innovative business models; repayable only when project is

sucessfull

• Accompanying services (education, training, consulting services).


DEG Financing Products

• Specialized in debt financing of large project volumes

• Loans up to 40 M. EUR

• Tenors of 4 - 10 years

• Grace period of 1 - 3 years

• Equity capital financing

• Up to 50% and EUR 2.5 - 15 M.

• Syndication of (project) financing.

• Specialized in debt financing also of larger project volumes

• Loans up to 50 M. EUR

• Tenors of 5, 10 or 20 years (if equipment lifetime > 10 yrs)

• Grace period of 1, 2 or 3 years correspondingly

• Interest rate of 1.1 – 8.7% (+ borrowers‘ bank individual risk

premium); variable interest rates for terms > 10 years

• German-Peruvian joint ventures may also apply within this program

• Project implementation in Peru requires compliance with EU

environmental standards.


KfW Renewable Energies "Standard"


MIGA - Export credit insurance

• The Multilateral Investment Guarantee Agency (MIGA) is specialized

in export credit insurance and guarantees for companies

• Small Investment Program (SIP) for SME: insurance package to

common, non-commercial risks

• Exemption from process fees

• Reduced premiums (depending on country and project risk)

typically in a range from 0.45 - 1.75% of the insured value

• Up to EUR 7.5 M. insured value

• Tenors of 3 - 10 (max. 15) years

• Approval: 6 - 8 weeks after completeness of the documents


Inter-American Development Bank (IDB)

• IDB long-term debt financing of large projects via

"Structured and Corporate Finance Department" (SCF)

• Terms 3 - 15 years

• Loans from EUR 1 - 185 M.

• Project value usually above EUR 10 M.

• Refinancing of local financial institutions (e.g. Banks).


Inter-American Investment Corporation (IIC)

• IDB susidiary

• Focus on SME and loans up to max. EUR 12 M.

• Financing share of usually 33% (max. 50%)


• Eligible for RE is e.g., the FINPYME program, offering

• technical assistance as well as

• financing support for SME: FINPYME Credit (IIC)

• Loans from EUR 90,000 - 550,000


• Processed directly via IIC: www.iic.org/en/products-and-

services/finpyme-credit-application

http://www.iic.org/en/products-and-services/finpyme-credit-application










Private Equity (PE) & Venture Capital (VC)

• Peru is part of the portfolio of large VC and PE investors

• PE/VC invested USD 39.8 M. into Peruvian RE projects in 2014

• VC investors are typically engaged in smaller projects starting from

several thousand EUR invest whereas

• PE investors tend to invest in larger projects with several million

project volume

• PE funds such as Real Infrastructure Capital Partners LLC (REAL),

Conduit Investment Partners LLC or Victoria Capital Partners may

be an option for larger projects in Peru

• Latin American Private Equity & Venture Capital Association

(LAVCA) provides contacts and further information.

http://www.realinf.com/

http://www.conduitcap.com/



http://www.victoriacp.com/

http://lavca.org/


Climate and Environmental Financing

• CDM with little relevance due to its high transaction costs, but may

contribute additional value

• Multilateral Investment Funds typically invest in country programs or

large public projects

• Important Funds are (amongst others) :

• Climate Investment Fund (CIF)

• Clean Technology Fund (CTF) and Strategic Climate Fund (SCF)

• as well as Global Environment Facility (GEF) or the

• Geothermal Development Facility (GDF) which provides funding for the

the preparation, incl. the risk associated exploration phase, and

construction of geothermal power plants in Latin America.

https://www.climateinvestmentfunds.org/cif/

https://www.climateinvestmentfunds.org/cif/node/2

https://www.climateinvestmentfunds.org/cif/Strategic_Climate_Fund

http://www.thegef.org/gef/

https://www.kfw-entwicklungsbank.de/Internationale-Finanzierung/KfW-Entwicklungsbank/News/News-Details_250624.html


Climate and Environmental Financing

• Green Climate Fund (GCF) and it‘s entities will become one of the

major climate and environmental financing agents in the nearer

future (project pipeline of USD 1.5 bn)

• However financing is typically not (directly) available to private

sector companies, but may provide e.g. additional PPP

opportunities.

http://www.greenclimate.fund/home

http://www.greenclimate.fund/documents/20182/114261/20151119_-_GCF_List_of_Accredited_Entities.pdf/e09bb9b3-9730-4adc-bca9-ff32739ecae8

http://www.greenclimate.fund/documents/20182/114261/20151119_-_GCF_List_of_Accredited_Entities.pdf/e09bb9b3-9730-4adc-bca9-ff32739ecae8


Capital Market Peru

• Inflation rate of 2.5 % (expectetd in 2015)

• Lowest inflation rates within latin america in the last decade

• Ease of doing business ranking: #50 (out of 189)

• Investment grade ratings “A3” by Moody’s, “BBB+” by S&P and Fitch

• Local financing options

• Major commercial banks such as Banco Internacional del Perú –

INTERBANK, Banco de Crédito del Perú, Santander, Scotiabank,

HSBC, Banco de la Microempresa S.A. – MIBANCO etc.

offer specific financing options for SME

• Interest rates about 10-15%

• Long-term loan tenors available up to 10-12 years.


Local Financing Options

COFIDE (The Peruvian Development Bank)

• An overview of COFIDE’s investment promotion programes is available at

www.cofide.com.pe/cofideportal/main/productos/apoyo-mipe/mipyme

• Financing is issued for all programs through the COFIDE listed FI.

• „PROBID“ and „PROPEM BID“ (for Peruvian companies)

• Medium to long-term financing of investments that support and enhance private

sector development and activities

• Up to USD 18 M., average LIBOR +4.3%

• “Bionegocios”*

• Credit line to fund small hydro, Wind, PV, geothermal as well as biomass projects

• Terms up to 12 years and 3 years grace periods.

* program is supported through EUR 40 M. KfW funding

http://www.cofide.com.pe/cofideportal/main/productos/apoyo-mipe/mipyme



http://www.cofide.com.pe/cofideportal/main/detail?content-id=/repository/collaboration/sites content/live/main/web contents/content/conozca/nuestros-clientes&version=7


Local Funding Options

• Law 1058

• Dedicated to RE projects (for power generation)

• Issuing special tax write-offs and an accelerated depreciation of 20% for RE

investments (for equipment, machinery and civil engineering works)

• Law 29230

• Immediate depreciation of RE investments for implementation of public

infrastructure projects.

• Prequalification required http://docs.peru.justia.com/federales/leyes/26230-sep-25-

1993.pdf

http://docs.peru.justia.com/federales/leyes/26230-sep-25-1993.pdf









Typical costs of debt in Peru 2014

• Average lending interest rate: 15.74%*

• Average cost of green micro debt: 5.50%

• Total volume of green micro loans: 4.18 million USD.

*short and medium term

Clean Energy Investments 2014

USD 703 M.


Type of Clean Energy Investments

* asset finance investment refers to utility scale projects > 1 MW

(own illustration based on Climatescope 2015 data)

40

168

3,419

0 1000 2000 3000 4000

VC/PE investments

Corporate finance investments

Asset finance investments*

Investments by type 2010-14 (in M. USD)


Means of Financing Sources available in Peru

Financing / Funding Source Impact

Local capital market Moderate - High

Access to international financing and funding High

Dedicated programs offgrid applications Not available yet*

Dedicated programs renewable energy Low - moderate

*Beyond public activities


Typical Challenges for smaller Projects

• Project finance is not an option

• Credit financing depends on the company’s balance sheet

• Availability and competitiveness of local credit financing

• Local interest rates?

• Tenor of loans?

• Experience and expertise of local banks?

• Access to international financing sources institutions


Typical Challenges for larger Projects

• Projects compete with other low cost RE projects

(e.g. large hydro)

• Reliability and creditworthiness of buyers in case of PPAs

(e.g. public utilities)

• Required equity share for project finance

(project sponsors)

• Legal security

• Risk mitigation

• Currency, e.g. denomination in lead currencies?

• Inflation, e.g. adjustment of remuneration?

• Lack of experience in financing of ‘new’ technologies


Conclusions - Financing of RE in Peru

• Micro and very small (e.g. rural electrification) projects may benefit from

the worlds most developed microfinancing market with very competitive

interest rates about 5.5%.

• Small – medium size projects below EUR 1 M. could benefit from local

peruvian financing opportunities, especially for SME as well as from

international funding and financing opportunities available in Peru.

• However frequently needed financing opportunities in a range between

EUR 1 – 8 M. are scarce (not only but also in Peru).

• due to the relatively high specific transaction costs (substantial efforts

in combination with comparable low project investment volume)


Conclusions - Financing of RE in Peru

• Lack of adapted financing options for RE projects thus still remains a

crucial obstacle for enhanced private sector engagement

• Additional support programs and/or credit lines dedicated to RE / offgrid

projects would improve financing opportunities for these projects,

especially for SME

• Generally: Further improved framework conditions for RE (e.g. less

subsidized electricity tariffs) could help to attract additional private sector

investments such as from strategic investors.


Do you have any further questions…?

At your disposal on behalf of the EEE

Olaf Mecke

Consultant

+49 201 – 878 496

[email protected] ; www.dfic.de

mailto:[email protected]

http://www.dfic.de/

Thank you very much for your kind attention!


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