renewable energy project financing

Energy Management Conference

Renewable Energy and Project Finance

Presentation

1. Introduction to Viability Africa2. Project Components for Success3. Energy Finance Sources4. Venture Components for Success

Viability Africa, LLC’s overriding objective is to operate as the leading development and financial advisory firm for clean

technology projects and ventures across East Africa. Viability Africa will support investments that exhibit economic, technical,

environmental, and social viability and sustainability. The growth of our team will focus on the recruitment and development of East

Africans seeking to become the future business and political leaders of their country and region. Our Founders have committed

to reinvesting a significant portion of the company’s earnings to ensure the company will have long-term sustainability and impact, and to solidify Viability Africa as a resource available to the market

for years to come as the clean technology sector grows in relevance and impact across East Africa.

Our Vision

Viability Africa, LLC

Carbon Energy Environment

• Asset Development• Transaction Management• Asset Monitoring

• Feasibility Studies• Project Financing• Financial Advisory• Project Management

• Environmental and Social Impact Assessments

• Environment Audits

Founded in 2009, Viability Africa has headquarters in Nairobi, Kenya with near term expansion plans to establish offices in Dar es Salaam, Tanzania. Our current portfolio crosses a number of countries in sub-Saharan Africa and includes a diverse range of innovative technologies and solutions.

Presentation


Clean Technology Project Finance in sub-Saharan Africa

• Fundamentals• Project Company• High leverage (60-80%)• Debt service dependent on future cash flows, not necessarily

assets• Non-recourse Financing• Main security in project contracts

• Investors• Equity• Lender• Developer

Project Finance Characteristics

• Special purpose vehicle (SPV), “ring fenced” project• Finite life• Often formed in later stages of development and assets

are transferred (not recommended if can be avoided)• Appealing as it keeps financing exposure limited to the

project• Traditional for infrastructure projects such as power

plants, toll roads, etc but also can be applied to agriculture projects and innovative distribution programs (financing against fixed service or product delivery contracts)

Project Documents

• Traditional Required Documentation• Feasibility Study• EPC Contract• Off-take (PPA)• Land Agreements• Environmental Requirements (EIA, Licenses, Water

Permit, etc)• Input Supply (Biomass Project)• Operations and Maintenance Contract• Government Support Agreement

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

Lessons from Project Finance Transaction in sub-Saharan Africa• Bring a lender into conversations on PPA and other

project 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 document

to meet satisfaction of financiers• Accept that as a developer with limited funding you will

have to give up majority ownership• Do not get greedy!

Project Finance: Recommendations

• As a Developer– Make a “checklist” and be realistic in what you will

need to develop a project and what you will ultimately receive when it is fully financed

• Many developers spend all of their money, fall short of getting the project to a “bankable” state, and ultimately make nothing

• As a Lender/Investor– Diligence, diligence, diligence…

• Land, PPA, EPC, Developer Capabilities, Developer Attitude

Presentation


Energy Finance Sources

1. Focused Equity Funds2. Commercial Banks3. Carbon Markets4. Grants5. Other

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 on returns from carbon markets, so underlying investment must provide viable returns and sustainability

Focused Equity Funds

• Jacana East Africa Climate Venture Fund– $10-20 million in size– Focus on early stage investments in promising

climate friendly projects and ventures– Average initial investment size $200,000– Average investment size $1,000,000– Experienced team in investing locally and in clean

technology space

Commercial Banks – Energy Finance

• New Space/Lack of Capacity at Institutional Level

• Development Finance Institutions– Acting as Catalyst

• AfD Facility (CfC Stanbic Bank and Co-Operative Bank of Kenya)

• Uganda Global Energy Transfer Feed in Tariff (GET FiT) Program

– Allow Banks to Build Capabilities

Commercial Banks – Energy Finance

• Strong Level of Interest– Nearly ever local commercial bank in the market

has an interest in exploring energy transactions• Key Variables

– Insurance– Guarantees– Equity Sponsors

• Balancing act between market and lender requirements

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

Carbon Markets

• Commonalities– Challenging and costly registration process– Intense data monitoring requirements– Requirements for external parties (Consultants,

Auditors, Brokers, etc)– Uncertainty

Carbon Markets

• Transaction Structure– Difficult to get creative with today’s pricing, but

traditionally:• Fixed Forward• Floor + Floating Percentage• Pure Floating• Floor + Floating Percentage with Cap• Forward Payments (Rare)

– Costs Covered

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

Grants

• Number of programs, large and small– USTDA (United States Trade Development

Agency)– 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

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

Presentation


Small and Medium Size Businesses in sub-Saharan Africa

• Investment Criteriao Quality of Management Teamo Business Caseo Growth Potentialo Unique Competitive Advantageso Exit Potential


• Barriers to Access to Financeo Unclear Vision/Strategyo Lack of Competitive Advantageo Incomplete Business Plan and Modelo Unprofessional

o Recommend Consultanto Proof of Concept


• 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…


• Negotiation Tipso Seek a “Fair” Deal for both Partieso Accept Help

o Consultants and Investorso Weigh Optionso Give Yourself Time

o The more in a rush you are, the more you will either agree to terms that are not in your favor or scare away the investor

o Be Prepared from the Start

Questions?

Kyle DenningManaging DirectorViability Africa, LLC

[email protected]

http://www.ViabilityAfrica.com/

mailto:[email protected]

renewable energy project financing

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