wind energy project financing – past experiences and possibilities

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

2

Contents

• Rabobank Structure, Group and Network

• Renewable Energy and Infrastructure Finance

• Overview of the Wind energy sector

• Financial Markets


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


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



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


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

12 Rabobank International

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


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


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


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


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


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


Limited risk appetite leads to focus on project and sponsor quality


Contact Details


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

e. [email protected]


Clean Tech Research

Maartje van den BergSenior Associate Clean Tech Research

Gildenkwartier 199, Utrecht,

The Netherlands

t. +31 (0) 30 21 66193

[email protected]

Renewable Energy and Infrastructure Finance (REIF)

Marcel GerritsenGlobal Head of REIF

Croeselaan 28, Utrecht,

The Netherlands

t. +31 (0) 30 21 64357

e. [email protected]

Madelon BeckeringhVice President REIF

Croeselaan 28, Utrecht,

The Netherlands

t. +31 (0) 30 21 64669

[email protected]


wind energy project financing – past experiences and possibilities

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