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Intro to Triventus Consulting
1.0 European wind power – an investor perspective
2.0 The Nordic wind markets
3.0 Sources of financing
4.0 Project financing
5.0 The impact of cold climates
6.0 How to secure (and repay) financing
7.0 Conclusions
CEO:                   Peter Tjernström
Business launched:     2003
Number of employees:   40
Turnover 2012:         MSEK 50
Headquarters:          Falkenberg
Regional offices:      Östersund/Storuman
                       Falun
                       Stockholm
                       Gothenburg
                       Helsinki
 Financing constrained relative to demand
 Many European markets are off limits
 New institutional infrastructure fund raising and ‘dry powder’ reducing, but allocation to ‘renewables’ up
 Cost of institutional capital high
 Commercial banks less active
 FIT favoured over merchant markets, but need to be backed by strong government
 Professionalism of wind industry needs to be improved and track record of returns needed
 Increasing maturity                                             Renewable Energy Potential - Norway & Sweden 2020 (MW)

 New entrants attracted by low risk markets and saturation in
  home markets
 Lower investment costs for projects
 Improved planning and permitting process
 Development spreading North supported by anti-/de-icing
  technology
But:
 Business cases hard to justify
 Questions over the effects of a common Swedish-Norwegian
  certificate system and Swedish area pricing
 Lower prices for project exits
 Grid connectivity still a problem

                                                                 Source: PÖYRY.
• A new feed-in-tariff was implemented in April 2011.       Annual Wind Power Production in Finland Forecast
  2 500 MW is included in the system.

• Guaranteed price, 83,5 €/ MWh for 12 years (plus
  bonus of 20 €/ MWh prior to 2015). Not index
  linked.

• If electricity price is less than 30 €/MWh, fixed
  premium (53,5€ / MWh) is paid.

• Current pipeline > 6000MW

But

• Well publicised problems with planning

• Wind conditions?

• Long term outlook post 2500MW
                                                        Finnish Wind Power Association 26th April 2012
• Early stage market with few opportunities for
  investors
Ready to build


 Type of financing                            Development                           Construction                 Operation


        Equity                         • Own funds                           •   Private equity            •   Public equity markets
                                       • JV Partners                         •   Supply chain              •   Corporates
                                       • Venture Capital                     •   Public sector financing   •   Infrastructure funds
                                                                             •   Strategics                •   Pension funds


        Equity                                      25%+                      12% from operation plus               12%
        Returns                                                               cost of financing during
        Sought:                                                               build




Source: Mainstream Renewable Power, Hg Capital, Triventus Consulting
External collateral/ pledges available                  No external collateral/ pledges available
• Lending through owner’s balance sheet                       • Project bonds
   • Easy to arrange; price depends on owner                     • ProjectCo taps into financial market directly
   • Repayment not necessarily linked to project cash flows      • Credit rating, high transaction costs, large projects only
   • Flexible financial structure in ProjectCo                   • Increasingly relevant in the current financial market?


    Bank                       Owner               Project       Owner                   Project                Fin. Mkt
                        Debt           Financing                              Equity                   Debt

• Guarantee by owner’s balance sheet                          • Project finance
   • Project cash flows more important for repayment             • No external guarantees; recourse only to project assets
   • High leverage on ProjectCo level                            • All project assets pledged
                                                                 • Strong emphasis on project cash flow and debt service
                                          Equity                 • Cost of financing depends on project risks

                        Guarantee
    Bank                            Owner          Project       Owner                   Project                   Bank
                                                                              Equity                   Debt
                                          Debt

Source: Aalto Capital
• Risk assessment key, namely credit, wind, technology,
                                                                             Revenue Side Constraint
  price, financial and legal/political
• Project development costs may be higher in project      Gross
  financed projects to create bankability                 Revenues

    • Wind measurement, agreements, etc more
      carefully done                                                 Operating Costs

    • Bankable feasibility study
                                                                     DSCR / Cash available for dividends
• Costs and revenues as strongly fixed as possible
    • Risk transferred to counterparties in the
      agreements (EPC, PPA, O&M…)
                                                                     Cash used for senior debt service
    • As a trade-off, higher costs and lower revenues;
      thus lower profitability
• Other requirements by the bank to enhance the
  bankability
                                                                                                                    Buffer           Years
    • Escrow / reserve accounts                                                                          Tenor Senior    Operating
    • Restrictions on dividends                                                                             Debt          Lifetime

    • Covenants

   Source: Green Giraffe Energy Bankers, Aalto Capital
Development                 Construction              Operation




 • Accessibility           • Transportation         •   Availability
 • Weather window          • Accessibility          •   Accessibility
                                                    •   Degradation
 • Wind measurement        • Weather window
                                                    •   Ice throw
 • Wind/Energy analysis    • Work environment       •   Work environment
 • Technical design
 • Contracts




A variety of risks including higher investment costs, more expensive
O&M, lower production and shorter lifespan for plant…
Key parameters           Key financials

• 10 WTGs * 2.3MW

• Annual production 60,000 MWh

• Investment cost EUR 35m

• Annual operational costs EUR 1.2m

• Capital structure
       • Debt 70% (interest rate 5%)
       • Equity 30%

• Start of operations on Jan 1st , 2014




 Source: Aalto Capital
Debt service coverage ratio (DSCR) sensitivity to investment cost




Source: Aalto Capital
Debt service coverage ratio (DSCR) sensitivity to annual production




Source: Aalto Capital
 Financing wind projects is tough, cold climate              Occurrence of probability scenarios (Actual v Expected)

  conditions make it harder
 Must be able to demonstrate that cashflows are
  sufficient to repay debt
      The wind energy resource drives returns
      Long term availability and performance of
                                                                                                 Source: Moody’s Research
       technology are essential
                                                        Estimated normal production versus actial production (various
                                                                          wind parks in Norway)
      Operational management – el/certs trading, O&M
 Credible, credit worthy management
 Engage banks and investors early




                                                                                               Source: Nordea Research, NVE
 Financing conditions in Europe are tough

 Financing follows quality cashflows - higher returns do not compensate for higher risk

 Significant wind capacity exists in the Nordic region but conditions can be more difficult

 Only the best wind sites and professionally developed/managed projects will obtain financing

 Expertise, good planning and a long term commitment are required to succeed (now more than ever)
Intro to Triventus Consulting: Financing Wind Projects in Cold Climates

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Intro to Triventus Consulting: Financing Wind Projects in Cold Climates

  • 1.
  • 2. Intro to Triventus Consulting 1.0 European wind power – an investor perspective 2.0 The Nordic wind markets 3.0 Sources of financing 4.0 Project financing 5.0 The impact of cold climates 6.0 How to secure (and repay) financing 7.0 Conclusions
  • 3. CEO: Peter Tjernström Business launched: 2003 Number of employees: 40 Turnover 2012: MSEK 50 Headquarters: Falkenberg Regional offices: Östersund/Storuman Falun Stockholm Gothenburg Helsinki
  • 4.  Financing constrained relative to demand  Many European markets are off limits  New institutional infrastructure fund raising and ‘dry powder’ reducing, but allocation to ‘renewables’ up  Cost of institutional capital high  Commercial banks less active  FIT favoured over merchant markets, but need to be backed by strong government  Professionalism of wind industry needs to be improved and track record of returns needed
  • 5.  Increasing maturity Renewable Energy Potential - Norway & Sweden 2020 (MW)  New entrants attracted by low risk markets and saturation in home markets  Lower investment costs for projects  Improved planning and permitting process  Development spreading North supported by anti-/de-icing technology But:  Business cases hard to justify  Questions over the effects of a common Swedish-Norwegian certificate system and Swedish area pricing  Lower prices for project exits  Grid connectivity still a problem Source: PÖYRY.
  • 6. • A new feed-in-tariff was implemented in April 2011. Annual Wind Power Production in Finland Forecast 2 500 MW is included in the system. • Guaranteed price, 83,5 €/ MWh for 12 years (plus bonus of 20 €/ MWh prior to 2015). Not index linked. • If electricity price is less than 30 €/MWh, fixed premium (53,5€ / MWh) is paid. • Current pipeline > 6000MW But • Well publicised problems with planning • Wind conditions? • Long term outlook post 2500MW Finnish Wind Power Association 26th April 2012 • Early stage market with few opportunities for investors
  • 7. Ready to build Type of financing Development Construction Operation Equity • Own funds • Private equity • Public equity markets • JV Partners • Supply chain • Corporates • Venture Capital • Public sector financing • Infrastructure funds • Strategics • Pension funds Equity 25%+ 12% from operation plus 12% Returns cost of financing during Sought: build Source: Mainstream Renewable Power, Hg Capital, Triventus Consulting
  • 8. External collateral/ pledges available No external collateral/ pledges available • Lending through owner’s balance sheet • Project bonds • Easy to arrange; price depends on owner • ProjectCo taps into financial market directly • Repayment not necessarily linked to project cash flows • Credit rating, high transaction costs, large projects only • Flexible financial structure in ProjectCo • Increasingly relevant in the current financial market? Bank Owner Project Owner Project Fin. Mkt Debt Financing Equity Debt • Guarantee by owner’s balance sheet • Project finance • Project cash flows more important for repayment • No external guarantees; recourse only to project assets • High leverage on ProjectCo level • All project assets pledged • Strong emphasis on project cash flow and debt service Equity • Cost of financing depends on project risks Guarantee Bank Owner Project Owner Project Bank Equity Debt Debt Source: Aalto Capital
  • 9. • Risk assessment key, namely credit, wind, technology, Revenue Side Constraint price, financial and legal/political • Project development costs may be higher in project Gross financed projects to create bankability Revenues • Wind measurement, agreements, etc more carefully done Operating Costs • Bankable feasibility study DSCR / Cash available for dividends • Costs and revenues as strongly fixed as possible • Risk transferred to counterparties in the agreements (EPC, PPA, O&M…) Cash used for senior debt service • As a trade-off, higher costs and lower revenues; thus lower profitability • Other requirements by the bank to enhance the bankability Buffer Years • Escrow / reserve accounts Tenor Senior Operating • Restrictions on dividends Debt Lifetime • Covenants Source: Green Giraffe Energy Bankers, Aalto Capital
  • 10. Development Construction Operation • Accessibility • Transportation • Availability • Weather window • Accessibility • Accessibility • Degradation • Wind measurement • Weather window • Ice throw • Wind/Energy analysis • Work environment • Work environment • Technical design • Contracts A variety of risks including higher investment costs, more expensive O&M, lower production and shorter lifespan for plant…
  • 11. Key parameters Key financials • 10 WTGs * 2.3MW • Annual production 60,000 MWh • Investment cost EUR 35m • Annual operational costs EUR 1.2m • Capital structure • Debt 70% (interest rate 5%) • Equity 30% • Start of operations on Jan 1st , 2014 Source: Aalto Capital
  • 12. Debt service coverage ratio (DSCR) sensitivity to investment cost Source: Aalto Capital
  • 13. Debt service coverage ratio (DSCR) sensitivity to annual production Source: Aalto Capital
  • 14.  Financing wind projects is tough, cold climate Occurrence of probability scenarios (Actual v Expected) conditions make it harder  Must be able to demonstrate that cashflows are sufficient to repay debt  The wind energy resource drives returns  Long term availability and performance of Source: Moody’s Research technology are essential Estimated normal production versus actial production (various wind parks in Norway)  Operational management – el/certs trading, O&M  Credible, credit worthy management  Engage banks and investors early Source: Nordea Research, NVE
  • 15.  Financing conditions in Europe are tough  Financing follows quality cashflows - higher returns do not compensate for higher risk  Significant wind capacity exists in the Nordic region but conditions can be more difficult  Only the best wind sites and professionally developed/managed projects will obtain financing  Expertise, good planning and a long term commitment are required to succeed (now more than ever)