Financing & Funding RE Projects

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1 Financing & Funding RE Projects Decentralized Power and Heat Supply in Peru Facilitator

2 Overview Introduction / Types of Financing German public financing programs International public financing programs Regional and country-specific financing Conclusions.

3 Types of Financing according to value chain Planning Project development Procurement Construction Operation & Maintenance Promotion schemes Promotion schemes Export financing Debt financing Project financing Promotion schemes Specific and adpated project support opportunities through Funding programs Financing sources. Olaf Mecke, DFIC Financing RE in Peru Seite 3

4 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. Olaf Mecke, DFIC Financing RE in Peru Seite 4

5 Financing of Investments Debt financing Based on balance sheets Different project periods (short, medium, long term) All types of projects Moderate transaction costs Project financing Foundation of a legally independent project company Long-term financing of economically self-sustaining projects (through project cash flow) Suitable for large projects with high invest volumes High transaction costs Olaf Mecke, DFIC Financing RE in Peru Seite 5

6 GIZ Support 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) Olaf Mecke, DFIC Financing RE in Peru Seite 6

7 Euler Hermes Export Credit Guarantee "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: (Consortium: Euler Hermes and PwC) Olaf Mecke, DFIC Financing RE in Peru Seite 7

8 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. Olaf Mecke, DFIC Financing RE in Peru Seite 8

9 Support in the Context of EEE* 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) Olaf Mecke, DFIC Financing RE in Peru Seite 9

10 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). Olaf Mecke, DFIC Financing RE in Peru Seite 10

11 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 M. Syndication of (project) financing. Olaf Mecke, DFIC Financing RE in Peru Seite 11

12 KfW Renewable Energies "Standard" 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 % (+ 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. Olaf Mecke, DFIC Financing RE in Peru Seite 12

13 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 % 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 Olaf Mecke, DFIC Financing RE in Peru Seite 13

14 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 M. Project value usually above EUR 10 M. Refinancing of local financial institutions (e.g. Banks). Olaf Mecke, DFIC Financing RE in Peru Seite 14

15 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%) Tenors of 3-10 years 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 Tenors of 3-7 years Processed directly via IIC: Olaf Mecke, DFIC Financing RE in Peru Seite 15

16 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. Olaf Mecke, DFIC Financing RE in Peru Seite 16

17 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. Olaf Mecke, DFIC Financing RE in Peru Seite 17

18 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. Olaf Mecke, DFIC Financing RE in Peru Seite 18

19 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 years. Olaf Mecke, DFIC Financing RE in Peru Seite 19

20 Local Financing Options COFIDE (The Peruvian Development Bank) An overview of COFIDE s investment promotion programes is available at 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 Olaf Mecke, DFIC Financing RE in Peru Seite 20

21 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 Immediate depreciation of RE investments for implementation of public infrastructure projects. Prequalification required Olaf Mecke, DFIC Financing RE in Peru Seite 21

22 Clean Energy Investments 2014 USD 703 M. 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 Olaf Mecke, DFIC Financing RE in Peru Seite 22

23 Type of Clean Energy Investments Investments by type (in M. USD) Asset finance investments* 3,419 Corporate finance investments 168 VC/PE investments * asset finance investment refers to utility scale projects > 1 MW (own illustration based on Climatescope 2015 data) Olaf Mecke, DFIC Financing RE in Peru Seite 23

24 Means of Financing Sources available in Peru Financing / Funding Source Local capital market Impact 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 Olaf Mecke, DFIC Financing RE in Peru Seite 24

25 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 Olaf Mecke, DFIC Financing RE in Peru Seite 25

26 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 Olaf Mecke, DFIC Financing RE in Peru Seite 26

27 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) Olaf Mecke, DFIC Financing RE in Peru Seite 27

28 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. Olaf Mecke, DFIC Financing RE in Peru Seite 28

29 Do you have any further questions? At your disposal on behalf of the EEE Olaf Mecke Consultant ; Olaf Mecke, DFIC Financing RE in Peru Seite 29

30 Thank you very much for your kind attention! Olaf Mecke, DFIC Financing RE in Peru Seite 30