Renewable Energy Asia 5 June 2013 Bangkok, Thailand

Transcription

1 Financing Biogas and Small Renewable Energy Projects What does a Lender Look For? Renewable Energy Asia 5 June 2013 Bangkok, Thailand Steve Szymanski International Sales Manager for Electric Power Caterpillar Power Finance - Singapore

2 Agenda BALANCE SHEET VS. PROJECT FINANCE PROJECT FINANCE STRUCTURE AND PRINCIPLES 5 KEY QUESTIONS FOR PROJECT FINANCING COMMON TERMS AND CONDITIONS WHAT MAKES A GOOD PROJECT? PROJECT MILESTONES SMALL RENEWABLE PROJECT FINANCING CHALLENGES CASE STUDIES 2

3 What is Balance Sheet Finance? Parent Co. Guarantee Parent Co. Today Profit $15 Assets $70 Liabilities $45 Incl. New Sub. Profit $16 Assets $75 Liabilities $49 Subsidiary 1 Profit $10 Assets $50 Liabilities $30 Subsidiary 2 Profit $ 5 Assets $20 Liabilities $15 New Subsidiary 3: biogas project Profit $1 Assets $5 Liabilities $4 Loan $4 3

4 Project Finance No parent co. guarantee Parent Co. Current Profit $15 Assets $70 Liabilities $45 Subsidiary 1 Profit $10 Assets $50 Liabilities $30 Subsidiary 2 Profit $ 5 Assets $20 Liabilities $15 New Subsidiary 3 Profit $1 Assets $5 Liabilities $4 Loan $4 4

5 Project Finance The debt is repaid entirely from the cash flow generated by the operation of the project rather than the general assets or creditworthiness of the project sponsors. This is also called nonrecourse financing. Used for the long-term financing of projects where non-recourse debt and equity are used to construct the project. The debt is SECURED by the project assets, including the revenue-producing contracts. 5

6 Project Finance Who is involved? Developer Sponsors / Shareholders Lender (debt) Loan and Security Agreement Off-Taker(s) Power Purchase Agreement, Special Purpose Project Company (Borrower) Operator Operations & Maintenance Agreement General Contractor Engineering, construction and procurement Power Generation Equipment Supply Feedstock Supplier Insurance Legal Framework Law and Regulation Legal Agreements Each Agreement contains risks. All Agreements must work together, be consistent, and not be in conflict. 6

7 Principles of Project Financing Each risk must be assigned to the party who is best prepared to manage it! Operational risk Operator Credit risk Lender Construction risk (schedule, plant performance, cost) Engineering, Procurement and Construction Contractor (EPCC) Physical damage, public liability Insurance company Feedstock Supply risk Landfill or biogas plant host or owner 7

8 Five key Lender questions for financing a Renewable Energy Project Who is the borrower? Is there sufficient feedstock / fuel? What will be built, by Who and How? How will the project make money? Who will operate and maintain the plant? 8

9 Who is the Borrower? Executive Summary of Project Background information on principal owners Ownership diagram Equity sources Shareholder, Operating, and Equity agreements 9

10 Is there sufficient Fuel? Gas or Feedstock study by an independent 3 rd party Introduction and Scope of the fuel study Feedstock availability and analysis Alternative sources of feedstock Evaluation or summary of permit requirements Cost of feedstock Laboratory analysis of fuel sample Risk of a more attractive offer price for feedstock 10

11 What will be built, by who and how? Who will engineer it? Who will be responsible for building it? Timeline for construction until operation Schedule of Values Costs broken down by major category and by responsible party Timeline for equity, debt, and retention Lender s Engineer will use this to approve payments Lender holds 10% retention until Final Completion Liquidated damages for late delivery and failure to meet guaranteed performance. 11

12 Construction Financing provides the borrower with bridge financing while their Project is under construction and not producing a cash flow. Upon Substantial Completion of the Project, the construction loan is converted into long-term financing. CONSTRUCTION LOAN TERM LOAN (X months) Y years 12

13 How will the Project make MONEY? Financial Pro forma A complete projection of the Project s future performance. Microsoft Excel spreadsheet based Assumptions page allows testing and what if s GAAP or IFRS presentation: Balance Sheet, Income Statement and Statement of Cash Flows Terms and conditions of Revenue Contracts Viability of uptime assumptions Ongoing operations and maintenance costs 13

14 Common Project Financing Terms and Conditions Power Purchase or off take agreement term should be 2 years longer than loan term All assets of the Borrower are pledged as collateral Cash Management Accounts are established Debt Reserve equal to 6 months principal + interest payments All Project contracts are assigned to Lender ( step in rights ) Financial Covenants Minimum Debt Service Coverage Ratio Maximum Total Liabilities to Tangible Net Worth Minimum Tangible Net Worth 14

15 A Good Project Financially Viable Minimum Debt Coverage Ratio of 1.5 to 1 Maximum Total Liabilities to Net Worth = 3.5 to 1 Strong Borrower and Off-taker Sound Management Experience in the industry Long term commitments Good Construction Plan Single EPC Contractor Completed on Schedule 6-18 mos. Construction 15

16 Project Finance Milestones Preliminary project information Indicative Finance Proposal Additional project information Commitment Letter Construction & Loan Documents Conversion Documents 16

17 Small projects can be just as difficult as large projects sometimes more difficult! Small project size (some are less than $5MM) More difficult to absorb soft costs, such as legal and development Project creates its own fuel More risky than pipeline fuel Linked to a process owner Palm oil mill or landfill owner Energy is not the core business of the process owner Environmental aspects Small developers lacking equity capital Multiple revenue streams (electric power, carbon credits, digestate) Carbon credits generally cannot be evaluated due to the uncertain market) Most deals are project financed Risky projects may require higher levels of equity 17

18 Case Study Sea Cliff Energy Ontario, Canada Digester technology: Complete mix Feedstock: animal waste, food processing waste, FOG, and source separated organics. 1.6 MW Long PPA contract to Ontario Power Authority. Total capital cost: $10 MM Financing: 60% debt, 40% equity 7 year term, fixed interest rate First priority security position in all project assets and pledge of shares. 18

19 Case Study AgPower Jerome Idaho, USA Digester technology: modified plug flow Feedstock: animal waste from 16,000 head dairy farm (largest on-farm biodigester in North America) 4.8 MW 20 year PPA with local utility Digestate used for cattle bedding and also sold as fertilizer Total capital cost: $22 MM Financing: 68% debt, 32% equity 5 year term, fixed interest rate First priority security position in all project assets and pledge of shares. 19

20 ขอบค ณคร บ Thank you! Questions? 20