Financing Irish Wind Power New Solutions for a New Era IWEA Autumn Conference 2012 Heiko Ludwig Managing Director Nord/LB Structured Finance Europe
NORD/LB Group Overview NORD/LB: represented in all important financial centres. Moscow New York Beijing Shanghai Mumbai Head offices Hannover, Braunschweig, Magdeburg Worldwide branches London, New York, Singapore, Shanghai and representative offices in Beijing, Moscow, Mumbai German branches Duesseldorf, Hamburg, Schwerin and more than 100 branches of Braunschweigische Landessparkasse Subsidiaries and bank holdings Bremer Landesbank, Deutsche Hypothekenbank, NORD/LB Asset Management, NORD/LB Luxembourg, NORD/LB Covered Finance Bank Hamburg Bremen Amsterdam London Luxembourg Hannover Schwerin Magdeburg Braunschweig Duesseldorf Paris Frankfurt Nuremberg Munich Zurich Madrid Singapore 2
NORD/LB Group Overview Our Project Finance business model is client-oriented and focussed Renewable Energy One of the leading banks globally with a volume financed of more than EUR 4bn Renewable Energy worldwide (5,000 MW+) Infrastructure With a financing volume of around EUR 2bn worldwide the bank has a strong position (e.g. Public Private Partnerships in the fields of schools, public buildings, justice and administration) Industrial Projects First addressee for project and export finance for our corporate clients 3
Renewable Energy Project Finance Overview NORD/LB is one of the most experienced Renewable Energy players NORD/LB Group has financed over 5,000 MW of Renewable Energy projects across the world Onshore Wind Solar 4 Offshore Wind
Renewable Energy Project Finance Overview Our Renewable Energy Team 45 Project Finance Experts focusing on Renewable Energy Origination 14 project finance experts focusing on generating new business opportunities across Europe; Portfolio Management 20 Portfolio Managers responsible for managing transactions after financial close across Europe; Agency & Syndication A strong syndication team based in London who supports in larger deals where more than 1 bank is required Responsible for structuring and executing deals up to financial close within the Renewable Energy Sector; Responsible for managing a portfolio of over EUR 2bn of European Energy deals; A very experienced Agency team managing over 300MW of wind and solar assets; Cross-Border team based in both London and Germany; Cross-Border team based in both London and Hanover; Agency team dedicated to Project Finance which ensures easy and efficient day-to-day client support and understanding of PF requirements; 5
Renewable Energy Project Finance Overview NORD/LB has its roots in the onshore wind sector Onshore Wind Extensive experience in evaluating wind power projects in Europe (UK, Continental Europe, Ireland, Scandinavia) and globally (e.g. US, Canada, Mexico) Project Loans, Turbine financing, Construction financing, and related products (e.g. Hedging and Letters of Credit) Strong relationships with experienced developers, all major turbine manufacturers and Large Private Equity Funds; Nord/LB are at the forefront of new developments within the sector (new markets, new structures, new products and new technologies); 2011 United Kingdom 2011 Ireland 2011 Germany 2010 United Kingdom 2010 France Carrowleagh Wind Farm Hyndburn 24.6 MW Wind Farm 36.8 MW Offshore Wind Farm 400 MW Energia Wind Farm 50.6 MW Infigen French Wind Portfolio 52 MW GBP 39,600,000 Senior Debt Facilities EUR 49,100,000 Senior Debt Facilities EUR 1,047,000,000 Initial Mandated Lead Arranger GBP 58,000,000 Senior Debt Facilities EUR 62,000,000 Senior Debt Facilities Mandated Lead Arranger Mandated Lead Arranger Debt Advisor European Renewable Deal of the Year 2011 Mandated Lead Arranger Debt Advisor and Modelling Bank Bank Club Coordinator Mandated Lead Arranger 6
NORD/LB Services Process: Pre Mandate Advisory and Structuring Financial Close Post Financial Close 2 Due Diligence Coordination and Execution of Due Diligence (Technical Legal Insurance Tax) according to International Banking Standards. 5 Syndication / Coordination Senior Debt 1 Bankability Bankability assessment of new technologies / structures. Financial Modelling; 3 Structuring Structuring / Optimisation of Debt Tranches; Preliminary credit approval; Advisory on legal and contract structure; Equity / Mezzanine Structuring and Fundraising; Maximisation of equity IRPs / NPVs. Bank Club building / leading; Syndication arrangement. 6 Hedging Strategies Interest Rate Hedging; Currency Hedging. Post FC Financial Monitoring; Refinancing; Portfolio Management. 4 Subsidised Funds Arrangement of subsidised funds (i.e. EIB, EBRD, KfW, EKF, Hermes, etc.); Efficient Integration of Subsidised funds. 7
Renewable Energy Project Finance Overview Core European markets by capacity financed 1 700 >1,500 MW 600 > 600 MW 500 400 300 > 200 MW > 250 MW 200 85 MW 58.8 MW 95.4 MW 100 5 MW 14 MW > 30 MW 0 Bel gi um Cypr us Fr ance Ger many Ir el and Ital y Spai n Sweden UK Pol and Biomass Offshore Wind Onshore Wind PV 1. Over the Last 5 Years 8
Renewable Energy Project Finance Overview Ireland Onshore: > 250 MW Nord/LB has been active in the market since 2006 with an extensive knowledge of the local market, REFIT system, PSO levy mechanic, and SEM; Over Euro 300 million lent to more than 10 projects with a variety of sponsors utilising a range of turbine supply; Mandated lead arranger in the funding of more than 250 MW and have advised on the financing of a further 90MW; Our understanding of the sector, strong relationships with local stakeholders and long, uninterrupted involvement in the Ireland over several years is testament to our interest and commitment to the Irish renewable energy sector. 2011 Ireland 2010 Ireland 2009 Ireland 2012 Ireland 2007 Ireland Carrowleagh Reirk Wind Farm 36.8 MW Wind Farm 27 MW Glenough Wind Farm 32.5 MW Wexwind Project 15 MW Tournafulla II and Bindoo Wind Farm 67.5 MW EUR 49,100,000 Senior Debt Facilities EUR 39,000,000 Senior Debt Facilities EUR 38,700,000 Senior Debt Facilities EUR 25,000,000 Senior Debt Facilities EUR 95,600,000 Senior Debt Facilities Mandated Lead Arranger Debt Advisor Mandated Lead Arranger Mandated Lead Arranger Mandated Lead Arranger Mandated Lead Arranger 9
The European Wind Resource and Installed Onshore Wind Capacity European Wind Atlas Wind Energy Department RISO National Laboratory The European wind power capacity in the past has been driven by policy/planing and by tariff systems, this could change now as wind power moves closer to grid parity.
Current availability of project finance for onshore projects Renwable energy projects are attractive for project financing banks: Good project ratings, particulary for stable & transparent feed-in tariff markets (Low usage of Risk Weighted Assets) Small / medium deal size - high future business potential Many markets are closer to home; Onshore wind markets like the UK and Germany are seen as safe and core by many banks; Strong links with project sponsors and technology providers
Challenges and constrains in the project finance market Challenges for renewable energy financings: General & special banking considerations: long term funding of project finance debt (Basel III, EBA regulation) / cost of long term funding Net Stable Funding Ratio ~ banks will have to cover their pf loans with longer term funding (no 100% match funding required) capital constrains (limited allocation of risk weighted assets) because of tighter core capital requirements (Basel III) - Tier 1 Capital ratio of 9% (European Banking Authority) ~ EUR 130-160bn needed geographical limitations (homemarket / focus on existing client relationships) European Sovereign Debt / Risk Crisis the return of country exposure limits in banks for many European countries regulatory risk (the ghost of retroactive change to renewable energy support regimes, ie Spain) 12
Situation in European renewable energy markets differ Availability of non-recourse debt differs from jurisdiction to jurisdiction, depending on: State and health of the local banking market Market price risk Support regime (stability, transparency, level of support, tariff versus certificate style, etc) Availability of loan and/or liquidity support programmes pricing and terms are quite different between the markets Mini Perm structures Retroactive Tariff adjustment Tariff order issue Risk Good supply Final RES Regime implementation 13
Current structures to bridge the gap Mini Perm structures (soft & hard) eg. 7 years refinancing risk Supplier credit refinancing at COD Third party liquidity, eg KfW loans long term senior debt refinanced via long term liquidity programmes, whilst the long term risk remains with senior lenders Export cover, eg. Euler Hermes (German technology) & EKF ( Danish technology) risk cover for the local content or direct risk participation 14
Third party liquidity an example Borrower SPV Long term senior debt (eg 15 years from COD) Interest = i KfW + risk margin Senior Lender (accredited) Long term liquidity, fixed for up to 20 years with lower refinancing rate = i KfW Requirement: Renewable energy project SPV privately held with minimum German shareholding of 25% max EUR 25m per project only used for hard project cost windfarm needs to be in construction, etc KfW renewable energy refinancing programme 15
Export cover for project finance, eg. Euler Hermes German Exporter Delivery contract German content German content Foreign Buyer / SPV Senior debt facility Repayment HERMES Cover for portion of senior debt facility
Outlook European member states will continue to support renewable energy with adjustments to support regimes (shorter pattern) In North Europe wind power will dominate Tighter regulation of banks will continue Overall supply of long term bank debt will most likely not grow much in the medium term European Sovereign Risk crisis Renewable energy as sector will continue to be attractive for banks Use of financing support programmes (liquidity & risk) when necessary and possible Third party investor (insurance companies and pension funds) can help to fill gaps transaction specific involvement (eg. participation via bonded loans) involvement on part of banks existing project finance book (Senior Debt Fund) Good and well developed projects with strong sponsors should be able to attract senior debt 17
Contact Details Heiko Ludwig Managing Director +44 20 7972 6302 heiko.ludwdig@nordlb.com Theo Collins Director +44 20 7972 6311 theodore.collins@nordlb.com Marco Wedemeier Director +44 20 7972 5416 Marco.wedemeier@nordlb.com Alan Harling Associate Director +44 20 7972 6318 alan.harling@nordlb.com Nord/LB, One Wood Street, London, EC2V 7WT 18 18