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Click to edit Master title style. DNB Bank – Project Finance. How much can be borrowed. Determined by the debt capacity of the project, is decided by the bank and expressed in cover ratios to control the project. DNB Bank – Project Finance. Deriving optimal loan value. - PowerPoint PPT PresentationTRANSCRIPT
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How much can be borrowed
DNB Bank – Project Finance
22. april 2023
Determined by the debt capacity of the project, isdecided by the bank and expressed in cover ratios to control the project
Deriving optimal loan value
DNB Bank – Project Finance
22. april 2023
Most used cover ratios
DNB Bank – Project Finance
• PLCR • Project Life Cover Ratio
• LLCR • Loan Life Cover Ratio
• DSCR • Debt Service Cover Ratio
22. april 2023
Long term
Short term
Limited natural hedge from negative correlation between el cert prices and power prices
Historic prices in the Nordic region
DNB Bank – Project Finance
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NO
K/M
Wh
Elsertifikatpris (spot)Kraftpris (år + 1)Kraft + elsertifikat
Power prices (Fwd price + 2% p.a. 2016-20) Price of green certificates (Fwd pris + 2% p.a. 2016-20)
0
200
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600
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1000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
SE
KK
/MW
h
90 % 80 % 60 % Forward
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100
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500
600
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800
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
SE
KK
/MW
h
90 % 80 % 60 % Forward
Volatility in power and certificate prices are limiting the debt capacity of the projects
Volatility can be reduced with entering into long term PPA’s or Financial Hedges
Less volatility will increase the capacity of the project
The project is exposed to both power and certificates risk
DNB Bank – Project Finance
Case study from Sweden with no hedgingDNB Bank – Project Finance
-15
-5
5
15
25
35
45
20102011
20122013
20142015
20162017
20182019
2020
MS
EK
90 % 80 % 60 % Forventning
Cash Flow Available after Interest payments with no price hedging It is >10% probability that the project will not be able to service interest- NOT ACCEPTABLE In our bank base case we size the debt so that projects should be able to serve Interest + Principal with
1.4x cover ratio. Min DSCR = 1.4x
Case Study from Sweden - with financial hedging
DNB Bank – Project Finance
-15
-5
5
15
25
35
45
20102011
20122013
20142015
20162017
20182019
2020
MS
EK
90 % 80 % 60 % Forventning
Strategy ensures positive cash flow within 95% - Acceptable Sell 25% of power on 10-year contract Hedge power and certificates so that total hedge is 75-50-25% (1-2-3 years ahead)
Ref DNV White Paper IEWP0101 Wind Power Project under performance
• Average is about 10% below P50; Trend: 2006: 13%; 2008: 11%; 2009: 10%
It’s the combination of wind measurement uncertainty and modelling
Energy assessments must still consider many “technically unsettled” or subjective issues
High uncertainty in energy yield assessment Actual vs Forecasting
DNB Bank – Project Finance