debt financing for geothermal grc 2007 annual meeting

Debt Financing for GeothermalGRC 2007 Annual Meeting

October 1, 2007

2Glitnir – GRC Annual MeetingOctober 2007

Glitnir Sustainable Energy

Mission is to be a leading financial provider to the global sustainable energy sector, with a unique interest in the Geothermal space, as well as “initiating changes” for growth.

Home markets, Iceland & Norway with more than 99% of electricity production from renewables (~9% in the United States).

Iceland, one of the leaders of geothermal energy utilization for electricity production & direct use.

Currently installed capacity (geothermal) in Iceland 422 MWe.

Strategic partners with leading positions in the sector.

Unique Basis for Sustainable Energy Services

Extensive geographical and industry research.

Industry player mapping & networks.

Advisory for players in the geothermal sector, across the whole “value chain”.

Glitnir Geothermal Business Origination


Glitnir Sustainable Energy Focus Regions

Glitnir Energy Projects in Progress

Geothermal

– Developers, utilities, technology, supply, consulting

Geographic Coverage:

– Asia, North America, Europe, South & Central America, Oceania

Projects

Development partner, equity raising, financial structuring

Acquisition advisory, structuring & origination

Debt financing

Business origination for clients & investors

Glitnir Role & Value-Add


Glitnir’s US Market Report - Key Findings

The biggest potential for geothermal energy applications in electricity production is in the Western States, primarily in California, Nevada, Idaho and Oregon.

In California, geothermal could provide about 20% of today’s electricity needs

In Nevada this could be even 60%

17% in Idaho

In Hawaii it could provide around 30% of the islands’ electricity needs

Tremendous opportunities in the utilization of geothermal energy in the U.S.


Most of the development (by MW) will happen in California, Nevada, Idaho and Oregon


U.S. Geothermal Current, Projects & Potential

In (total) MW installed capacity (Source: GEA, WGA)

Sources: Glitnir U.S. Geothermal Market Report based on data of Geothermal Energy Association, WGA Geothermal Task Force.

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

ARIZONA

COLORADO

ALASKA

NEW MEXICO

HAWAII

WASHINGTON

UTAH

OREGON

IDAHO

NEVADA

CALIFORNIA

Current

Projected

2015 Estimate

2025 Estimate



Sales of geothermal powered electricity could increase from current $1.8 bn to $11.0 bn, without taking into consideration the vast opportunities for the development of geothermal direct use applications, e.g. geothermal heat pumps.

Geothermal sales have potential to grow rapidly

1,837 1,837 1,837 1,837

2,145

4,091

9,110

0

2,000

4,000

6,000

8,000

10,000

12,000

Current Projected 2015Estimate

2025Estimate

U.S. Annual Geothermal Electricity Sales

$mm (Average 2005 $/kWh by individual state)

Source: Glitnir Energy Research based on EIA Electricity Sales figures.



Glitnir estimates the investment requirement to service currently planned projects to be $9.5 billion

– based on GEA’s May 2007 Update on U.S. Geothermal Power Production and Development

A total Investment of $16.9 billion will be required to develop available resources through 2015

A further $22.5 billion during the following 10 years

– based on capacity estimates of Western Governor’s Association 2005 Geothermal Task Force Report

For successful development of the geothermal industry it will be necessary to increase the capacity of drilling equipment and related human resources

– as the industry is recovering from a decline that took place in the late 1980s and is to some degree competing with the oil industry for human resources, it is crucial to train and educate people to work within the sector

U.S. Investment Needs - $39.4 billion through 2025, plus equipment and human resources

Sources: Glitnir U.S. Geothermal Market Report based on data of GEA & WGA Geothermal Task Force



0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2008 2010 2012 2014 2016 2018 2020 2022 2024

5 rigs 10 rigs 15 rigs 20 rigs

Resources Developable by 2015

Resources Developable by 2025

To develop available resources drilling capacity needs to be heavily increased

* Glitnir Research estimates based on conservative assumptions.

MW


Geothermal Project Timeline

Add Phases as defined by GEA, see May 2007 UpdateYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year …

Exploration Phase

Pre-Feasibility

Feasibility

Detailed Design & Construction

Operation & Maintenance

Explorat.


Pre-Feas.


Feasibility

Glitnir’s view of project development stages

Phase 1 Phase 2 Phase 4

• Identifying site, secured rights to resource

• initial exploration drilling

• Drilling & confirming • Securing PPA & final permits

• Under Construction

GEA Categorization – Projects in Development

Exploration: Geophysical surveys, geochemical & geological data collection and analysis, temperature gradient drilling

Pre-Feasibility: focused exploration of most favorable resource area or areas, sufficient exploration data collected and analyzed

Feasibility: Drilling of first successful, full-sized production well (discovery well), confirmation wells, reserve estimates, preliminary design

Detailed Design & Construction: Drilling & testing of remaining production and injection wells, civil works required, final design & testing

Operation & Maintenance: running and maintaining the power plant, as well as possible extension of the plant.

Phase 3


Geothermal Project Timeline

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year …

Exploration Phase

Pre-Feasibility

Feasibility



Explorat.


Pre-Feas.


Feasibility

Sources of capital available through the development stages

SeedCapital

VentureCapital

PrivateEquity

MezzanineDebt

Construction Financing

BridgeDebt

ProjectFinancing

Tax Equity


Debt Finance For Geothermal

Mezzanine Potential exists to use mezzanine debt during the Feasibility stage

highly dependant on depth of knowledge of resource, previous successes at resource, existence of PPA, etc…

pricing likely to be L+600+ on debt plus equity kicker to generate IRR in mid/high teens

Bridge Financing An option in select situations…

much of the work towards achieving construction loan (take out) precedents need to be in place

PPA, construction loan commitment letter…

can be used to while waiting for final pieces of the puzzle: Final Resource Report, Permits

Example: Glitnir’s bridge for Nevada Geothermal’s Blue Mountain Project

provides liquidity to continue drilling and development program without interruption prior to receipt of final permits

Mezzanine / bridge financing use is highly situational…



Construction Lending

What needs be to be in place?

PPA

EPC contract

confirmation of long lead time equipment reservations

Equity Contribution of ~20%

Independent engineer’s report

All regulatory and environmental permits

Resource verification report

Transmission rights and interconnection agreement

Drilling commitments

Take out financing

What will facilities look like? 2 – 3 year facilities

Tax Equity likely to limit number of combined construction / term loan facilities

Upfront Fees: 1.25% - 1.50% LIBOR Spread: 125 – 175 bp Commitment Fees: 37.5 – 50.0 bp Full security package - perfected first

priority liens in: all contracts: PPA, insurances, etc… all equity ownership interest of borrower

and subsidiaries all present and future property and assets all proceeds and products of the property

and assets necessary consents

Standard covenants



Traditional project finance debt likely to take a back seat to Tax Equity

Construction Lending / Project Finance have been relatively insulated from recent credit market dislocation

Private Placement / 144A bond markets will be competitive vs. bank market

Long reserve life, base-load nature is very attractive to bond market

more open to long weighted average lives

Average DSCRs in the 1.50x range

Reserve Accounts

6 month Debt Service Reserve Account

Operating and Maintenance Reserve Accounts

Potential to add extra leverage through “HoldCo” or subordinated tranche

demand for sub tranches less insulated from credit turmoil

Project Financing

United States – Geothermal EnergyMarket Report

September 2007

Debt Financing for GeothermalGeothermal Resources Council 2007 Annual Meeting

October 1, 2007

debt financing for geothermal grc 2007 annual meeting

Documents

geothermal industry

geothermal sales

geothermal sector

geothermal current

geothermal market report

geothermal grc

geothermal energy applications

geothermal power production