Power & Energy Utilities

The challenges of financing renewable energy projects

in Romania

Wind Power Romania

17-18 January 2012Bucharest

© European Bank for Reconstruction and Development 2010 | www.ebrd.com

in Romania

EBRD: Foundations of operations

• Apply sound banking principles to all projects– We do not subsidise

• Advance the transition to a full market economy– Priority to promote private sector involvement and market

expansion

• Support, but not replace, private investment: additionality– Act as a catalyst for higher and riskier involvement of financiers

• Achieve environmentally sound and sustainable development

EBRD invests in times of crisis

• Invested €64.9 bn in more than 3,268 projects since 1991*

• Private sector > 78.3% of portfolio

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• Portfolio is 80% Debt, 20% Equity

• AAA rating, €30bn base capital

• €9bn invested in 2010, a 77% increase since 2008

* through 07 November, 2011

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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Debt ABV Equity ABV Net Cumulative Business Volume

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EBRD Facilities

• Project finance loans

• Corporate loans with specified use of proceeds

• Tenor of 10-15 years

• EBRD equity stake typically below 20-25% (meaningful, but minority)

• Investment through capital increase

• Invest in Funds to address smaller projects or larger stakes

LOANS EQUITY

• Margin benchmarked to market

• Fixed rate and/or local currency possible

• EBRD can directly finance up to 35% of an enterprise's long term capital (or project costs for greenfield projects); additional funds mobilized through syndication

projects or larger stakes

• Exit through IPO, trade sale or put/call agreement

• Political and regulatory risk mitigation

Some notes on the Romanian Energy Sector

Liberalisation: Fairly advanced

• electricity market fully liberalized since 2007, but ~47% of the market is still regulated

• OPCOM trades around 27% of the yearly consumption on DAM (16%) and Bilateral Contracts (11%), in yearly trades worth over EUR 400m

• Green Certificates trade on OPCOM, a market worth around EUR 24.5m in 2011

Infrastructure needs in the sector:

• in generation (low efficiency due to old equipment and heavy environmental footprint • in generation (low efficiency due to old equipment and heavy environmental footprint

• distribution and transport (grid cannot safely absorb more than 2,000 MW of installed wind capacity, according to a 2010 study)

Private sector participation:

• conventional generation: virtually all state owned

• greenfield projects coming slowly online such as Petrom’s 860 MW gas fired plant in Brazi, plus other PPP initiatives of the government, expected to materialize in 2012-2013.

• regional distribution: 5 out of 8 utilities

Some notes on the Romanian Energy Sector

Steps that should be taken going forward:

• privatisation of generation – either with strategic investors or IPOs; PPP projects to replace existing power generation infrastructure

• investment in transmission capacity and regional interconnection

• focus on strategic projects such as the pump/storage plant in Tarnita• focus on strategic projects such as the pump/storage plant in Tarnita

• renewable sector legislation to start being consistently applied

Renewables in Romania – an indicative checklist

Sponsor – developer / utility will a solid track record in renewable energy, capable to

contribute at least 30% of the total project costs

Wind resource – wind measurements for at least 1 year, performed by companies

with sufficient expertise and track record.

Land situation – the project should have registered rights over the land where it is Land situation – the project should have registered rights over the land where it is

sited.

Environmental and Social Impact Assessment Studies and Environmental and Social Action Plan – based on EBRD’s ToR. Stakeholder Engagement Plan

(SEP) and Non Technical Summary (NTS) to ensure meaningful public

consultation on all projects.

Grid connection – concluded connection contracts to connect to the local or national

grid.

Renewables in Romania – an indicative checklist (2)

Technology – Wind Turbines Generators (WTG) with track record (no new,

untested or experimental technology is acceptable). WTG Supply and LTO&M

contracts to be in place by financial closing.

Power Purchase Agreements – not a deal breaker, but given the legislation,

PPAs would enhance creditworthiness of projects.

Green Certificates Off-take Agreements - difficult to arrange until the GC

scheme has more of a track record; if available such would highly improve

projects. Mandatory for PV projects, where the dependency on GC prices is

substantial.

Debt sizing criteria - DSCR at P99 or 1.2/1.3 DSCR at P90.

Renewables in Romania – financing challenges

• Clarity and Predictability of Regulatory Environment Operations:

- curtailment risk: will projects with contracted output be compensated for the loss

of GCs in case of curtailment? Can a wind farm with no contracted output be

dispatched and is it entitled to receive GCs?

- guaranteed dispatch: by guaranteeing dispatch only for the contracted output of

the wind farms, the

projects will find it difficult to trade electricity on OPCOM and move towards PPAs. projects will find it difficult to trade electricity on OPCOM and move towards PPAs.

- overcompensation: number of GCs is subject to change, if overcompensation is

determined. How will

ANRE determine what projects, in development at the time of the decision, will be

affected?

- oversupply: what happens to GC prices if there are more GCs than required by

the quota system?

Renewables in Romania – financing challenges (2)

• Permitting and the status of the distribution / transport network

• Environmental due diligence

- Projects developed in staged approach: EIA needs to assess full project including infrastructure.

- Natura 2000 areas not well defined: EU is commencing infringement action against Romania.

- Permitted projects developed by locals are being marketed to international companies: Poor EIA could affect the project, as permits can be withdraw or operators asked to reduce output.

- Lack of cumulative assessments and ornithological studies

Why Environmental due diligence matters?

Dobrogea region: key bird

migratory corridor of

international importance,

hence:

• EIA required for major wind farms

• Minimal bird and bat assessment – 1 year minimal baseline data before operationbefore operation

• Appropriate Assessment under Habitats Directive required when in/near Natura 2000 area.

• EIA to evaluate associated infrastructure—roads, substations, transmission lines

• Public consultations also for local communities

EBRD’s Environmental Due Diligence – way forward

Romanian Wind Association should develop dialogue with stakeholders and develop

best practice guidance:- BirdLife/Romanian Ornithological Society keen to assist

Strategic Environmental Assessment (SEA) is recommended for Dobrogea and other

wind-rich areas of Romania- Grant funding should be available for Dobrogea SEA.

- Ultimate goal: local guidance on how and where to develop wind farms, and on- Ultimate goal: local guidance on how and where to develop wind farms, and on

cumulative assessment

- Pending completion of SEA, EBRD considers all projects in Dobrogea major (“Category

A” under the Bank’s Environmental and Social Policy)

Developers to be aware of designated Natura 2000 areas (notably for birds or bats)

Developers should screen consultants carefully for expert ornithologists and past

success both in successful Romanian permitting AND in satisfying IFI due diligence

requirements

Bulgaria

Project

Hungary

EBRD InvestmentSponsor Debt Equity

- St. Nikola 156 MW

- Suvorovo 60 MW

- AES

- Grupo Enhol

- EUR 70 mln

- EUR 60 mln

�

�

- Wind farm portfolio - Iberdrola Renovables - EUR 50 mln �

Romania- Cernavoda 138 MW

- Pestera 90 MW

- EDP Renovaveis - EUR 42.4 mln

- EUR 26.7 mln

EBRD: Wind farms financed

�

Turkey

Poland

- Tychowo 50 MW

- Wind farm portfolio

- Margonin 120 MW

- Global RPI

- Iberdrola Renovables

- EDP Renovaveis

- EUR 30 mln (in PLN)

- EUR 75 mln (in PLN)

- EUR 45 mln (in PLN)

�

�

- Rotor 135 MW - Zorlu Enerji - EUR 45 mln �

Regional- Enercap RE Fund

- FreEnergy

- Various

- Nelja Energia

- EUR 25 mln

- EUR 19 mln

�

�

�

- Raisner OU 130 MW - Iberdrola Renovables - EUR 0.9 mln �Estonia

EDP Renovaveis (EDPR) Wind Farms, Romania

Facility Details

Borrower

Lenders

Tenor

Cernavoda SPV / Pestera SA

EBRD: € 69.1 mlnIFC: € 69.1 mlnBanks: € 49.8 mln

15 years, including 1 year’s grace

• The loans, signed in June 2011, financed EDPR’s 228 MW wind parks at Cernavoda and Pestera (Dobrogea). EDPR is the world’s third largest onshore wind farm owner and operator

• The projects represent the first project finance transactions in the energy sector in Romania and in renewables.

Tenor

Structure

1 year’s grace

- Project Finance

- Floating rate, hedged

- Repayment in semi-annual

installments

sector in Romania and in renewables.

• They contribute to EBRD’s objective to support clean, environmental friendly, renewable energy sources and to Romania’s strategy of achieving, by 2020, 38% of consumption from renewables.

• The project supports also EDPR’s investment strategy in Central and Eastern Europe.

Project

The construction of two wind parks with a total installed capacity of 228 MW

Bulgaria- Vez Svoghe 26 MW - Petrovilla - EUR 47 mln

Project EBRD InvestmentSponsor Debt Equity

�

EBRD: Hydropower plants financed

�Romania - Stejaru 210 MW - Hidroelectrica - EUR 110 mln

Albania

Russia�- Hydro OGK 10,000 MW

- RusHydro Bond Issue

- RusHydro

- RusHydro

- EUR 53 mln

- EUR 110 mln �

- Power Sector Reconstruction 800 MW - KESH - EUR 30 mln

Georgia

- Okami and Lopota HPPs 3.5 MW

- Enguri HPP Rehab

- Various

- Govt of Georgia

- EUR 0.2 mln

- EUR 56 mln

�

Armenia - 20 Various HPPs 56 MW

- Various - EUR 5 mln

�

�

�

Hidroelectrica, Romania

• The loan, signed in July 2011, will finance the rehabiliitation of Hidroelectrica’s 210 MW Stejarul Bicaz Hydro Power Plant. Hidroelectrica is the largest Romanian power generation company.

• The project represents the one of the largest transactions concluded by the EBRD in the renewable energy sector

Facility Details

Borrower

Lenders

Tenor

Hidroelectrica SA

EBRD: € 70 mlnComm. banks: € 40 mln

EBRD: 13 years, Comm. Banks: 10 yearsEBRD in the renewable energy sector

in Romania.

• It contributes to EBRD’s objective to support clean, environmental friendly, renewable energy sources and to Romania’s strategy of achieving, by 2020, 38% of consumption from renewables.

• The project supports also Hidroelectrica’s ambitious investment strategy.

Tenor

Project

Structure

Comm. Banks: 10 years

The rehabilitation of the 210 MW Stejarul Bicaz Power plant

- Unsecured Senior Loan

- Floating rate

- Repayment in semi-annual

installments

Thank you!

Mihnea CraciunPrincipal BankerPower & Energy UtilitiesPower & Energy Utilities

+40 21 202 7138craciunm@ebrd.com