PROJECT FINANCE RE PROJECTS

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1 PROJECT FINANCE RE PROJECTS

2 TURKEY S RENEWABLE MARKET RE regime in Turkey sparked in 2001 when the Electiricity Market Law authorised the EMRA (Energy Market Regulatory Authority) to take measures to promote renewables. The Electricity Market Licensing Regulation followed in August In 2005 specific regulation followed was enacted in the form of Renewable Energy Law (REL). Turkey s new 2011 REL has increased the guaranteed price (feed-in tariff) for the sale of electrical energy generated by REResources certificate holder. First 10 years of operation US dollar cents/kwh Hydropower 7.3 Wind 7.3 Geothermal 10.5 Solar 13.3 Biomass (incl.landfill) 13.3 Before 2011 law, guaranteed price was in the range of Euro cents/kwh for all types of sources. The new prices are expected to apply only to power plants commissioned on or before 31 December

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4 FROM WIND EXPERIENCE TO SOLAR WIND: In 2007, there were multiple applications for certain locations and/or transformer centers. TEİAŞ has organized 13 tenders for MW capacity and MW has been allocated to investors. The bidding was based on a royalty fee payment per kwh in TL. Arithmetical average of royalty fees is 1.72 Kr/KWh, weighted average is 1.91 Kr/KWh. The heightest royalty fee is 6.52 Kr/KWh and the lowest 0.01 Kr/KWh) In Euros the heightest royalty fee is cent/kwh and the lowest is cent/kwh. Considering that the guaranteed price for wind is 7.3 $-cent/kwh, which is around cent/kwh. Naturally, the projects with high royalty fees are having difficulty to be financed. SOLAR: In case of multiple applications for certain locations and/or transformer centers; there will be an underbidding process this time, with respect to the prices set forth within the New Law. Capacity is planned to be 600 MW. 4

5 EMRA REQUIREMENT FOR SOLAR LICENCING measurements of solar variables for a minimum of six months within an application zone in addition to this measurements, a set of data for another 6 months ( from accredited sources such as DLR, NASA, METEONORM ) independent sets of measurements for solar variables for each application applications for regions with a global horizontal radiation > 1620 kwh/m2 No application for a first -class farming field the maximum land assigning (belonging to the Treasury) m2 per MWp 5

6 DOMESTIC PRODUCTION INCENTIVE For all kinds of renewable investments, the new law includes a domestic production incentive for projects commisioned by 31 December 2015 that use mechanical and/or electromechanical components produced in Turkey. The additional incentives will be available for 5 years from tha date of commencement of commercial operation of the plant. Each part has different incentive levels. Type of Component Additional incentive in FIT USD Cent per kwh PV power plants mounting structure components 0.8 Photovoltaic module production 1.3 Photovoltaic cell production 3.5 Inverters 0.6 Additional Incentives in FIT by local content 6.2 6

FINANCING RE PROJECTS- Lenders Expectations Energy projects are valued from financial, economical, technical and environmental perspectives.

7 FINANCING RE PROJECTS- Lenders Expectations Energy projects are valued from financial, economical, technical and environmental perspectives. Technical due diligence and feasibility reports Verified and reliable measures confirmed by an independent technical consultant For Turkey; Annual average solar radiation 1527kWh/m2 per year Annual average total sunlight period 2,738 hours/year (7.5 hours a day) Min 1 year data (for solar) collection and correlation study covering Feasibility report covering up-to-date information about the investment costs Distance to the grid connection and the quality of the lines Equipment analysis Equipment supply and performance guarantee agreements Effects of expropriation Effects on environment 7

8 FINANCING RE PROJECTS- Lenders Expectations Mitigation of completion risks There are two main alternatives to minimize the risks of cost overrun, delay and construction risks Signing a lump-sum, date certain, turn-key EPC Contract with a reputable and experienced contractor The sponsors providing a project completion guarantee, if a turn-key contract is costly or not practical Consulting Services during the investment period Monitoring the project budget Tracking financial and physical progress of the project Periodical project reports Equipment Supply Basic features of equipment (performance, warranty, technology) Proven track record Existence of a satisfactory supply contract Insurances Construction All-Risk and Commercial Risk Insurance Policies 8

9 FINANCING RE PROJECTS- Lenders Expectations 9 Equity Contribution Equity levels might change according to project risks and modelling assumptions Generally ranges between 20%-40% of the total investment cost Part of the equity may be expected be paid upfront upon the start of the construction, remaining may be injected pro rata with the facility drawdowns Cost over runs during the investment period should be funded by equity Financial/Non Financial Covenants Debt Service Coverage Ratio (DSCR) is expected to be between levels on average until the maturity of the facility - debt sizing: 1.20x 1.40x - default: 1.10x 1.15x - dividend lock-up: 1.30x 1.50x Financial indebtedness of the SPV. Cash sweep Change of Control Negative pledge

10 SECURITY STRUCTURE Main principal: Should cover all of the assets and the cash flow of the project Prior to first utilization: Pledge over the shares of the project company Mortgage over the project assets (including servitude rights) Pledge over the project company s bank accounts Assignment of receivables under the insurance policies Project completion guarantee of the sponsors during the investment period Post completion: Commercial enterprise pledge Assignment of receivables Sponsor support undertaking to cover certain project risk Hedging transactions are generally done to mitigate currency and interest rate risks; depending on the interest rate and currency of the facility 10

11 TSKB Experience 79 HEPPs MW 11 WPPs 401 MW 98 projects with MW installed capacity are being financed by TSKB 2 GPPs 58 MW 4 Biomass 51 MW 1 Waste 28 MW Financing of the renewable energy projects by TSKB has started in MW of these projects are in operation. 1 Solar 1 MW Total investment cost of the projects is 6,2 bn USDs and 1,9 bn USDs are underwritten by TSKB. 11

tr Meclisi Mebusan Caddesi No: 81 Fındıklı 34427 Istanbul Turkey

12 12 PROJECT FINANCE DEPARTMENT T.Sınai Kalkınma Bankası A.Ş. Meltem Gülsoy: PF Department Head Meclisi Mebusan Caddesi No: 81 Fındıklı Istanbul Turkey Tel: +90 (212) Fax: +90 (212) Internet:

Financing Renewables in Turkey

Financing Renewables in Turkey Symposium of the Deutsch Türkischen Industrie- und Handelskammer Florian Mahiny Head of Austrian/ German International Desk Yapı ve Kredi Bankası A.Ş. Istanbul, 22. February