How can I get my solar, wind or small hydro projects financed?
What Makes
a Good Clean IPP
By Paul Raftery
Daily our teams
in Sydney (www.projectsrh.com.au)
and internationally in Singapore (www.tabatingasg.com)
wake-up to the question can this or that energy project be financed. Tabatinga
does receive a lot of enquiries from Asia and more recently LatAm.[1]
The mandates
issued to Project RH and Tabatinga by their respective Boards and shareholders
are to act like a relationship partner and not like a transaction banker. These
roles whilst commonly called “investment banking” are that part of the project
development cycle which lead to a bankable (or financeable project).[2]
The model calls for long term commitment to the project and will often see
Projects RH and Tabatinga. We don’t see our business as accepting purely
funding mandates. One way
we measure our success is by our returning project developers and investors,
which represent a considerable percentage of the work we do. Our mode
does Tabatinga and Projects RH working long-term with suppliers and clients.
Generally, they
1)
Have an equity position in the
project
2)
Provide a director
3)
Be part of the team including
the PCG (Project Control Group)
4)
Have an ongoing role in the
financing or the sponsoring business assisting in the business’s growth and
ensuring it meets local regulatory and investor / lender requirements.
When we speak
with our potential and existing clients about their project, we ask them:
1)
First, is your project “construction
ready”[3]
– A simple “yes / no” answer is required. Invariably for both Tabatinga and
Projects RH potential clients the answer is “No” and we need some early stage
(akin to seed) funding[4].
We need understand clearly where the potential client is at, honesty is
paramount.[5]
2)
Have you done your homework?
a.
Built a robust financial model
b.
Prepared an Information
Memorandum (IM).
c.
Have a slide presentation
(commonly called a “Pitch Deck”.
d.
Prepared a one page summary (we
call a “Teaser”[6]
3)
Do you have?
a.
A site
b.
A demand study or an offtake
partner
c.
Government support
d.
Community support
e.
An environmental impact
statement prepared by an independent reputable consultant
4)
Is the project compliant with
local rules and regulations?[7]
5)
Is there an interconnect /
transmission line capacity between the power plant location and the proposed
point of consumption? (Naturally this does not apply for a project for a single
offtake partner.) [8]
6)
What type of technology are you
proposing? We are looking for best proven technology.
a.
Who is your supplier?
b.
Is the manufacturer giving
support (funding, warranties, major maintenance...?)
c.
Who will do the installation
and commissioning?
d.
Who is providing the
maintenance and spares?
e.
Are you proposing to despatch
on demand or 24 / 7 if so what is your storage medium (battery, pump storage
etc.)
7)
Local Revenue
a.
What is the price which is to
be received – do you have a demand and pricing study from an internally
recognised independent consultant.
b.
Do you have a PPA (purchase
power agreement) or a dedicated off-take partner (increasingly a remote mining
activity)?
c.
Is there an availability fee
from the power system?
d.
Is there a special tariff for solar and / or
wind power?
e.
Are there other revenue streams
e.g. renewable energy certificates (called Large-scale Generating Certificates
in the US)?
8)
Are you proposing to supply 24
/ 7? If so, what is your storage mechanism.
9)
Most plant is said to have a
design life of 25 years, but given the rapid rate of technical change we
believe that the economic life is 15 years. This means two refurbishments after
5 and 10 years. Is this in your thinking? A life of 15 years means that debt
will need to be repaid in 12 years using the 80% rule but most lenders will
want it repaid in 10 years of less.
10)
What have you assumed to be the
debt equity mix and after paying principal and interest on the debt what is the
return and revenue stream to equity before and after local taxes?
11)
We like to see and financial
model which is positive at 60:40 and 80:20 debt as to equity ratios. We assume
USD as the functional currency of the project (we have worked in Euros, RMB and
AUD) in most countries we operate in as this
What we are
seeing is a lot of proposals for 19.9MW units – solar, wind and hydro units –
which will generate when they do and must be accepted by the grid and which are
being paid a premium because they are “green”.
These are a good idea but will not get investors excited unless we can
package them into bundles due to lack of scale and lack of impact on the market.
This is a latent fear that even despite the commitment to connect to the grid
it will not be a priority and the investor will be left with a stranded asset.
With this
information or people who can prepare it for you we hope to see many more solar
and wind power projects financed.
The
international financial markets are looking for robust projects which meet
these metrics to invest in. The work for firms like Projects RH and Tabatinga
is to de-risk them.
Paul Raftery
[1] There
is one comprehensive report on LatAm : International Finance Corporation :
World Bank Group “Access to Energy in Low-income Communities in the Latin
America and Caribbean Region: Lessons Learned and Recommendations”, Lima
(Peru), (Source : https://www.ifc.org/wps/wcm/connect/b08155004f9e8e3cbdcaff0098cb14b9/Access+to+Energy+in+LAC-Final+Report.pdf?MOD=AJPERES) Accessed 12-Apr-19
[2] Tabatinga and
Projects RH each have their own list of professional parties we can easily wok
with in solar, wind and hydro projects. Theirs is not only complementary skills
and shared experienced but a shared acceptance that together sharing the cake
is better than no cake at all.
[3] If a project is
“Construction Ready” the project will be able to move quickly at a lower cost
with minimal investor involvement. We really don’t see many of this type of
projects.
[4] By “seed funding” we mean an early stage
investor(s) who will provide the risk capital to allow the project to finalise
a Bankable Feasibility Study (BFS), get government approvals, and prepare
contracts to get the project “construction ready”. This seed funding likes to see
financial close planned for within 18 months – but the sooner the better. If
the journey is longer than 18 months, we need to look for a co-investor who
shares the vision and has more patience. We have spoken with a number of
specialist funds and “impact” investors who are prepared to accept this role
but they do want to be involved.
[5] The
business models for Projects RH (in Australia) and Tabatinga based in Singapore
is to help structure the project so we welcome projects before they are
construction ready as we see the selection of certain technical advises and
equipment suppliers as making the process easier.
[6] The answer is generally we have a slide
pack and a rough model. Tabatinga and Project RH’s initial role is to prepare
these. We also need to be clear with the client, in a very respectful way that
these need to be in English. English is the international language of solar and
wind transactions. Our team members may be speaking Mandarin, Vietnamese or
Spanish with the client, suppliers or even funders but the papers which need to
be sent to the management, Investment and / or finance committee inevitably
need to be in English.
[7] We were talking with a potential client
last week in Colombia about solar panel suppliers and funding when they asked
us of our proposed suppler met the Colombian standard for solar panels? We got
the standard and sent it and overnight got the response we needed. Critically
our in-house specialist agreed.
[8] We are seeing an increasing number of
single client solar and wind projects focused on a single client remote mining
site. The mines are generally led by good international credits and have lives
of 15+ years. Such mining projects can pay in a hard currency (USD, RMB, Euro
etc) as they export in such a currency.
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