Debt Financing for Geothermal GRC 2007 Annual Meeting October 1, 2007
Glitnir  Sustainable Energy Mission is to be a   leading financial provider   to the global  sustainable energy sector ,  ...
Glitnir   Energy Projects in Progress Glitnir Sustainable Energy Focus Regions <ul><ul><li>Geothermal </li></ul></ul><ul><...
Glitnir’s US Market Report - Key Findings <ul><ul><li>The biggest potential for geothermal energy applications in electric...
Glitnir’s US Market Report - Key Findings Most of the development (by MW) will happen in California, Nevada, Idaho and Ore...
Glitnir’s US Market Report - Key Findings <ul><ul><li>Sales of geothermal powered electricity could increase from current ...
Glitnir’s US Market Report - Key Findings <ul><ul><li>Glitnir estimates the investment requirement to service  currently p...
Glitnir’s US Market Report - Key Findings Resources Developable by 2015 Resources Developable by 2025 To develop available...
Geothermal Project Timeline <ul><li>Add Phases as defined by GEA, see May 2007 Update </li></ul>Explorat. Detailed Design ...
Geothermal Project Timeline Explorat. Detailed Design & Construction Pre-Feas. Operation & Maintenance Feasibility Sources...
Debt Finance For Geothermal <ul><li>Mezzanine </li></ul><ul><ul><li>Potential exists to use mezzanine debt during the Feas...
Debt Finance For Geothermal Construction Lending <ul><li>What needs be to be in place? </li></ul><ul><ul><li>PPA </li></ul...
Debt Finance For Geothermal <ul><li>Traditional project finance debt likely to take a back seat to Tax Equity  </li></ul><...
United States – Geothermal Energy Market Report September 2007 Debt Financing for Geothermal Geothermal Resources Council ...
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Debt Financing for Geothermal GRC 2007 Annual Meeting

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Debt Financing for Geothermal GRC 2007 Annual Meeting

  1. 1. Debt Financing for Geothermal GRC 2007 Annual Meeting October 1, 2007
  2. 2. 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. <ul><ul><li>Home markets, Iceland & Norway with more than 99% of electricity production from renewables (~9% in the United States). </li></ul></ul><ul><ul><li>Iceland, one of the leaders of geothermal energy utilization for electricity production & direct use. </li></ul></ul><ul><ul><li>Currently installed capacity (geothermal) in Iceland 422 MWe. </li></ul></ul><ul><ul><li>Strategic partners with leading positions in the sector. </li></ul></ul>Unique Basis for Sustainable Energy Services <ul><ul><li>Extensive geographical and industry research. </li></ul></ul><ul><ul><li>Industry player mapping & networks. </li></ul></ul><ul><ul><li>Advisory for players in the geothermal sector, across the whole “value chain”. </li></ul></ul>Glitnir Geothermal Business Origination
  3. 3. Glitnir Energy Projects in Progress Glitnir Sustainable Energy Focus Regions <ul><ul><li>Geothermal </li></ul></ul><ul><ul><ul><li>Developers, utilities, technology, supply, consulting </li></ul></ul></ul><ul><ul><li>Geographic Coverage: </li></ul></ul><ul><ul><ul><li>Asia, North America, Europe, South & Central America, Oceania </li></ul></ul></ul>Projects <ul><ul><li>Development partner, equity raising, financial structuring </li></ul></ul><ul><ul><li>Acquisition advisory, structuring & origination </li></ul></ul><ul><ul><li>Debt financing </li></ul></ul><ul><ul><li>Business origination for clients & investors </li></ul></ul>Glitnir Role & Value-Add
  4. 4. Glitnir’s US Market Report - Key Findings <ul><ul><li>The biggest potential for geothermal energy applications in electricity production is in the Western States, primarily in California, Nevada, Idaho and Oregon. </li></ul></ul><ul><ul><ul><li>In California, geothermal could provide about 20% of today’s electricity needs </li></ul></ul></ul><ul><ul><ul><li>In Nevada this could be even 60% </li></ul></ul></ul><ul><ul><ul><li>17% in Idaho </li></ul></ul></ul><ul><ul><ul><li>In Hawaii it could provide around 30% of the islands’ electricity needs </li></ul></ul></ul>Tremendous opportunities in the utilization of geothermal energy in the U.S.
  5. 5. Glitnir’s US Market Report - Key Findings 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.
  6. 6. Glitnir’s US Market Report - Key Findings <ul><ul><li>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. </li></ul></ul>Geothermal sales have potential to grow rapidly U.S. Annual Geothermal Electricity Sales $mm (Average 2005 $/kWh by individual state) Source: Glitnir Energy Research based on EIA Electricity Sales figures.
  7. 7. Glitnir’s US Market Report - Key Findings <ul><ul><li>Glitnir estimates the investment requirement to service currently planned projects to be $9.5 billion </li></ul></ul><ul><ul><ul><li>based on GEA’s May 2007 Update on U.S. Geothermal Power Production and Development </li></ul></ul></ul><ul><ul><li>A total Investment of $16.9 billion will be required to develop available resources through 2015 </li></ul></ul><ul><ul><li>A further $22.5 billion during the following 10 years </li></ul></ul><ul><ul><ul><li>based on capacity estimates of Western Governor’s Association 2005 Geothermal Task Force Report </li></ul></ul></ul><ul><ul><li>For successful development of the geothermal industry it will be necessary to increase the capacity of drilling equipment and related human resources </li></ul></ul><ul><ul><ul><li>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 </li></ul></ul></ul>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
  8. 8. Glitnir’s US Market Report - Key Findings 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
  9. 9. Geothermal Project Timeline <ul><li>Add Phases as defined by GEA, see May 2007 Update </li></ul>Explorat. Detailed Design & Construction Pre-Feas. Operation & Maintenance Feasibility Glitnir’s view of project development stages Phase 1 Phase 2 Phase 4 <ul><li>Identifying site, secured rights to resource </li></ul><ul><li>initial exploration drilling </li></ul><ul><li>Drilling & confirming </li></ul><ul><li>Securing PPA & final permits </li></ul><ul><li>Under Construction </li></ul>GEA Categorization – Projects in Development <ul><ul><li>Exploration : Geophysical surveys, geochemical & geological data collection and analysis, temperature gradient drilling </li></ul></ul><ul><ul><li>Pre-Feasibility : focused exploration of most favorable resource area or areas, sufficient exploration data collected and analyzed </li></ul></ul><ul><ul><li>Feasibility : Drilling of first successful, full-sized production well (discovery well), confirmation wells, reserve estimates, preliminary design </li></ul></ul><ul><ul><li>Detailed Design & Construction : Drilling & testing of remaining production and injection wells, civil works required, final design & testing </li></ul></ul><ul><ul><li>Operation & Maintenance : running and maintaining the power plant, as well as possible extension of the plant. </li></ul></ul>Phase 3 Year 8 Year 9 Year 7 Year … Feasibility Detailed Design & Construction Operation & Maintenance Pre-Feasibility Exploration Phase Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
  10. 10. Geothermal Project Timeline Explorat. Detailed Design & Construction Pre-Feas. Operation & Maintenance Feasibility Sources of capital available through the development stages Year 8 Year 9 Year 7 Year … Feasibility Detailed Design & Construction Operation & Maintenance Pre-Feasibility Exploration Phase Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Seed Capital Venture Capital Private Equity Mezzanine Debt Construction Financing Bridge Debt Project Financing Tax Equity
  11. 11. Debt Finance For Geothermal <ul><li>Mezzanine </li></ul><ul><ul><li>Potential exists to use mezzanine debt during the Feasibility stage </li></ul></ul><ul><ul><ul><li>highly dependant on depth of knowledge of resource, previous successes at resource, existence of PPA, etc… </li></ul></ul></ul><ul><ul><ul><li>pricing likely to be L+600+ on debt plus equity kicker to generate IRR in mid/high teens </li></ul></ul></ul><ul><ul><li>Bridge Financing </li></ul></ul><ul><ul><li>An option in select situations… </li></ul></ul><ul><ul><ul><li>much of the work towards achieving construction loan (take out) precedents need to be in place </li></ul></ul></ul><ul><ul><ul><ul><li>PPA, construction loan commitment letter… </li></ul></ul></ul></ul><ul><ul><ul><li>can be used to while waiting for final pieces of the puzzle: Final Resource Report, Permits </li></ul></ul></ul><ul><ul><li>Example: Glitnir’s bridge for Nevada Geothermal’s Blue Mountain Project </li></ul></ul><ul><ul><ul><li>provides liquidity to continue drilling and development program without interruption prior to receipt of final permits </li></ul></ul></ul>Mezzanine / bridge financing use is highly situational…
  12. 12. Debt Finance For Geothermal Construction Lending <ul><li>What needs be to be in place? </li></ul><ul><ul><li>PPA </li></ul></ul><ul><ul><li>EPC contract </li></ul></ul><ul><ul><ul><li>confirmation of long lead time equipment reservations </li></ul></ul></ul><ul><ul><li>Equity Contribution of ~20% </li></ul></ul><ul><ul><li>Independent engineer’s report </li></ul></ul><ul><ul><li>All regulatory and environmental permits </li></ul></ul><ul><ul><li>Resource verification report </li></ul></ul><ul><ul><li>Transmission rights and interconnection agreement </li></ul></ul><ul><ul><li>Drilling commitments </li></ul></ul><ul><ul><li>Take out financing </li></ul></ul><ul><li>What will facilities look like? </li></ul><ul><ul><li>2 – 3 year facilities </li></ul></ul><ul><ul><ul><li>Tax Equity likely to limit number of combined construction / term loan facilities </li></ul></ul></ul><ul><ul><li>Upfront Fees: 1.25% - 1.50% </li></ul></ul><ul><ul><li>LIBOR Spread: 125 – 175 bp </li></ul></ul><ul><ul><li>Commitment Fees: 37.5 – 50.0 bp </li></ul></ul><ul><ul><li>Full security package - perfected first priority liens in: </li></ul></ul><ul><ul><ul><li>all contracts: PPA, insurances, etc… </li></ul></ul></ul><ul><ul><ul><li>all equity ownership interest of borrower and subsidiaries </li></ul></ul></ul><ul><ul><ul><li>all present and future property and assets </li></ul></ul></ul><ul><ul><ul><li>all proceeds and products of the property and assets </li></ul></ul></ul><ul><ul><ul><li>necessary consents </li></ul></ul></ul><ul><ul><li>Standard covenants </li></ul></ul>
  13. 13. Debt Finance For Geothermal <ul><li>Traditional project finance debt likely to take a back seat to Tax Equity </li></ul><ul><ul><li>Construction Lending / Project Finance have been relatively insulated from recent credit market dislocation </li></ul></ul><ul><ul><li>Private Placement / 144A bond markets will be competitive vs. bank market </li></ul></ul><ul><ul><ul><li>Long reserve life, base-load nature is very attractive to bond market </li></ul></ul></ul><ul><ul><ul><li>more open to long weighted average lives </li></ul></ul></ul><ul><ul><li>Average DSCRs in the 1.50x range </li></ul></ul><ul><ul><li>Reserve Accounts </li></ul></ul><ul><ul><ul><li>6 month Debt Service Reserve Account </li></ul></ul></ul><ul><ul><ul><li>Operating and Maintenance Reserve Accounts </li></ul></ul></ul><ul><ul><li>Potential to add extra leverage through “HoldCo” or subordinated tranche </li></ul></ul><ul><ul><ul><li>demand for sub tranches less insulated from credit turmoil </li></ul></ul></ul>Project Financing
  14. 14. United States – Geothermal Energy Market Report September 2007 Debt Financing for Geothermal Geothermal Resources Council 2007 Annual Meeting October 1, 2007
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