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M06 group presentation group 4_final


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  • 1. MBA Renewables, Investment and Financing Module Group Work, Investor Presentation Group 4 Carsten Jung Riikka Lauhkonen-Seitz Mario Maras Ovaise Mohammed Murtuza Adriana Stefanac 17 September 2013 Page 1
  • 2. Agenda   1. Introduction 2. Project Description and Status 3. Technology 4. Cost and Revenue Assumptions 5. Proposed Financing Structure and Returns 6. Risk Assessment 7. Project Attractiveness Page 2
  • 3. 1 Introduction Introduction   Page 3
  • 4. Introduction Country and Sector Context Republic of Kenya Vision 2030 key driver ENERGY •  Fast growing electricity demand due to economic growth •  Current capacity of 1,636 MW insufficient to meet demand •  Diversification of energy mix necessary as hydro power is vulnerable to climate change and fossil fuels have to be imported •  High electricity costs •  Up to 23,000 MW required until 2031 •  Government Strategy – Wind as one of the priority resources to “promote equitable access to quality energy services at least cost while protecting the environment” •  Potential of renewable energy in creating income and employment, contributing to low-cost, reliable energy supply and decreasing dependence on imported and expensive fossil fuels Page 4
  • 5. 2 Project Description and Status Introduction   Page 5
  • 6. Project Description General Project Information Project name Location Type of turbine Turbine capacity Number of turbines Total installed capacity Net Output Net capacity factor Feed-in-Tariff Commercial operation date Expected operational project lifetime CO2 emission reductions Total Investment Page 6 Kipeto Wind Energy Project Kipeto, Kenya GE 1.6-100 1.62 MW 63 102.06 MW 476,613 MWh/year 53% 0.12 USD/kWh August 2014 20 years ~295,000tCO2/year 297,870,744 USD Project area (70km2, 1850m – 2035m AMSL), position of wind turbines, map of Kenya
  • 7. Project Status Project Parties Agreements Project company Kipeto Energy Ltd Registered as SPV Project owner(s) •  Craftskills Wind Energy International Ltd •  General Electric Joint Development Agreement signed Turbine supplier General Electric Turbine supply contract signed EPC Contractor General Electric EPC contract signed Technical Service Provider General Electric 20 year O&M contract signed Landowner Local community members 20 year land lease agreement Long-term off-taker KPLC Kenya Power and Lighting Company 20 year PPA (take-or-pay) signed Grid operator KPLC Kenya Power and Lighting Company Grid connection agreement in place Relevant Authorities •  Ministry of Energy and Petroleum •  Energy Regulatory Commission •  Kenya Civil Aviation Authority •  Kajiado County •  UNFCCC •  National Environment Management Authority (NEMA) •  FiT approval obtained •  Generation license obtained •  Operating permit obtained •  Construction permit obtained •  CDM registered •  EIA license obtained Bank Qatar National Bank Loan agreement signed Page 7
  • 8. 3 Technology Introduction   Page 8
  • 9. Technology Key technology details of turbine, other facilities at project site GE 1.6-100 Manufacturer Rotor diameter Area swept Number of blades Length of blades Hub height GE Energy 100 m 7,854 m2 3 48.7 m 80 m Cut-in wind speed 3.5 m/s Cut-off wind speed 25 m/s Rotor speed range 9.75 to 16.18 rpm Nominal output Operational data Lifetime Page 9 1,620 kW 50 Hz 20 years Other facilities §  34 km underground cable trench system §  Substation incl. step up transformers (remote control via SCADA) §  20 km 220kV transmission line §  Main and back-up metering system (remote access via GSM) §  324 m2 x 2 m concrete bases §  Substation control building §  32 km access roads
  • 10. Technology Electricity Generation and Capacity Factor Technical Parameter Turbine technology Number of turbines Turbine capacity Nominal plant capacity Nominal electricity production GE Energy 1.6-100 63 1.62 MW 102.06 MW GE Energy 1.6-100 63 1.62 102.06 MW 894,046 MWh/year 894,046 MWh/year Electricity generation and Capacity Factor Probability P50 P90 Gross capacity factor 61% 51% Gross electricity production 545,368MWh/year 452,655 MWh/year Topographic factor 101.90% 101.90% Array efficiency 96.00% 96.00% Electrical efficiency 96.00% 96.00% Availability 96.10% 96.10% Substation availability 99.00% 99.00% Icing and blade degradation 99.00% 99.00% Power curve 99.00% 99.00% Hysteresis 99.80% 99.80% Grid curtailment 100.00% 100.00% Net electricity production 476,613MWh/year 395,589MWh/year Net capacity factor 53% 44% Page 10 Project area
  • 11. 4 Cost and Revenue Introduction   Assumptions Page 11
  • 12. Cost and Revenue Assumptions Most important cost and revenue drivers Tariff - FiT (2010) PPA duration Annual escalation rate Annual generation Expected carbon credit revenue Total investment cost Annual escalation: 12% of 120 USD / MWh the tariff 20 years 2% US Fed inflation target 476.613 MWh Based on P50 5.28 USD/CER CDM + Gold Standard 297,870,744 USD Investment / MW 2,918,584 USD O&M costs (first year) 6,599,885 USD Annually escalated Page 12
  • 13. Cost and Revenue Assumptions CAPEX and OPEX CAPEX   2%   0%   2%   2%   OPEX   Total  EPC  Cost   5%   Land  lease   3%   Project  development,  management   and  legal  cost   13%   12%   Total  annual  service  and   maintenance   IDC   12%   Retrofit  and   decommissioning  reserve   Financing  fee   3%   ConBngency     AdministraBon   1%   All  risk  insurance   Working  capital   86%   Page 13 59%   Community  trust  fund   Debt  reserve  
  • 14. Cost and Revenue Assumptions Profit and losses – Taxes and depreciation •  100% investment deduction allowance in the first year of operation •  Losses to be carried forward •  30% Corporate tax rate •  20 year depreciation on hard costs, 5 year depreciation on soft costs Page 14
  • 15. 5 Proposed Financing Introduction   Structure and Returns Page 15
  • 16. Proposed Financing Structure Your opportunity to SHARE(s) Growth Proposed  Financing  Structure   18%   Debt   12%   CraOskills   70%   Taschner  Green  Climate   Investments   •  Debt financing assumptions: •  Interest rate: 8% annually •  Term: 13 inclusive of 1 year grace period •  USD based loan Page 16 Selling price $ $70,362,678 Selling price $ Exclusive of CERs $67,020,917 Taschner Green Climate Investments Equity IRR > 21.27 %
  • 17. Proposed Financing Structure Cash flows Page 17
  • 18. Proposed Financing Structure Project returns and debt service cover ratio • Project IRRs (to the firm) Project IRR (before tax) Project IRR (before tax) incl. carbon credits Internal  rate  of  returns  (IRR)   16.36 % 25.00%   20.00%   16.93 % 15.00%   10.00%   Project IRR (after tax) Project IRR (after tax) incl. carbon credits 14.37 % IRR   5.00%   0.00%   14.88 % Equity  IRR   Equity  IRR   P-­‐IRR  before  P-­‐IRR  before   P-­‐IRR  aOer   P-­‐IRR  aOer   excl.  CDM   tax  excl.   tax   tax  excl.   tax   CDM   CDM   • Equity returns: Taschner Green Climate Investments Equity IRR 21.27 % Equity IRR incl. carbon credit 21.40 % • Debt Service Cover Ratio (DSCR) Average DSCR – P50 Average DSCR – P90 Page 18 1.84 1.49
  • 19. Proposed Financing Structure Taschner Green Climate Investments returns • Equity return – Taschner Green Climate Investments Equity IRR 21.27 % Equity IRR incl. carbon credit 21.40 % • Sensitivity analysis – Equity IRR • Net present value and M – Equity IRR Page 19
  • 20. 6 Risk Assessment Introduction   Page 20
  • 21. Market risk Risk level: low   §  Increasing demand à markets secured §  PPA signed à long-term offtaker secured -  A World Bank credit guarantee (MIGA) issued in case of default of Kenya Power §  Local politics favorable à government support secured Regulatory risk Risk level: low   §  Supportive local legislation, e.g. Energy Act 2006 §  Feed-in-Tariffs Policy on Wind, Biomass and Small-Hydro Resource Generated Electricity, 2008, 2010, 2012 §  “Kenya Vision 2030” Page 21
  • 22. Political risk Risk level: medium   §  Kenya WTO member §  Ease of doing business: Report by World Bank and IFC, Kenya ranked 109 out of 182 countries -  Lack of infrastructure -  Lack of human capacity -  Corruption -  Government inefficiencies -  Security constraints à Mitigated by involving a welllinked local project development company and international consultancies during the project development phase Page 22 Exchange rate and inflation risk Risk level: low   §  Currency fluctuations à not relevant as FiT being paid in USD, similar to loan currency and most O&M costs §  Inflation in Kenya highly volatile à not very important as revenue being paid in USD § Tariff partially applicable to annual escalation
  • 23. Resource risk Risk level: low-to-medium   §  Wind measured with 3 meteorological masts à always some risk à Experienced project development company Galetech Energy Services consulted for wind measurement and turbine layout (Irish based internationally focused renewable energy consultancy, other reference projects in Africa) – wind measured for 2 years and 20 year historic correlation applied for yield assessment Technological risk Risk level: low   §  Application of known, state-of-the-art turbine technology §  Experienced turbine manufacturer (GE) §  Turbine type selection based on onsite wind analysis Page 23
  • 24. Construction & installation risk Risk level: medium   §  Potential delays due to lack of local know-how and machines à dependency on international companies §  Only one port, distance 600km à transport delays and damage §  Poor infrastructure and slow bureaucratic processes à delays in getting permissions, construction of roads, etc. à Mitigated by entering into EPC contract with GE à Permits in place as local development company is well linked in the political sphere Operation & Maintenance risk Risk level: medium   §  No O&M capacity in Kenya - international know-how required à Mitigated by O&M contract with GE à University course being set up to engage lower-cost local labour Page 24
  • 25. Mitigation of other possible risks Public and local community acceptance   CDM and carbon credits §  Environmental & Social Impact Assessment study §  Risk that credits not obtained due to inadequate monitoring mitigated by hiring experienced consultant §  Active stakeholder consultation §  Creation of employment opportunities, capacity building §  Income to landowners from land lease contracts §  Local community trust fund to receive a share of revenues Page 25 §  Carbon credit price risk à Difficult to mitigate, however experienced company hired to develop carbon trading strategy Other §  Insurance agreements in place §  Fixed interest rate (swap) §  Land contracts tied to the project even if ownership changes
  • 26. 7 Project Attractiveness Introduction   Page 26
  • 27. Project Attractiveness Absolute Project Attractiveness – Finance §  Returns: 21.40% with Carbon Credits and 21.27 % without §  Risk: Medium to low §  Project qualified for CDM credits -> Rising prices net benefit to investor §  Rapid increasing demand for energy in Kenya and PPA signed between Kipeto Energy and KPLC §  Local wind energy friendly legislation in place §  Kenya Vision 2030 encouraging energy security and environmentally friendly energy §  Opportunity for an excellent entry point into an untapped market (Africa) Page 27
  • 28. Project Attractiveness Absolute Project Attractiveness – Environment §  CO2 emmission reductions through replacement of fossil fuels §  Reduction of dependence on fossil fuel imports §  Reduction of dependence on hydropower (hydroelectric dams): Due to severe drought seasons electricity blackouts are common Page 28 Absolute Project Attractiveness – Social §  Creation of local employment opportunities §  Capacity building, technology know-how transfer §  Income to landowners from land lease contracts §  Local community trust fund will receive a share of project revenues §  Renewable energy production will help decrease electricity cost and thus boost manufacturing sector
  • 29. Project Attractiveness Page 29
  • 30. Project Attractiveness Relative Project Attractiveness §  Investments in the finance market such as stocks can provide a relative high rate of return except that they are high risk (purchased BB stocks for $55.00 in 2009 and down to $10.00 a share) §  Money in the bank will provide a safe investment option but low rate of return (3-5% maximum) This investment is a low risk investment with a relative high rate of return and significant positive impacts on sustainable development in Kenya When can we sign the contract ? Page 30
  • 31. References Taschner, A. (2012). Risk and risk management in project finance. MBA Renewables Learning Material. Institute for Distance Learning of the Beuth University of Applied Sciences Berlin. Tiedemann, A. (2012). Project Financing for Wind Energy. MBA Renewables Learning Material. Institute for Distance Learning of the Beuth University of Applied Sciences Berlin. UNFCCC/CCNUCC (2012). Kipeto Wind Energy Project. Project Design Document Form for CDM Project Activities (F-CDM-PDD). Retrieved on 29 August 2013 from Ministry of Energy (2010). Feed-in-Tarrifs Policy on Wind, Biomass, Small-Hydro, Geothermal, Biogas and Solar Resource Generated Electricity. Retrieved on 29 August 2013 from Ministry of Energy (2004). Sessional Paper No. 4 on Energy. Retrieved on 29 August 2013 from Republic of Kenya (2011). Scaling-up Renewable Energy Program (SREP) – Investment Plan for Kenya. Retrieved on 29 August 2013 from GE Power and Water. Renewable Energy (2011). Introducing GE’s 1.6-100. Retrieved on 29 August 2013 from %201.6%20Brochure_r12.pdf Burnham, M and Gronewold, N (2010). Droughts Turn Out the Lights in Hydro-Dependent African Nation. New York Times, May 10, 2010. Retrieved on 2 September 2013 from pagewanted=all World Bank and IFC (2012). Doing business in a more transparent world. 200 p. Retrieved on 9 September 2013 from Page 31
  • 32. References Greentechmedia (2013). “A Record Year for World Wind Power in 2012”. Retrieved on 9 September from STRATCO (2013). Determining Wind Speed. Stratco (Australia) Pty Limited. Retrieved on 29 August from pdf/Brochures/other/Wind_Speed_Design_Guide.pdf IEEE PES Wind Plant Collector System Design Working Group (2009). Wind Power Plant Substation and Collector System Redundancy, Reliability and Economics. University of Tennessee. Retrieved on 29 August from Kenya Power (2012). Annual Report and Financial Statements. Retrieved on 29 August from %202011-12%20EMAIL.pdf Republic of Kenya, Ministry of Energy (2011). Updated Least Cost Power Development Plan. Retrieved on 29 August 2013 from Retrieved on 07 September 2013. Retrieved on 07 September 2013. Retrieved on 07 September 2013. Retrieved on 11 September 2013. Retrieved on 29 August 2013. Page 32