„Integration of wind energy project financing in a bank's business model“

1. „Integration of wind energy project financing in a bank's business model“ PEP Capacity Development Workshop, 29.10.2012 Dipl.-Ing. H. Eimannsberger X:\541\Berichtswesen und Öffentlichkeitsarbeit\Vorträge\Hans Eimannsberger\

2. Agenda • Investitionsbank Schleswig-Holstein and energy agency • Links to other fields of financing • How can a bank build up structures and capacities into wind energy project financing • Which role do external consultants play for the technical assessment of projects • Summary

3. Schleswig-Holstein within Europe and Germany

4. Investitionsbank Schleswig-Holstein (IB) • The main development bank of the land Schleswig-Holstein plays a key role in providing financial support to foster regional development and growth • Balance sheet total 18,1 Mrd. € • New business volume 2,1 Mrd. € • 494 employees • Energy Agency • Participation in financing of: 480 wind turbines (102 wind farms) with a total installed capacity of approx. 585 mw; Investment volume: 692 million € 76 PV-Systems with a total installed capacity of approx. 95 mw; Investment volume: 248 million € 107 Biogas-Systems with a total installed capacity of 66 mw; Investment volume: 250 million € 4

5. Organization chart of RE financing Firmenkunden Beratung / Finanzierung corporate financing Consulting / Financing Firmenkunden Finanzierung corporate financing financing Firmenkunden Eigenkapital-produkte corporate financing/ equity products Förderlotsen promotion pilots Vorstand (Board of Directors) Erk Westermann-Lammers (CEO) Dr. Michael Adamska corporate development (Unternehmens-entwicklung) real estate financing(Immobilienkunden) corporate financing(Firmenkunden) public sector financing(Kommunalkunden) european territorial cooperation(Europäische Territoriale Zusammenarbeit) … IB europe IB.Europa Federal Funding / credit institutions Bundesförderung / Kreditinstitute 5

6. The Energy Agency: History 1991 Founding of the Energy Agency as part of the Investitionsbank Schleswig-Holstein Aims Implementation of the energy concept of the Federal State Improvement of Climate Protection Rational and economical use of energy Increasing the usage of renewable energy sources Employees 15 Engineers with diverse specialisation, Agronoms, Geographers etc. NotationIn Germany there are 28 energy agencies. Their main tasks are promotions of the use of RE, energy saving or energy efficiency projects. They are funded by the state, by projects or by banks. 6

7. The Energy Agency: Scope of consulting • Neutral Advice and Project management in the following areas: • Energy management / Energy controlling • Refurbishment of buildings (concept, selection of planner,realisation) • Contracting / Financing • Economic Energy production (Object-combined heat and power) • Usage of renewable Energy (Wind, Biomass, Geothermia, Solar) • Tendering for energy supply • Energy efficiency for industry and SME • Preparation of expertises for lenders, Project Financers and real estate owners

8. Links to other fields of financing

9. Financial structures of renewable energies (1) Business finance • Financing base • credit quality of the borrower • full recourse to borrowers • terms of financing • mid to long-term runtime*) • credit worthiness dependent margin • standardised credit agreements • usual credit assessment Project finance • Financing Base • cash flow of the project • No / limited recourse to sponsors • terms of financing • long-term runtime • project risk dependent margin • comprehensive documentations (loan and collateral agreements) • independent consultants (technology, law, insurances) *) long-term runtime: 15 till 20 years

10. Financial structures of renewable energies (2) bank wind, technical, legal, insurance consultants, interest and repayment loans project company Offtake Agmt. offtaker licences various contracts regular / local approvals wind turbines manufacturers Equity dividends O&M contract general contractors operator equity providers

11. Who are the investors ? • Utility Companies as investors in RE • not always “Early Birds” • mainly corporate financed, increasing demands for project financing • drift unit: rising indebtedness and pressure from rating agencies • easy access to outside capital • ROE expectations 12 - 15% p.a. + • Independent developer / institutional investors/ partially manufacturers • pacemakers in the market of RE • “Copy and Pace” strategy for countries which begins with promotion of RE, • project finance is mainly necessary • ROE expectations for investors about 10%+/- if there is a stable project flow

12. Where do banks and financiers need to pay attention? • stable and secure conditions • essential for investors, industry and financiers • feed-in tariff law, promotion based on certificates, tax incentives, tenders • national/ regional licensing procedure • calculable / non-calculable; • quick and transparent or bureaucratic • local “technical” assumptions • amongst others: wind speed, sunshine duration, sustainable access to biomass etc. • technology • practically proven or new technology, • service- and maintenance costs p MWh • credit worthiness / political stability of a country • criterion also again in Europe

13. Main examination fields for banks and financiers • analysis and interpretations of wind studies, verification through own data base • examination of the federal immisson control act (BImSchG), especially economic evaluations of operation restrictions (aspects of noise and shadows, animal welfare) • assessment of legal risks of contradiction and complaint procedures • assessment of technical risks of wind turbine types ( issue of SDL-prototypes) • assessment of long-term performance of project partners (e.g. full maintenance contracts). • completeness of licence agreements; suitable lease agreements • grid connection concept; esp. feed in in a transformer station of third parties • revenue distribution and revenue accounting; • manpower requirement in start up phase: ca. 10 persons

14. Impact of changes Essential examination fields to cover the capital service are: effect • locational energy revenue prognosis +++ • feed in tariffs (e.g. SDL* ) +++ • exceeding of investment costs ++ • dynamic change of capital market rates + • dynamic in technical operating costs of power plants + • shadow / sound / fauna + Capital project risks are minimised from the perspective equity providers, but there are always the risk of planning mistakes.

15. Schematic representation of project financingprocesses Identification and feasibility Financing structures Financing arrangements Financial close risk analysis provisional capital budgeting project structuring determining financing options financing structures get in contact with financing partners optimization of financing and project structures contract structuring Due Diligence Financial Model / Model Audit sensitivity and scenario analysis tax planning information memorandum Determination of standards in arrangement and underwriting optimization of financing conditions because of competitive environment valuation of financing commitment Term Sheet negotiation Coordination of Due Diligence final negotiations of conditions and loan agreements accompanying of project until the achievement of pay out conditions refinancing

16. Which role do external consultants play for the technical assessment of projects? Legal Adviser Legal Adviser Project Developers Tax Adviser Model Auditor arranging banks Technical Adviser Independent Engineer Financial Adviser consortium banks Insurance Adviser Insurance Adviser Numerous external specialists are involved in structuring and arranging project financing. In the area of the renewable energy this complexity acquires new challenges which can be co-ordinated by the activation of a financial advisers who arranges, coordinates and supervises the process. 16

17. Worldwide investments in renewable energies Bill. $ worldwide investments RE (Billion USD) Source: UNEP/SEFI/New Energy Finance 2007

18. Summary • The entrance in financing wind energy projects for banks is related with risks. • Banks have to build up their own know-how as quickly as possible to be independent from external consultants and to be able to read and understand necessary certificates. • Independent consultants are always necessary because banks cannot provide in particular technical know how. • Nevertheless there is a strong increasing of wind energy projects and this offers additional income for banks • In Schleswig-Holstein there aren't any distressed engagements.

19. Thank you very much for your attention! Hans Eimannsberger Head of energy agency Tel. (04 31) 99 05 - 36 60 hans.eimannsberger@ib-sh.de Investitionsbank Schleswig-Holstein, Fleethörn 29 - 31, 24103 Kiel Fax: (04 31) 9905 - 36 52, www.ib-sh.de