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Click to edit Master title style. DNB Bank – Project Finance. How much can be borrowed. Determined by the debt capacity of the project, is decided by the bank and expressed in cover ratios to control the project. DNB Bank – Project Finance. Deriving optimal loan value.

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  1. Click to edit Master title style

  2. DNB Bank – Project Finance How much can be borrowed Determined by the debt capacity of the project, is decided by the bank and expressed in cover ratios to control the project

  3. DNB Bank – Project Finance Deriving optimal loan value

  4. DNB Bank – Project Finance PLCR Project Life Cover Ratio LLCR Loan Life Cover Ratio DSCR Debt Service Cover Ratio Most used cover ratios Long term Short term

  5. DNB Bank – Project Finance Historic prices in the Nordic region • Limited natural hedge from negative correlation between el cert prices and power prices

  6. DNB Bank – Project Finance The project is exposed to both power and certificates risk Price of green certificates (Fwd pris + 2% p.a. 2016-20) Power prices (Fwd price + 2% p.a. 2016-20) • Volatility in power and certificate prices are limiting the debt capacity of the projects • Volatility can be reduced with entering into long term PPA’s or Financial Hedges • Less volatility will increase the capacity of the project

  7. DNB Bank – Project Finance Case study from Sweden with no hedging • Cash Flow Available after Interest payments with no price hedging • It is >10% probability that the project will not be able to service interest- NOT ACCEPTABLE • In our bank base case we size the debt so that projects should be able to serve Interest + Principal with 1.4x cover ratio. Min DSCR = 1.4x

  8. DNB Bank – Project Finance Case Study from Sweden - with financial hedging • Strategy ensures positive cash flow within 95% - Acceptable • Sell 25% of power on 10-year contract • Hedge power and certificates so that total hedge is 75-50-25% (1-2-3 years ahead)

  9. DNB Bank – Project Finance High uncertainty in energy yield assessment Actual vs Forecasting Ref DNV White Paper IEWP0101 Wind Power Project under performance • Average is about 10% below P50; Trend: 2006: 13%; 2008: 11%; 2009: 10% • It’s the combination of wind measurement uncertainty and modelling • Energy assessments must still consider many “technically unsettled” or subjective issues

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