EBRD Financing Wind Energy in Central and Eastern Europe

1. EBRD Financing Wind Energy in Central and Eastern Europe Peter Hobson EWEC 2006, Athens

2. EBRD and wind energy: Introduction • What does the EBRD do: promoting market development, enhancing sustainability, catalysing commercial finance, mobilising technical assistance, monetising carbon credits • Wind energy in central and eastern Europe: the opportunities and challenges • How can the EBRD help: flexible, innovative, connected

3. EBRD: What we do • Promoting market development • Enhancing energy sustainability • Leveraging commercial finance • Mobilising technical assistance • Monetising carbon credits Flexible, Innovative, Connected

4. EBRD: Promoting market development • Established in 1991 by 62 national and supra-national shareholders • Exclusively investing in the 27 countries of Central & Eastern Europe and CIS • Cumulative commitments of €25.3 bn in more than 1,100 projects to date of which €1.3bn in sustainable energy Commercial banking discipline with a regional risk appetite

5. ANALYSIS: Foundations of operation • Apply sound banking principles to every project • We do not subsidise • Advance the transition to a full market economy • Priority to promote private sector and market expansion • Support, but not replace, private investors (additionality) • Catalyst for higher and riskier private sector involvement

6. EBRD: Enhancing energy sustainability • €1.3bn invested in sustainable energy to date, of which €337m in renewable energy • Both direct project financier or equity investor in renewable projects, and indirect investor via funds and local banks • Wind sector remains in early development stage in the region, and a key priority for EBRD Delivering innovative financing to sustainable energy projects

7. ANALYSIS: Parameters of EBRD financing • Can invest up to 35% of project cost • Typical minimum investment amount €5m but sustainable energy priority means smaller transactions are possible • Flexible investment type: debt, mezzanine, equity • Minority equity investor up to 49% • Invest in Funds and through local Banks to address smaller projects or larger stakes

8. EBRD: Leveraging commercial finance • Catalyst for commercial investment: Every €1 invested or lent by the EBRD mobilises €3.1 from other sources • Equity: by investing with majority sponsor we reduce the equity burden and provide support • Debt syndication: The EBRD can syndicate all or part of the senior debt under A/B structure • Debt co-financing: The EBRD will work with or alongside other commercial banks as part of the debt package

9. EBRD: Mobilising technical assistance • Access to Government grant funding • Funds available for technical assistance such as environmental assessments, baseline studies … • Assisting committed sponsors in early project development phases Entrusted with grant funding to overcome transition challenges

10. EBRD: Monetising carbon credits • Manager of €32m Dutch Carbon Fund buying carbon credits from Joint Implementation Projects • Contracting carbon purchase with EBRD at time of financing adds certainty to cashflow • In-house expertise to guide clients through monetisation of carbon Well-structured carbon transactions to further enhance project viability

11. ANALYSIS: Wind farm example • Typical 60MW wind project might expect to generate 100k tonnes CO2 reductions per year giving potential to cover 5% - 10% of project cost • Fund will work with project Sponsor to estimate carbon emission reduction potential • Support from EBRD fund to prepare Project Idea Note and Project Design Document • Will contract to buy credits up front including partial up front payment

12. Wind Energy: Opportunities (1) • EBRD assessed renewable energy potential throughout its region in 2003: www.ebrdrenewables.com • In general moderate potential for wind energy throughout the region but hardly exploited yet • Good opportunities in Poland, Hungary, Croatia, Bulgaria, Romania, Czech Republic • Key driver now EU legislation and RE targets

13. Wind Energy: Opportunities (2) Black & Veatch analysis, 2003

14. New Member States: RES Directive

15. New Member States: RES Directive

16. EBRD Region: current status (1) • Poland – many local developers seeking strategic partners, GC market in early stages, financing and construction activity starting now, anticipated growth 100MW – 300MW pa • Hungary – tight market will be limited by terms of operating licences, first awards anticipated 2006Q2 • Czech Republic/Slovakia – active development, mostly smaller projects • Baltics – good potential but governments slow to clarify licensing regimes or cautious to award licences

17. EBRD Region: current status (2) • Croatia – government supportive and preparing new renewable regulation, some local activity • Bulgaria – supportive government, re-thinking regulatory approach • Romania – new legislation for GC, good time now to enter the market • Russia/Ukraine – very large potential, no sign of regulatory support yet, but keep monitoring

18. EBRD Region: market overview • Slow progress in recent years but now moving rapidly in new member states, albeit on small scale • Good growth potential and strong advantage for early movers, particularly in less developed markets of Bulgaria, Romania and Croatia • Very significant potential further east – Ukraine, Russia and central Asia. Experience in more advanced transition countries will be a valuable stepping stone • Security of supply concerns place new emphasis on RES

19. How we can help: Flexible • Wide palette of financial instruments: Debt & equity; guarantees; credit lines; equity funds • Long-term partner: Offering longer tenors than market norms; partnering at an early stage • Public and Private: Invest with and through public and private operations; engaging with Government bodies on projects and policy

20. How we can help: Innovative • Developing new instruments: Renewable energy fund, EE/RE Credit Line (e.g. Bulgaria – www.beerecl.com) • Establishing new activities: Developing carbon finance capability under Bank operations • EBRD Renewable Development Initiative: Website pooling latest information on regional renewable activities. www.ebrdrenewables.com

21. How we can help: Connected • In-depth understanding of region: 36 offices across region; experience through “rough and smooth” from Russian crisis to EU Accession • Working with governments and the EU: on going policy dialogue at country level and continuous discussions with EU on implementation of renewables framework and problems encountered • Extensive commercial expertise: Team staff from leading banks, funds and industry

22. How to contact us Peter Hobson Senior Banker, Renewable Energy Co-ordinator Tel: +44 (0)20 7338 6737 Email: hobsonp@ebrd.com One Exchange Square, London, EC2A 2JN Mike Rand Associate Banker, Energy Group Tel: +44 (0)20 7338 6267 Email: randm@ebrd.com One Exchange Square, London, EC2A 2JN