5 felix holz ok

Felix HolzChambery 2014German Corporates

Deutsche Bank

German CorporatesDeutsche Bank

Financing of PV SystemsThe Lenders and the Investors Point of ViewBiFi Workshop, Felix HolzChamberry May 2014


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Deutsche Bank: a powerhouse in project finance

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Deutsche Bank’s excellence in project finance structuring and execution is underlined by a long list of awards

Deutsche Bank is truly committed to renewable energy having completed transactions of more than 1GW of nameplate capacity in 2011

Best RenewableEnergy FinanceHouse - Europe

Market Survey 2011

Joint Best OverallAdvisory Bank2010

PF Borrower Survey

Best ProjectBond ArrangingInstitution 2010

PF Borrower Survey

IFR Bank of the Year 2010 Award

WinnerBest RenewableEnergy FinanceHouse - Europe

Market Survey 2010

2010

Deal of the Year

Global Oil & Gas / European Oil & Gas / Midstream Deal of the Year 2010 Nord Stream I

Winner

European Infrastructure &Project FinanceDeal of the Year 2010 for BAB A5

Winner

2010

Deal of the Year

North AmericanPPP Deal of theYear 2010 forLong BeachCourthouse

Winner

Best InfrastructureDeal in CEE for Moscow-MinskM1 Highway

Winner

2011

European PPP Deal of the Year

Ecotax

Winner

2011

Deal of the Year

North AmericanWind Deal of theYear 2011 Seigneurie de Beaupré

Winner

2011

Deal of the Year

North AmericanTransmissionDeal 2011

WETT

WinnerTrade FinanceDeal of the Year

Seigneurie deBeaupré

Winner

2011

Americas Renewables Deal of the YearSeigneurie de Beaupré

Winner

2010

Global PPP / AsiaPacific PPP Dealof the Year 2010 Singapore SportsHub

Winner

Middle EastOil & Gas /Petrochemicals Deal of the Year2010 for Jubail

Winner

2010

Deal of the Year

2010

Winner WinnerWinner

Winner


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German business is served by technology expert teams serving special industry areas

Technology Know-how

Renewable energy,solar-, wind-, bio-, geothermal-, hydro-, and related (water treatment, energy storage , …)

Tasks of the experts

Strategic discussions with clients

Sparring partner for investment decisions and projects

Assessment of technological risks and stages of product development

Provision of market and technology know how

Felix Holz (52):1982-1988 Physics degree, University of Kiel1988-2000 Haase Energietechnik GmbH, Head R&D2000-2003 Wülfing Pharma GmbH, Technical Consultant2003-2006 Fraunhofer Institute Solar Energy Systems ISE,

Head of Off-Grid Systems2006-2008 Conergy AG, several positions2008-today Deutsche Bank AG,

Head of Technology Experts Greentech


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Potential conflicts of interest (requirements) for involved parties

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[Dateinamen hier eingeben: Einfügen > Kopf- und Fußzeile]

projectSPV

projectdeveloper

debt provider(bank)

investor

1-3 years

1-3 years

20+ years15-18 years

15-18 years


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The lender´s point of view


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Simplified Rating Corporate Finance

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Company Bank Debt

ConcessionAgreement

OperationConstruction

Operating Environment•Medium/long term industry outlook•...

Business & Financial Risk•Quality of product offering•Marketing strength•...•Debt to EBIDTA•Debt to capitalisation

Management & Transparency•Long term management strategy•...•Transparency

data based company rating corporate credit decision


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Simplified Rating Project Finance

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SPV Bank Debt

ConcessionAgreement

Equity


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Rev

enue

s

Timeline

simplified cash-flow and use of revenues

debt sevice safety margin O&M cost other cost

Operating Environment•Industry outlook, political risks, legal risks,…

Project Attributes•Sponsors, Contractual counterparties, Technology risk (completion & operating), Degree of completion, Completion guarantees, Cost overrun coverage, Feedstock/Reserve risk, Operating risk, Offtake risk,…

Financial Attributes•Ratios (DSCR/LLCR), Stress analysis, Leverage, FX/Interest risk,…


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Definition of risk

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2 Some basic items

“Risk (in finance) is the probability that an investment's actual return will be different than expected (expected cash flow forecast for the Project finance). This includes the possibility of losing some or all of the original investment.

Decisions are made by people within well defined processes and organisations. In order to get a “GO” a Project needs several independent “YES”. Every single “NO” or even “DON’T KNOW” (uncertainty) is a show-stopper.

Recent studies suggest that testosterone level plays a major role in risk taking during financial decisions.

There are plenty Projects to select from.

Assessment of bankability is all about

risk mitigation.

Since there is no upside for debt in a Project, debt is

very risk sensitive.


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„Bankability“- rules for PV projects

yield prediction byrenowned experts)

land lease contracts

…

permissions

MOU grid connection

…

supplyirradiation

processtechnology

organisation

product§ FIT §energy

project bankability

= ensure minimum cash flow high enough to repay debt (+equity)

energy flow cash flow


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Bankability-rules for technology and project partners

technology/components supplier project partner

modules, inverters, trackers, …

— Proven technology— NO prototypes in project

finance structures— At least TWO YEARS

FIELD TRACK RECORD(proven by a trusted third

party)

manufacturer, EPC-contractor, …

— Financial strength = ability to survive = ability to fulfill warranty claims

— Historical experience— Market rumors— Syndication constraints

developer, investor, …

— Experience— Organisation— Reporting structures— O&M concept— Long term commitment— Historical experience

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Cash flow model

Working assumption: The bathtub curve for failure rates in relation to debt service requirements

operating time in years

theoretical module failure rate

2 10 20

0102030405060708090

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

The majority of productionfaults show up during the firsttwo years of operation!

Ensuring the debt service capabilty requires1. a provisional acceptance test (PAT) at

comissioning of a project.2. a final acceptance test (FAT) after about

two years of operation.3. partners who are able and willing to fulfil

any warranty claims during the first twoyears at least. Or:

4. an insurance solution making thisprocedure redundant.


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A Recommended Technical Quality Assurance Procedure

PAT (Provisional acceptance Test) at commisioning

1. Comparison of plan and reality2. Yield measurements in order to

determine real plant size3. Determine PR4. Visual inspection5. In-situ infrared testing6. (In-situ EL testing)7. Change critical modules8. Mark suspicious modules9. …

FAT (Final acceptance test) after about 2 years of operation

1. …2. Yield measurements in order to

determine real plant size3. Determine PR4. Visual inspection5. In-situ infrared testing6. (In-situ EL testing)7. Change critical modules8. Change previously marked

modules if appearence haschanged

9. Mark suspicious modules10. …


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Result: The risk for debt service has been minimised(lender´s requirement)

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0

10

20

30

40

50

60

70

80

90

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Ertragsgutachten nach Degradation nach Abschlag nach sonstigen Kosten

available for debt sevice limited available

not avai-lable

yield prediction post degradation safety discount other costs


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Additional Requirements (of equity investors)


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Experiences from field installations: IR is not enough!

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But:

Rated Power: 220 WTested Power: 206 WDeviation: -6.5%

Rejection impossibleif not somehow agreedin supply contract

38 (of 60) cells showabnormalities!

„No major defects toreport for this module“


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An Advanced Recommended Technical Quality Assurance Procedure (including In-situ EL testing)

PAT (at commisioning)

1. Comparison of plan and reality2. Yield measurements in order to

determine real plant size3. Determine PR4. Visual inspection5. In-situ infrared testing6. (In-situ EL testing)7. Change critical modules8. Mark suspicious modules9. …

PAT (during construction)

1. statistical relevant inspectionduring unboxing

2. In-situ EL testing of relevant samples at delivery beforeinstallation

3. Classification of EL pictures4. Rejection of lots if hurdle rates

are missed5. In-situ EL testing after

installation6. Rejection of lots if EL pictures

deteriorate significianly7. Randomly select modules to

track in suppliers QS systemdocumentation includingfactory EL documentation


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At the Current Status of Bifacial Technology?Is it really Check Box ready?

1. Tested yield predictions by renowned experts2. Minimum of two years production experience at industrial size3. Two years of third party tested field operation4. Financial strength of suppliers to support warranties5. …

Technology not yet ready for not recourse project finance apporach

Use standard corporate approach to launch technology

Prepare public available material and expertise bevor trying to apply forlarge scale project debt


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DisclaimerThe above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.


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Thank you very much for your attention!


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Differences between Corporate and Project Finance

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9 Backup

Corporate Financing Project Financing

• Borrower: Company with mostly different divisions and diversification within a broaderbusiness model

• Accounting: Consolidate balance sheet of thecorporate / group

• Security and liability: Assets and cash flows ofthe whole group

• Debt capacity: Sustainability of the businessmodel of the company and historical financials.

• Borrower: SPV with limited business model

• Accountig: Balance sheet of the SPV; possibility of „off balance“ solutions

• Security and liability: Future cash flows andassets of the SPV

• Debt capacity: Future cash flows

Company Bank Debt

ConcessionAgreement


SPV Bank Debt

ConcessionAgreement

Equity



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Additional credit enhancements

ECA wrap

– Bank debt covered by ECA Guarantee to enhance credit quality

– Leads to better risk profile thus facilitating better access to capital markets

investors such as pension funds and insurance companies

Module insurance

– Some insurance companies provide protection against a default of the module

supplier under the warranties

– Increasing default risk of module manufacturers due to the current consolidation

of the market

Multilateral involvement

– Significant involvement of multilateral institutions such as the EIB/EBRD/IFC

might partially mitigate political risk such as feed-in-tariffs cuts, additional taxes

or expropriation thus enabling participation of commercial lenders

ConclusionIn particular international banks require additional credit enhancement for transactions in countries with

higher political / sovereign risk

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5 felix holz ok

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