DBSA RENEWABLE ENERGY FINANCING

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DBSA RENEWABLE ENERGY

FINANCING

Presented by Madalo Minofu

Project Preparation Specialist:

DBSA Project Preparation Funds Division

2 June 2014

Development Bank of Southern Africa

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DBSA’s Product Offering

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The following products are typically applied towards energy projects:

Debt

Long-term debt, 15 years ZAR financing

Mezzanine Debt

Subordinated debt to support the LEE/BEE partners

Arranging

Lead Arranger

Underwriting

Underwrite to ensure complete financing package

Other products that could potentially be applied to enhance the projects:

Equity

Direct equity in select projects to further enhance the project

Guarantees

Partial credit enhancement of capital market issues to

increase investor appetite and increase the tenor

Project Prep

Funding

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Key Investment Considerations / Critical

Success Factors

 Regulatory and Legal

 Clarity in the regulatory environment

 Transparent procurement system



Government’s role in setting of tariffs

 Labour issues

 Assignment of contracts

 Securities

 Termination clauses

Clarity in the

Regulatory

Framework:

Acts, Enabling

Legislation,

Licences and

Conditions

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Key Investment Considerations / Critical

Success Factors

 Commercial Considerations

 Government support and commitment

 Technology

 Strong sponsors

 Experienced operators

 Committed partners

Sponsors and

Operators with

experience and a

proven track

record

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Key Investment Considerations / Critical

Success Factors

 Commercial Considerations

 Key terms of the PPA/Offtake

Agreements

 Viability and robustness of cashflows

 Tariff mechanism

 Availability of cost effective funding

 Tenor considerations

 Currency issues

 Investment Returns

Sponsors and

Operators with

experience and a

proven track

record

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DBSA CASE STUDY 1 : 75 MW (64MW) LESEDI PV

PROJECT

TOTAL PROJECT COST :

ZAR2 581 million (US$258 million)

DEBT : EQUITY RATIO :

75:25

DBSA FUNDING :

ZAR200M Senior Debt; ZAR148M BEE Loan (Equity Finance)

PROJECT DEVELOPERS :

Kensani Capital, Oakleaf Investments (Pty) Ltd and Solar Reserve

OTHER FUNDERS : Rand Merchant Bank (RMB)

EPC/ O&M CONTRACTORS: ACS Cobra, Gransolar and Kensani (Combined net worth

R89.4 billion)

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Purpose: Loan

Type:

Tenor: Grace Period: Pricing: Margin

Interest Capital

Construction Senior 16.5 years 2 years 2 years 3 Months Jibar 300-500bps

BEE Equity Financing Junior 13 Years 2 years 2 years 3 Months Jibar 600-900bps

Source of repayment

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DBSA CASE STUDY 2 : 75 MW LESEDI PV PROJECT

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DBSA CASE STUDY 2 : 75 MW (NET 64MW) LETSATSI

PV PROJECT

TOTAL PROJECT COST :

ZAR2 568 million (US$256.8m)

DEBT : EQUITY RATIO :

75:25

DBSA FUNDING :

ZAR200M Senior Debt; ZAR148M BEE Loan (Equity Finance)

PROJECT DEVELOPERS :

Kensani Capital, Oakleaf Investments (Pty) Ltd and Solar Reserve

OTHER FUNDERS : Rand Merchant Bank (RMB)

EPC/ O&M CONTRACTORS: ACS Cobra, Gransolar and Kensani (Combined net worth R89.4

billion)

The Letsatsi (75 MW) and Lesedi (75 MW) projects, located in the Free State and Northern

cape respectively, boast 150 MW of installed capacity and are capable of powering more than

130 000 South African homes with clean energy.

Both projects have executed 20-year power purchase agreements with Eskom and were

completed in mid-2014 (Bid Window 1 projects)

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Type:

Tenor: Grace Period: Pricing: Margin

Interest Capital

Construction Senior 16.5 years 2 years 2 years 3 Months Jibar 300-500bps

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DBSA CASE STUDY 3 : 72.5 MW

(Net 69MW)

SCATEC

KALKBULT PV PROJECT

TOTAL PROJECT COST :

ZAR2 581 million

DEBT : EQUITY RATIO :

75:25

DBSA FUNDING :

ZAR248M Senior Debt; ZAR105M BEE Loan (Equity Finance)

PROJECT Developers : Scatec, Simacel (Pty), Standard Bank and Old Mutual

OTHER FUNDERS : Standard Bank and Old Mutual

EPC/ O&M CONTRACTORS : Scatec Solar (Norway)

Solar Plant physical completion was reached in September 2013 on budget, 3 months ahead of schedule. The plant earned early operating revenues at 60% of the tariff price during October to December 2013. However, Scheduled Commercial Operation Date (SCOD) of 01 January 2014 was not met due to non-compliance with grid code connection requirements. The plant was operating at a reduced capacity of 63.5MW (net) versus the base case of 69MW (Net) for the 01 January to 10 March 2014 period.

NERSA granted temporary exemption to allow the plant to operate at 69MW until 31 August 2015, whilst the plant implements remedial action. Resolution of SCOD is in progress and is expected to be finalized by 30 April 2015, well before the August 2015 deadline. The project is performing above budget and is expected to reach revised SCOD with no debt cost overruns.

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Type:

Tenor: Grace Period: Pricing: Margin Potentia l Exposu re Current Exposure (28 Feb 2014) Interest Capital

Construction Senior 16 years 14 months 20 months

6 Months Jibar 300-500bps R248 million

R248 million BEE Equity Financing Junior 12 Years 14 months 20

months

6 Months Jibar 600-900 bps R105 million

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DUE DILIGENCE

 In consideration of providing funding to these projects, a rigorous due diligence

process is undertaken at the DBSA to ensure projects meet minimum funding

criteria such as:

 Meeting the minimum bid qualification criteria as per the Request for

Proposals (RFP) under the Department of Energy’s Renewable Energy

Programme.

 Use of proven and bankable technology.

 Sponsors with proven technical track records in implementing such projects.

 Contractors with proven track records in implementing and operating such

projects.

 Local Economic Development criteria including Black Economic

Empowerment.

 Contractual Mechanism around EPC and Operation & Maintenance

Contractors.

 Financial Viability.

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