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MBA Renewables, Investment and Financing Module

Group Work, Investor Presentation


Group 4
Carsten Jung
Riikka Lauhkonen-Seitz
Mario Maras
Ovaise Mohammed Murtuza
Adriana Stefanac

17PageSeptember
2013
1

Agenda

1. Introduction
2. Project Description and Status
3. Technology
4. Cost and Revenue Assumptions
5. Proposed Financing Structure and Returns
6. Risk Assessment
7. Project Attractiveness

Page 2

1 Introduction
Introduction
Page 3

Introduction
Country and Sector Context

Republic of Kenya

Vision 2030

key driver ENERGY

Fast growing electricity demand due to economic growth


Current capacity of 1,636 MW insufficient to meet demand
Diversification of energy mix necessary as hydro power is
vulnerable to climate change and fossil fuels have to be
imported
High electricity costs
Up to 23,000 MW required until 2031
Government Strategy Wind as one of the priority resources to promote equitable access to
quality energy services at least cost while protecting the environment
Potential of renewable energy in creating income and employment, contributing to low-cost,
reliable energy supply and decreasing dependence on imported and expensive fossil fuels
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2 Project Description and Status


Introduction
Page 5

Project Description
General Project Information
Project name
Location
Type of turbine
Turbine capacity
Number of turbines
Total installed capacity
Net Output
Net capacity factor
Feed-in-Tariff
Commercial operation date
Expected operational project
lifetime
CO2 emission reductions
Total Investment

Page 6

Kipeto Wind Energy Project


Kipeto, Kenya
GE 1.6-100
1.62 MW
63
102.06 MW
476,613 MWh/year
53%
0.12 USD/kWh
August 2014
20 years
~295,000tCO2/year
297,870,744 USD

Project area (70km2, 1850m 2035m AMSL),


position of wind turbines, map of Kenya

Project Status
Project Parties

Agreements

Project company

Kipeto Energy Ltd

Registered as SPV

Project owner(s)

Craftskills Wind Energy International Ltd


General Electric

Joint Development Agreement signed

Turbine supplier

General Electric

Turbine supply contract signed

EPC Contractor

General Electric

EPC contract signed

Technical Service Provider

General Electric

20 year O&M contract signed

Landowner

Local community members

20 year land lease agreement

Long-term off-taker

KPLC Kenya Power and Lighting Company 20 year PPA (take-or-pay) signed

Grid operator

KPLC Kenya Power and Lighting Company Grid connection agreement in place

Relevant Authorities

Ministry of Energy and Petroleum


Energy Regulatory Commission
Kenya Civil Aviation Authority
Kajiado County
UNFCCC
National Environment Management
Authority (NEMA)

FiT approval obtained


Generation license obtained
Operating permit obtained
Construction permit obtained
CDM registered
EIA license obtained

Bank

Qatar National Bank

Loan agreement signed

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3 Technology
Introduction
Page 8

Technology

Key technology details of turbine, other facilities at project site

GE 1.6-100
Manufacturer
Rotor diameter
Area swept
Number of blades
Length of blades
Hub height

GE Energy
100 m
7,854 m2
3
48.7 m
80 m

Cut-in wind speed

3.5 m/s

Cut-off wind speed

25 m/s

Rotor speed range

9.75 to 16.18 rpm

Nominal output
Operational data
Lifetime
Page 9

1,620 kW
50 Hz
20 years

Other facilities
34 km underground cable
trench system
Substation incl. step up
transformers
(remote control via SCADA)
20 km 220kV transmission
line
Main and back-up metering
system
(remote access via GSM)
324 m2 x 2 m concrete bases
Substation control building
32 km access roads

Technology

Electricity Generation and Capacity Factor


Technical Parameter
Turbine technology
Number of turbines
Turbine capacity
Nominal plant capacity
Nominal electricity
production

GE Energy 1.6-100
63
1.62 MW
102.06 MW

GE Energy 1.6-100
63
1.62
102.06 MW

894,046 MWh/year

894,046 MWh/year

Electricity generation and Capacity Factor


Probability
P50
P90
Gross capacity factor
61%
51%
Gross electricity
production
545,368MWh/year
452,655 MWh/year
Topographic factor
101.90%
101.90%
Array efficiency
96.00%
96.00%
Electrical efficiency
96.00%
96.00%
Availability
96.10%
96.10%
Substation availability
99.00%
99.00%
Icing and blade
degradation
99.00%
99.00%
Power curve
99.00%
99.00%
Hysteresis
99.80%
99.80%
Grid curtailment
100.00%
100.00%
Net electricity
production
476,613MWh/year
395,589MWh/year
Net capacity factor
53%
44%
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Project area

4 Cost and Revenue


Introduction
Assumptions
Page 11

Cost and Revenue Assumptions


Most important cost and revenue drivers

Tariff - FiT (2010)


PPA duration
Annual escalation rate
Annual generation
Expected carbon credit
revenue

Total investment cost

Annual escalation: 12% of


120 USD / MWh the tariff
20 years
2% US Fed inflation target
476.613 MWh Based on P50
5.28 USD/CER CDM + Gold Standard

297,870,744 USD

Investment / MW

2,918,584 USD

O&M costs (first year)

6,599,885 USD Annually escalated

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Cost and Revenue Assumptions


CAPEX and OPEX

CAPEX
2%
0%

2%
2%

OPEX
Total EPC Cost

5%

Land lease

3%

Project development, management


and legal cost

13%

12%
Total annual service and
maintenance

IDC
12%

Retrot and
decommissioning reserve

Financing fee
3%
ConBngency

AdministraBon

1%

All risk insurance


Working capital
86%

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59%
Community trust fund

Debt reserve

Cost and Revenue Assumptions

Profit and losses Taxes and depreciation

100% investment deduction allowance in the first year of operation


Losses to be carried forward
30% Corporate tax rate
20 year depreciation on hard costs, 5 year depreciation on soft costs
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5 Proposed Financing
Introduction
Structure and Returns
Page 15

Proposed Financing Structure

Your opportunity to SHARE(s) Growth

Proposed Financing Structure

18%

Debt
12%

CraOskills
70%

Taschner Green Climate


Investments

Debt financing assumptions:


Interest rate: 8% annually
Term: 13 inclusive of 1 year grace period
USD based loan
Page 16

Selling price $

$70,362,678

Selling price $
Exclusive of
CERs

$67,020,917

Taschner Green
Climate
Investments
Equity IRR

> 21.27 %

Proposed Financing Structure


Cash flows

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Proposed Financing Structure

Project returns and debt service cover ratio


Project IRRs (to the firm)
Project IRR (before tax)
Project IRR (before tax) incl.
carbon credits

Internal rate of returns (IRR)


16.36 %

25.00%
20.00%

16.93 %

15.00%
10.00%

Project IRR (after tax)


Project IRR (after tax) incl.
carbon credits

14.37 %

IRR

5.00%
0.00%

14.88 %

Equity IRR Equity IRR P-IRR before P-IRR before P-IRR aOer P-IRR aOer
excl. CDM
tax excl.
tax
tax excl.
tax
CDM
CDM

Equity returns: Taschner Green Climate Investments


Equity IRR

21.27 %

Equity IRR incl. carbon


credit

21.40 %

Debt Service Cover Ratio (DSCR)

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Average DSCR P50

1.84

Average DSCR P90

1.49

Proposed Financing Structure

Taschner Green Climate Investments returns

Equity return Taschner Green Climate Investments


Equity IRR

21.27 %

Equity IRR incl. carbon


credit

21.40 %

Sensitivity analysis Equity IRR

Net present value and M Equity IRR

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6 Risk Assessment
Introduction
Page 20

Market risk
Risk level: low
Increasing demand markets secured
PPA signed long-term offtaker secured
- A World Bank credit guarantee (MIGA) issued in case of default of
Kenya Power

Local politics favorable government support secured

Regulatory risk
Risk level: low
Supportive local legislation, e.g. Energy Act 2006
Feed-in-Tariffs Policy on Wind, Biomass and Small-Hydro
Resource Generated Electricity, 2008, 2010, 2012
Kenya Vision 2030
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Political risk
Risk level: medium
Kenya WTO member
Ease of doing business: Report
by World Bank and IFC, Kenya
ranked 109 out of 182 countries
- Lack of infrastructure
- Lack of human capacity
- Corruption
- Government inefficiencies
- Security constraints

Mitigated by involving a welllinked local project development


company and international
consultancies during the project
development phase
Page 22

Exchange rate and


inflation risk
Risk level: low
Currency fluctuations not
relevant as FiT being paid in
USD, similar to loan currency
and most O&M costs
Inflation in Kenya highly
volatile not very important
as revenue being paid in USD
Tariff partially applicable to
annual escalation

Resource risk
Risk level: low-to-medium
Wind measured with 3 meteorological masts always some risk
Experienced project development company Galetech Energy
Services consulted for wind measurement and turbine layout (Irish
based internationally focused renewable energy consultancy, other
reference projects in Africa)
wind measured for 2 years and 20 year historic correlation applied for
yield assessment

Technological risk
Risk level: low
Application of known, state-of-the-art turbine technology
Experienced turbine manufacturer (GE)
Turbine type selection based on onsite wind analysis
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Construction & installation risk


Risk level: medium
Potential delays due to lack of local know-how and machines
dependency on international companies
Only one port, distance 600km transport delays and damage
Poor infrastructure and slow bureaucratic processes delays in
getting permissions, construction of roads, etc.
Mitigated by entering into EPC contract with GE
Permits in place as local development company is well linked in
the political sphere

Operation & Maintenance risk


Risk level: medium
No O&M capacity in Kenya - international know-how required
Mitigated by O&M contract with GE
University course being set up to engage lower-cost local labour
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Mitigation of other possible risks


Public and local
community acceptance

CDM and carbon


credits

Environmental & Social


Impact Assessment study

Risk that credits not


obtained due to
inadequate monitoring
mitigated by hiring
experienced
consultant

Active stakeholder
consultation
Creation of employment
opportunities, capacity
building
Income to landowners
from land lease contracts
Local community trust
fund to receive a share of
revenues
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Carbon credit price


risk Difficult to
mitigate, however
experienced company
hired to develop
carbon trading
strategy

Other
Insurance
agreements in
place
Fixed
interest rate
(swap)
Land
contracts tied
to the project
even if
ownership
changes

7 Project Attractiveness
Introduction
Page 26

Project Attractiveness
Absolute Project Attractiveness Finance
Returns: 21.40% with Carbon Credits and 21.27 % without
Risk: Medium to low
Project qualified for CDM credits -> Rising prices net benefit to
investor
Rapid increasing demand for energy in Kenya and PPA signed
between Kipeto Energy and KPLC
Local wind energy friendly legislation in place
Kenya Vision 2030 encouraging energy security and
environmentally friendly energy
Opportunity for an excellent entry point into an untapped market
(Africa)
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Project Attractiveness

Absolute Project
Attractiveness Environment
CO2 emmission reductions
through replacement of fossil fuels
Reduction of dependence on fossil
fuel imports
Reduction of dependence on
hydropower (hydroelectric dams):
Due to severe drought seasons
electricity blackouts are common

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Absolute Project
Attractiveness Social
Creation of local employment
opportunities
Capacity building, technology
know-how transfer
Income to landowners from land
lease contracts
Local community trust fund will
receive a share of project revenues
Renewable energy production will
help decrease electricity cost and
thus boost manufacturing sector

Project Attractiveness

Page 29

Project Attractiveness
Relative Project Attractiveness
Investments in the finance market such as stocks can provide a
relative high rate of return except that they are high risk (purchased
BB stocks for $55.00 in 2009 and down to $10.00 a share)
Money in the bank will provide a safe investment option but low
rate of return (3-5% maximum)
This investment is a low risk investment with a relative high
rate of return and significant positive impacts on sustainable
development in Kenya

When can we sign the contract ?


Page 30

References
Taschner, A. (2012). Risk and risk management in project finance. MBA Renewables Learning Material. Institute for Distance
Learning of the Beuth University of Applied Sciences Berlin.
Tiedemann, A. (2012). Project Financing for Wind Energy. MBA Renewables Learning Material. Institute for Distance Learning of
the Beuth University of Applied Sciences Berlin.
UNFCCC/CCNUCC (2012). Kipeto Wind Energy Project. Project Design Document Form for CDM Project Activities (F-CDM-PDD).
Retrieved on 29 August 2013 from http://cdm.unfccc.int/Projects/DB/JCI1355475722.72/view
Ministry of Energy (2010). Feed-in-Tarrifs Policy on Wind, Biomass, Small-Hydro, Geothermal, Biogas and Solar Resource
Generated Electricity. Retrieved on 29 August 2013 from
http://kerea.org/wp-content/uploads/2012/12/Feed-in-Tariff-Policy-2010.pdf
Ministry of Energy (2004). Sessional Paper No. 4 on Energy. Retrieved on 29 August 2013 from
http://www.renewableenergy.go.ke/downloads/policy-docs/sessional_paper_4_on_energy_2004.pdf
Republic of Kenya (2011). Scaling-up Renewable Energy Program (SREP) Investment Plan for Kenya. Retrieved on 29 August
2013 from http://www.climateinvestmentfunds.org/cif/sites/climateinvestmentfunds.org/files/Kenya%20IP_0.pdf
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%201.6%20Brochure_r12.pdf
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References
Greentechmedia (2013). A Record Year for World Wind Power in 2012. Retrieved on 9 September from
http://www.greentechmedia.com/articles/read/A-Record-Year-for-World-Wind-Power-in-2012
STRATCO (2013). Determining Wind Speed. Stratco (Australia) Pty Limited. Retrieved on 29 August from http://stratco.com.au/
pdf/Brochures/other/Wind_Speed_Design_Guide.pdf
IEEE PES Wind Plant Collector System Design Working Group (2009). Wind Power Plant Substation and Collector System
Redundancy, Reliability and Economics. University of Tennessee. Retrieved on 29 August from
http://power.eecs.utk.edu/pubs/Fangxing_li_ieeepes2009_5.pdf
Kenya Power (2012). Annual Report and Financial Statements. Retrieved on 29 August from
http://www.kenyapower.co.ke/tender_docs/ANNUAL%20REPORT%20AND%20FINANCIAL%20STATEMENTS
%202011-12%20EMAIL.pdf
Republic of Kenya, Ministry of Energy (2011). Updated Least Cost Power Development Plan. Retrieved on 29 August 2013 from
http://www.renewableenergy.go.ke/downloads/studies/LCPDP-2011-2030-Study.pdf
http://www.bssa.org.uk/faq.php?id=26. Retrieved on 07 September 2013.
http://www.windenergie-im-binnenland.de/powercurve.html. Retrieved on 07 September 2013.
http://www.wind-energy-market.com/en/wind-turbines/big-plants/details/details/bp/ge-16-100/. Retrieved on 07 September 2013.
http://www.sectorspdr.com/shared/pdf/spdr-periodic-table-web.pdf. Retrieved on 11 September 2013.
http://www.ge-energy.com/wind. Retrieved on 29 August 2013.

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