financing & funding re projects · financing & funding re ... renewable energy solutions...
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Facilitator
Financing & Funding RE Projects
Decentralized Power and Heat Supply in Peru
• Introduction / Types of Financing
• German public financing programs
• International public financing programs
• Regional and country-specific financing
• Conclusions.
Overview
Types of Financing according to value chain
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Planning
• Promotion schemes
Project development
• Promotion schemes
Procurement
• Export financing
Construction
• Debt financing
• Project financing
Operation & Maintenance
• Promotion schemes
Specific and adpated project support opportunities through
• Funding programs
• Financing sources.
Planning and Project Development Phase
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• Non-investive support
• For market and project development phase
• Accompanying services
• Funding/grants for:
• Consulting
• Feasibility studies
• Training and advanced education measures
• Workshops.
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Financing of Investments
Debt financing Project financing
Based on balance sheets Foundation of a legally
independent project company
Different project periods
(short, medium, long term)
Long-term financing
of economically self-sustaining
projects (through project cash
flow)
All types of projects Suitable for large projects with
high invest volumes
Moderate transaction costs High transaction costs
• Peru is one of focus partner countries within the German development
cooperation policy
• GIZ focuses on project development and monitoring
• Environment and climate is a focal point in South America
• Rural electrification is a focus in Peru
• develoPPP.de – companies cooperations
• "Ideenwettbewerbe" (up to 200,000 EUR; application every 3 months)
• Strategic alliances (Substantial grant for projects > 750,000 EUR)
• Qualification + mediation of trained personnel (cooperation mit CIM)
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GIZ – Support
• "Hermes Cover“ by mandate and account of the German Federal
Government
• No administration fees payable for Hermes Cover
• Special SME product within this export credit gurantee scheme
“Buyer Credit Cover – express”
• Up to 5 M. EUR contract value, payment periods up to 5 years
• Grace period up to 18 months after completion
• Detailed information: www.agaportal.de (Consortium: Euler
Hermes and PwC)
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Euler Hermes Export Credit Guarantee
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Hermes Cover Conditions Peru
• Category 3 (from 0 low to 7 high)
in the EH (OECD) country category of risk assessment
• Premium rates for cover facilities vary with horizon of risk (HOR), %
of risk cover and buyers rating/ project risks
• For Peru related premium fees likely vary in a range of ~
0.64% (low risk, short HOR) to
5.61% (high risk CC5, 95% cover, 5 years HOR);
will increase with longer HOR
• No other formal restrictions for Peru
• Neither for short, medium or long term nor for collaterals.
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• Dena RES – Renewable Energy Solutions program (PPP projects)
• State of the art projects in attractive target markets
• Highly visible RE technology, prestigious institutions
• Co-financing of 235,000 EUR projects costs
• Incentives of 45 % (company’s share: 55 %)
• RE installation (~95,000 EUR)
• Qualification and training concept (~95,000 EUR)
• Accompanying PR and marketing activities (~45,000 EUR)
• Incentives totalling ~ 106,000
*energy solutions MADE IN GERMANY (Exportinitiative Erneuerbare Energien)
Support in the Context of EEE*
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DEG Funding Products
In addition to develoPPP.de (see GIZ above)
• Feasibility studies
• up to 50% of costs, max. EUR 200,000
• Climate partnerships with the private sector
• max. 50% of costs, max. EUR 200,000
• Up-Scaling
• 25% equity requirement, max. 50% of costs, max. EUR 500,000
• for innovative business models; repayable only when project is
sucessfull
• Accompanying services (education, training, consulting services).
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DEG Financing Products
• Specialized in debt financing of large project volumes
• Loans up to 40 M. EUR
• Tenors of 4 - 10 years
• Grace period of 1 - 3 years
• Equity capital financing
• Up to 50% and EUR 2.5 - 15 M.
• Syndication of (project) financing.
• Specialized in debt financing also of larger project volumes
• Loans up to 50 M. EUR
• Tenors of 5, 10 or 20 years (if equipment lifetime > 10 yrs)
• Grace period of 1, 2 or 3 years correspondingly
• Interest rate of 1.1 – 8.7% (+ borrowers‘ bank individual risk
premium); variable interest rates for terms > 10 years
• German-Peruvian joint ventures may also apply within this program
• Project implementation in Peru requires compliance with EU
environmental standards.
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KfW Renewable Energies "Standard"
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MIGA - Export credit insurance
• The Multilateral Investment Guarantee Agency (MIGA) is specialized
in export credit insurance and guarantees for companies
• Small Investment Program (SIP) for SME: insurance package to
common, non-commercial risks
• Exemption from process fees
• Reduced premiums (depending on country and project risk)
typically in a range from 0.45 - 1.75% of the insured value
• Up to EUR 7.5 M. insured value
• Tenors of 3 - 10 (max. 15) years
• Approval: 6 - 8 weeks after completeness of the documents
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Inter-American Development Bank (IDB)
• IDB long-term debt financing of large projects via
"Structured and Corporate Finance Department" (SCF)
• Terms 3 - 15 years
• Loans from EUR 1 - 185 M.
• Project value usually above EUR 10 M.
• Refinancing of local financial institutions (e.g. Banks).
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Inter-American Investment Corporation (IIC)
• IDB susidiary
• Focus on SME and loans up to max. EUR 12 M.
• Financing share of usually 33% (max. 50%)
• Tenors of 3 - 10 years
• Eligible for RE is e.g., the FINPYME program, offering
• technical assistance as well as
• financing support for SME: FINPYME Credit (IIC)
• Loans from EUR 90,000 - 550,000
• Tenors of 3 - 7 years
• Processed directly via IIC: www.iic.org/en/products-and-
services/finpyme-credit-application
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Private Equity (PE) & Venture Capital (VC)
• Peru is part of the portfolio of large VC and PE investors
• PE/VC invested USD 39.8 M. into Peruvian RE projects in 2014
• VC investors are typically engaged in smaller projects starting from
several thousand EUR invest whereas
• PE investors tend to invest in larger projects with several million
project volume
• PE funds such as Real Infrastructure Capital Partners LLC (REAL),
Conduit Investment Partners LLC or Victoria Capital Partners may
be an option for larger projects in Peru
• Latin American Private Equity & Venture Capital Association
(LAVCA) provides contacts and further information.
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Climate and Environmental Financing
• CDM with little relevance due to its high transaction costs, but may
contribute additional value
• Multilateral Investment Funds typically invest in country programs or
large public projects
• Important Funds are (amongst others) :
• Climate Investment Fund (CIF)
• Clean Technology Fund (CTF) and Strategic Climate Fund (SCF)
• as well as Global Environment Facility (GEF) or the
• Geothermal Development Facility (GDF) which provides funding for the
the preparation, incl. the risk associated exploration phase, and
construction of geothermal power plants in Latin America.
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Climate and Environmental Financing
• Green Climate Fund (GCF) and it‘s entities will become one of the
major climate and environmental financing agents in the nearer
future (project pipeline of USD 1.5 bn)
• However financing is typically not (directly) available to private
sector companies, but may provide e.g. additional PPP
opportunities.
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Capital Market Peru
• Inflation rate of 2.5 % (expectetd in 2015)
• Lowest inflation rates within latin america in the last decade
• Ease of doing business ranking: #50 (out of 189)
• Investment grade ratings “A3” by Moody’s, “BBB+” by S&P and Fitch
• Local financing options
• Major commercial banks such as Banco Internacional del Perú –
INTERBANK, Banco de Crédito del Perú, Santander, Scotiabank,
HSBC, Banco de la Microempresa S.A. – MIBANCO etc.
offer specific financing options for SME
• Interest rates about 10-15%
• Long-term loan tenors available up to 10-12 years.
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Local Financing Options
COFIDE (The Peruvian Development Bank)
• An overview of COFIDE’s investment promotion programes is available at
www.cofide.com.pe/cofideportal/main/productos/apoyo-mipe/mipyme
• Financing is issued for all programs through the COFIDE listed FI.
• „PROBID“ and „PROPEM BID“ (for Peruvian companies)
• Medium to long-term financing of investments that support and enhance private
sector development and activities
• Up to USD 18 M., average LIBOR +4.3%
• “Bionegocios”*
• Credit line to fund small hydro, Wind, PV, geothermal as well as biomass projects
• Terms up to 12 years and 3 years grace periods.
* program is supported through EUR 40 M. KfW funding
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Local Funding Options
• Law 1058
• Dedicated to RE projects (for power generation)
• Issuing special tax write-offs and an accelerated depreciation of 20% for RE
investments (for equipment, machinery and civil engineering works)
• Law 29230
• Immediate depreciation of RE investments for implementation of public
infrastructure projects.
• Prequalification required http://docs.peru.justia.com/federales/leyes/26230-sep-25-
1993.pdf
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Typical costs of debt in Peru 2014
• Average lending interest rate: 15.74%*
• Average cost of green micro debt: 5.50%
• Total volume of green micro loans: 4.18 million USD.
*short and medium term
Clean Energy Investments 2014
USD 703 M.
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Type of Clean Energy Investments
* asset finance investment refers to utility scale projects > 1 MW
(own illustration based on Climatescope 2015 data)
40
168
3,419
0 1000 2000 3000 4000
VC/PE investments
Corporate finance investments
Asset finance investments*
Investments by type 2010-14 (in M. USD)
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Means of Financing Sources available in Peru
Financing / Funding Source Impact
Local capital market Moderate - High
Access to international financing and funding High
Dedicated programs offgrid applications Not available yet*
Dedicated programs renewable energy Low - moderate
*Beyond public activities
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Typical Challenges for smaller Projects
• Project finance is not an option
• Credit financing depends on the company’s balance sheet
• Availability and competitiveness of local credit financing
• Local interest rates?
• Tenor of loans?
• Experience and expertise of local banks?
• Access to international financing sources institutions
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Typical Challenges for larger Projects
• Projects compete with other low cost RE projects
(e.g. large hydro)
• Reliability and creditworthiness of buyers in case of PPAs
(e.g. public utilities)
• Required equity share for project finance
(project sponsors)
• Legal security
• Risk mitigation
• Currency, e.g. denomination in lead currencies?
• Inflation, e.g. adjustment of remuneration?
• Lack of experience in financing of ‘new’ technologies
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Conclusions - Financing of RE in Peru
• Micro and very small (e.g. rural electrification) projects may benefit from
the worlds most developed microfinancing market with very competitive
interest rates about 5.5%.
• Small – medium size projects below EUR 1 M. could benefit from local
peruvian financing opportunities, especially for SME as well as from
international funding and financing opportunities available in Peru.
• However frequently needed financing opportunities in a range between
EUR 1 – 8 M. are scarce (not only but also in Peru).
• due to the relatively high specific transaction costs (substantial efforts
in combination with comparable low project investment volume)
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Conclusions - Financing of RE in Peru
• Lack of adapted financing options for RE projects thus still remains a
crucial obstacle for enhanced private sector engagement
• Additional support programs and/or credit lines dedicated to RE / offgrid
projects would improve financing opportunities for these projects,
especially for SME
• Generally: Further improved framework conditions for RE (e.g. less
subsidized electricity tariffs) could help to attract additional private sector
investments such as from strategic investors.
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Do you have any further questions…?
At your disposal on behalf of the EEE
Olaf Mecke
Consultant
+49 201 – 878 496
[email protected] ; www.dfic.de
Thank you very much for your kind attention!
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