Professional financing advice for meso-scale renewable energy projects in sub-saharan Africa.

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1 Professional financing advice for meso-scale renewable energy projects in sub-saharan Africa. Salzburg 29 November 2017

2 What is the RECP Finance Catalyst? The Finance Catalyst team links renewable energy projects to finance opportunities: for small- and medium-scale renewable energy projects in Sub-Saharan Africa (0,5-50 MW). Support renewable energy projects to reach bankability; Develop valuable project ideas into concrete investment opportunities. Professional advice, at no cost for the project sponsors. Funded by the European Commission, the Netherlands, Germany, Austria, and Finland The RECP Finance Catalyst is bridging the gap between projects and finance! 2

3 The RECP Finance Catalyst approach Experts work directly with project sponsors and developers. Providing in-kind advisory services. Reviewing business cases; Assessing commercial viability; Capital structuring; Connecting with funders; Structuring contracts. Services are tailored for each project. Check our website for details and criteria. 3

4 How to apply Applications for support can be submitted at: Information is treated confidentially; Applications are evaluated by two individual experts; Applications are evaluated in rounds; Next round opens in a few weeks check the website. 4

5 Examples of business models that can be supported Independent Power Producers E.g. small hydro mini-grid for rural electrification Mini-Grid Operators E.g. on grid Solar PV plant Captive Power Producers E.g. biogas for industrial heat process Standalone Systems E.g. PAYG SHS distributor E.g. Financial intermediary providing end-user finance 5

6 SSA: mismatch between conditions and requirements Early stage market conditions apply. Complex process in an unstructured environment; A process that happens in stages, each with a go / nogo; Nearly everywhere in Africa, each stage lacks institutional support (both monetary and regulatory); while wide and evolving skill-set required In early stage entrepreneurship and resilience are key Then negotiation and financing skills become important Eventually a wide range including legal skills and construction-management 6

7 Mismatch leads to high risks Mostly first-time developers in first-time business cases. First-time: site-selection, Technology, Construction, Contracting, Construction, Powerpurchase-agreements (PPAs), First-time: Business Planning, Financial Modelling, Negotiations Mismatch: seasoned and agile project developers needed But: managed largely by unexperienced developers. Benefiting from partnerships with European and corporate developers But: seasoned developers (from Africa or Europe) are still reluctant to enter. However: European utilities now considering first investments in Africa Also: First-time for most local banks and investors. while Project Financing is based on benchmarks and predictability: R I S K!! 7

8 Characteristics of current pipeline Time is the biggest enemy. Time-to-market varies between 1-7 years depending country, business model, entrepreneur. When project terminates prior to construction, often there was an issue under the carpet for the benefit of perceived progress. Time between stages should be shortened, so that good projects move to the next stage, and the bad ones terminate quickly. This is a balancing act: select the right type of individual where a connection with funding is possible before the end of the financial runway. Need for specialists with their feet-on-the-ground to identify these issues, scope propose a time period and a path for rectification and see what happens. 8

9 Two perspectives integrated Financiers need independent advice on the viability of a project, and are always looking for new good projects. Meso-scale projects are challenging for financiers due to the relatively small ticket size (versus cost due diligence) and their limited experience with the technologies and business models; Project proponents want independent advice on appropriate financing instruments, and how to access them. Project developers often lack the experience, network or time to identify appropriate sources of finance, resulting in high transaction costs and few projects reaching financial close. To manage and integrate these two perspectives is a core asset to offer as a service to meso scale RE projects in SSA. 9

10 Take aways from 40 meso RE projects in Africa What is needed most by financiers and project developers Quality check on financial models and business plans Understand and explain the perceptions of developers and financiers Re-focus the developer on the priorities to succeed Loss of focus after many years of preparations Coaching developers in a multiple first-time setting Short of money, fear to fail, no back-up Provide financing and negotiation skills to developers Integrating other TA and drive to financial close Subsidies cover costs for isolated issues Experts solve issues 10

11 Thank you for your attention! Paul van Aalst,

12 RE business case for SSA but Energy Sector not ready Energy situation Practically limitless and growing need for electrification; Oil, coal and gas: hard currencies needed and unstable supply aside from climate; Abundant supply of renewable sources: wind, water, solar, organic waste. Energy Sector mostly not in a position to manage this Missing generation capacity, missing and obsolete transmission and distribution; Absent or not-enforcable regulation and tariffs; Public Sector lacks capacity and funding to fix this on the short run. Private sector not able to deliver sufficient viable business propositions ready for financing 12

13 Structuring support for Business Case and Financial Model Review of existing documentation; Supporting the development of: High quality documentation; Project information memoranda; Risk assessments; Detailed business plans Proper DCF financial models. 13

14 Development support Ownership issues; Resource assessment; Selection of technology, suppliers; EIA, EPC, PPA, O&M; Permits; Contractual relationships with suppliers and off-takers; Risks and risk mitigation Business case, revenue model, financing (debt, equity, grants). 14

15 Finance Access support Guided overview of financing options, supported by tailor made web-based overview Feedback on application documentation for financing source; Support in accessing suitable financing sources (DFIs, impact investors, commercial lenders, donors); Connecting with appropriate financiers and seconding in negotiations. 15

16 Transaction support Regulatory issues Applications for operation licenses, environmental permits, etc. Financial issues Loan agreements, direct agreements, (currency) hedging agreements, parent company guarantees, etc. Contractual issues Shareholders agreement, EPC contract, O&M contract, PPA, etc. 16

17 Eligibility criteria The services are available to projects meeting the following criteria: 17

18 The RECP Finance Catalyst process De-Risking 18

19 RE Project Development - the Process 19