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Experience of DEDE’s ESCO Fund in financing RE projects in Thailand

Suwaporn Sirikoon Chief Executive Director

Energy for Environment Foundation

Seminar on “Financial Schemes for Renewable Energy Projects”

co-organized by

Delegation of the European Union to Thailand and Department of Alternative Energy Development and Efficiency, Ministry of Energy

At Landmark Hotel, Bangkok 27th November 2012

Presentation Outline

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About E for E

ESCO Fund and its facilities

Process to assess, approve and monitor projects under ESCO Fund

Projects as approved for investing under E for E’s management

RE financing models from ESCO Fund’s projects

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About E for E

An independent not-for-profit organization, founded in 2000

Missions:

To support both government and private sectors in activities relating to renewable energy as well as energy and environment conservation

To promote heat and power generation from renewable energy and other alternatives by providing policy recommendations to the government and providing information/financial /technical assistance to project developers and financial institutions

To disseminate information, knowledge and innovation and demonstrate technologies relating to renewable energy and energy conservation

To organize the projects awarded from ENCON Fund

E for E’s services : Technical Advisory, Financial Advisory, Information & Outreach Service and Policy Study

Fund manager of ESCO fund, hired and appointed from DEDE

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E for E’s Services

Technical Cell

Providing technical advisory services such as technical feasibility studies of the RE power plants and EE projects, technical trouble-shooting services and any other services in the course of the project development.

Financing Cell

Information & Outreach Cell

Policy Cell

Providing financial advisory services including sources of fund, seeking projects for the keen investors, the financial feasibility studies, and preparing financial proposals of RE and EE projects.

Providing right information on RE, EE, and general energy issues to the specific target groups and general public, providing energy issues relating articles for media and the website and also organizing community relations program for energy project development.

Providing advisory services about policies and regulations concerning the RE and EE projects and the revision of rules and policy framework to the policy makers.

RE and EE Project Consultancy

Service

Knowledge Service

RE and EE Policy Development

Policy instruments to promote energy efficiency and renewable energy

Energy

Conservation Act 1992

Industrial Product Act

Electricity Generating

Authority Act (amendment 1992)

Energy Conservation Fund

Oil Fund Price incentive for biofuels

•Soft loans

•DSM bidding

•ESCO venture capital fund

•Investment subsidy •Technical assistance

•Utility DSM program

•SPP/VSPP regulation •Adder to normal tariff

•Standards for appliances •Labelling

•Building codes •Labelling for buildings

Oil Shortage

Prevention and Alleviation Act

Energy Industry Act 2008 Permits for CHP/DG/RE

TGO CDM, carbon trading 5

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About ESCO Fund

Established by Department of Alternative Energy Development and Efficiency (DEDE) in 2008, under the financial support from Energy Conservation Promotion Fund (ENCON Fund)

Aim to encourage investment in energy efficiency and renewable energy projects in Thailand

Managed by TWO fund managers; - Energy for Environment Foundation (E for E) - Energy Conservation Foundation of Thailand (ECFT)

Period ; Phase 1 : October 2008 – September 2010 Phase 2 : October 2010 – December 2012

Size of Fund : 500 Millions baht for each phase

Fund amount in responsibility of E for E - 250 million baht in phase 1 - 300 million baht in phase 2

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Supporting Facilities of ESCO Fund

Energy Conservation

Promotion Fund (ENCON Fund)

ESCO Fund Investment Committee

Technical Assistance

Equity Investment

Carbon Credit Facility

ESCO Venture Capital Equipment Leasing

Credit Guarantee Facility

Fund Managers:

500 Million Baht

1. E for E (300 Million Baht) 1. ECFT (200 Million Baht)

Investment in equity part of Energy Efficiency

and Renewable Energy Project

Size of investment: 10%-50% of total equity

or project cost but limited to 50 MB per project

Not as a Majority Shareholder

Return : dividend and capital gain

Investment period: 5 – 7 years or until owner

ready to buy share back, or find a new

strategic partner, or list in SET/MAI, but

limited to 7 years

Exit Price: “Put Option” and“ Call Option” or

“Market price”

BOD-seat is needed

ESCO Fund Owner / ESCO

RE/EE Project

Sub – contractor -Equipment -Installation / Maintenance

Dividend/ Return

Co-Investment

Subcontract

Equity Investment

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Equipment Leasing

ESCO Fund

Leasing Contract

RE/EE Project

Producer/ Supplier/ ESCO

Principal and Interest Repayment

Equipment purchase agreement

ESCO Fund

Principal and Interest

Repayment

Energy Performance Contract

Equipment purchase agreement

ESCO Co.,Ltd (Energy Service Company)

RE/EE Project

Share Saving

Leasing Contract

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Leasing Contract

Long-Term Leasing Service in Purchasing equipment for energy efficiency and renewable energy

Providing 100% of equipment cost

Repayment within 5 years

Interest rate at 4% per annum

Equipment ownership belongs to EfE till complete repayment

E for E facilitate project owners in developing CDM and accessing to CER buyer at lower service rate

E for E (ESCO Fund)

CER Buyer

Project Owner

ERPA / CDM Revenues

LoI

Carbon Credit Facility

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Remark: E for E helped develop a Project Idea Note (PIN) and find CER buyer for Solar Power (Korat 1) Co., Ltd.,

one of ESCO Fund’s co-invested projects.

Credit Guarantee Facility

Credit Guarantee Contract

ESCO Fund RE/EE Project

Bank

Credit Facility Agreement

Paid Fee

Credit Guarantee Contract

ESCO Fund (by E for E) guarantees commercial bank for project loans, limited to 10 million baht

Service charge at 1.75% pa. of guarantee amount

Loan guarantee term not more than 5 years

Remark: - Same principle as the Small Business Credit Guarantee Corporation (SBCG) - However, according to the risk management principle, EFE allows project developers to choose one

between Equity Investment and Credit Guarantee Facility and all developers decide to choose Equity Investment.

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Primary Conditions for considering the Projects

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Conditions for Equity Investment Conditions for Equipment Leasing

1. Security of fuel supply in long term 1. Reliability of Technology and Equipment

2. Technological Reliability 2. Guarantee saving and Equipment Performance Guarantee Contract

3. Good financial profile of investors and reasonable return of project

3. Reliability of entrepreneurs/company financial statement

4. Obtaining Government License /Permit for power plant/ Community Acceptance or related license according to the regulation

4. Personal Guarantee/ Bank Guarantee

5. Requirement Documents

- Feasibility Study Report which including Project Cost, Technology usage, Financial Structure, Return of Project and Fuel Supply Management

- Financial Statement for the last three year of Shareholders

- Loan/ Credit Facility Agreement or Term Sheet from bank

- Environment and Safety Assessment report or Environment related report

- Community Acceptance Report or reliable Community Acceptance Plan

5. Requirement Documents

- Feasibility Study Report which including Project Cost, Saving Calculation Method, Payback Period, Project’s Return, How the equipment works, Specification of Equipment, M&V Plan

- Copy of electricity bill for the last three year of Company

- Guarantee Saving Agreement

Project Approval Process

(1) EFE’s Board of Director

(2) DEDE Subcommittee

(3) Investment Committee

15 – 30 days

15 – 20 days

Barrier : Approval process is not flexible and takes long time 13

Approval Process ENTREPRENEURS / ESCO / INVESTOR

Submit an Application

ENTREPRENEURS / ESCO / INVESTOR

Propose the Project

(Every 3 Month)

Approval/ SHA preparation

Signed contract

ESCO VENTURE CAPITAL

EQUIPMENT LEASING

CARBON CREDIT FACILITY

CREDIT GUARANTEE FACILITY

TECHNICAL ASSISTANT

EQUITY INVESTMENT

Financial Instruments/services

Drawdown Process

Submit Shareholders Agreement/Contract

ESCO Fund Budgeting From ENCON Fund

500 Million Baht Drawdown

(45-60 days)

Investment contribution

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Project Verification and Monitoring

•Project Risk Mitigation on Technical, Financial, Environmental and Social Issue

• Financial Issue: by Financial Feasibility Study and Due Diligence/ Credibility of Investor/others source of fund/ Shareholders Structure

• Technical Issue: by Technical Feasibility Study/ Fuel Potential/reliability of technology and machinery

• Environmental and Social Issue: by site survey/requiring the IEE, ESA, EIA Study/Requiring Public Acceptance/ Government Regulation/Permit

• Project Approval determined on risk management and mitigation of all above issues in the appropriate level

Before Develop the Project

•Construction Performance

• Following the conditions under the Shareholders Agreement and

EPC Contract

•Requiring Environmental Standard and Public Hearing/Acceptance

• Site Visitation/Spot Check

•Construction Performance Report

During Construction Period

•Operation Performance

• Following the condition under the Shareholders Agreement

•Manage through the company Board of Director and Shareholders which have a seat for ESCO Fund Representative

•Company Annual Report/Financial Statement

• Site Visitation/Spot Check

During Operation Period

Project as Approved by Investment Committee: Phase I

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Projects under ESCO Fund (I) approval

15 Projects

Energy Efficiency 8 Projects

Chiller

Solar Thermal

Voltage Regulator 2 Projects

SHAW Method of Air Conditioning Process

High Efficiency Motor

Variable Speed Drives

2 Projects

Renewable Energy 7 Projects

Solar Farm 6.1 MW x 3 Projects 0.9 WM x 1 Project

Biomass Power Plant

Steam Turbine 7.5 MW (Wood Chip)

Biomass Power Plant

Co-generation 5.3 MW (Para Wood Chip)

Biogas (30 kW)

(Leasing Gas Engine)

Project as Approved by Investment Committee: Phase II

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Projects under ESCO Fund (II) approval

38 Projects (294.69 Million Baht)

Energy Efficiency

30 Projects

- Variable Speed Drives (5 Projects)

- LED/VSD/T5/Evaporative Cooling System (1 Project) - LED/Heater/T5/Voltage Regulator/

Evaporative Cooling System (1 Project) - LED (6 Projects)

- Demand management (Fluoresave) (2 Projects) - Voltage Regulator (5 Projects)

- Chiller/Voltage Regulator/LED (1 Project) - Voltage Regulator/Variable Speed Drives

(1 Project) - Chiller (2 Projects) - Chiller/LED (1 Project)

- Chiller/High Efficiency Motor/Voltage Regulator/ Variable Speed Drives (2 Projects)

Renewable Energy

8 Projects

Biomass Power Plant Gasification

( 2 Projects )

Biomass Power Plant

Steam Turbine ( 1 Projects )

Biogas ( 3 Projects)

Micro Hydro Power ( 1 Projects)

Biomass + Biogas (1 Projects)

Note: Project Status at November 2012

RE financing models from ESCO Fund’s projects

Solar Power (Korat1) Co.,Ltd

- Installed Capacity : 6.1 MW (Solar Farm)

- Location : Nonsung District, Nakornratchasima

- Project Cost : 700 MB - COD : April 20

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• First large-scale solar farm project in Thailand

• Use proven PV module with efficiency warranty.

• EfE provided technological knowledge and acted as technical assistance to bank.

• Debt : Equity = 60 : 40

• Bank required cash deposit and Personal Guarantee.

• As a RE promoter, despite obtaining low return (<12%), EFE still decided to invest in this project.

• Success of this project creates Thai banks’ confidence to provide loan financing, resulting of a lot of solar farm projects come out.

The other projects of Solar Power company (SPCG)

• EFE invested in Project 2-3, as bank required

• Debt : Equity = 70 : 30

• Company receives the ‘Syndicated Loan’.

• Company listed in Thai stock market “MAI”.

• Under the process of developing ‘Infrastructure Fund’.

• Be able to get ‘Equity Finance’ from bank.

CASE 1 First new technology chosen in Thailand

Solar Power has 34 solar PPAs . 10 projects are already COD and the rest are under construction and development.

K-Bank 60%

Solar Power, 19.97%

IFC, 7.53%

EFE, 5.48%

Thai Fa 5.37%

Solar Power 52%

IFC 20%

EFE 14%

THAI FA

14%

Equity Structure

Plan Ecoenergy Co,.Ltd

- Installed Capacity : 5.3 MW (Biomass Cogeneration) - Location : Yanta Khao district, Trang - Project Cost : 330 MB

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• Presently, 80 SPP and VSPP biomass power plants supply electricity to the grid in Thailand

• Banks have a knowledge about Biomass Power Plant.

• Debt : Equity = 60 : 40 or 70 : 30

• Debt Ratio depends on financial creditability and the main business of project developer.

True Energy Power Lopburi Co,.Ltd

- Installed Capacity : 7.5 MW (Biomass Power Plant) - Location : Lopburi Province - Project Cost : 400 MB - COD : Nov 2010

Para veneer (Sawmill)

5%

Plan toys 13%

EFE 12%

KTB Bank 70%

Para. 18%

Plan toys 42%

EFE 40%

Equity Structure

E+Co 6%

EFE 6%

True Energy 28%

SME Bank 60%

True Energy 70%

E+Co 15%

EFE 15%

Equity Structure

CASE 2 : Proven & Commercialized technology CASE 3 : first new technology with ESCO’s performance guarantee

RE financing models from ESCO Fund’s projects

• According to heat temp. that sawmill requires, the project was designed to use gasification technology.

• ESSCO (EEI) is responsible for technology selection & procurement, and managing project with guarantee of 80% revenue during repayment period

ESCO-service fee takes 5% of project cost

Stepwise Energy Manangement Co,.Ltd

- Installed Capacity : 1 MW (Biogas Power Plant) - Location : Pudsa district, Nakorn Ratchasima - Project Cost : 40 MB - Status : Under construction

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Supreme Energy Wiang Kaen Co,.Ltd

- Installed Capacity : 1 MW (Biomass Power Plant)

- Location : Wiang Kaew District, Chiang Rai

- Project Cost : 65 MB - Status : Cancelled

CASE 4 : Project with 100% equity

RE financing models from ESCO Fund’s projects

Private Fund 40%

EFE 28%

Supreme 32%

Small-scale with not-commercialize based project

• Bank requires collateral guarantee equal to the amount of loan, debt : equity = 50:50 and high interest rate.

• EFE helped find foreign private fund to invest in project replacing bank loan (100% Equity).

• The developer (technology owner) stopped the project, due to necessity to develop other project, first.

Stepwise 75%

EFE 25%

• Feedstock : Waste water from community alcohol-refining factories.

• Developer decided to use 100% equity due to short pay-back period and not obtaining good condition from bank.

Energy for Environment Foundation (E for E)

99/305 Thetsaban Songkhro Road,

Lat Yao, Chatuchak, Bangkok 10900

Tel : 66 2953 9881-4 Fax : 66 2953 9885

http://www.efe.or.th Email: efe@efe.or.th ; escofund@efe.or.th

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