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Financing Sustainable Energy: Seizing the Business Opportunities for Financial Institutions
Case Study: Financing of a 53 MW Bagasse-Fired Cogeneration Project
Alan Dale C. Gonzales
Organized by: Thai Bankers’ Association (TBA) and the World BankSupported by: National Economic and Social Development Board (NESDB),
Federation of Thai Industries (FTI), and the European Commission
Novotel, Bangkok, Thailand29-30 March 2007
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MATERIAL BALANCE in the SUGAR INDUSTRY
1 tonne ofsugarcane
100-120 kg Sugar
Process energy required:25-30 kWh/tonne of sugarcane0.4 tonne of steam
Waste:290 kg Bagasse ~ 100 kWh
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Electricity
30
Heat
50
(i) Cogeneration System
Heat Loss20
InputEnergy
100
(ii) Separate Generation
Input forPower
Generation
86
Input forBoiler
56
InputEnergy
142
Heat Loss6
Heat Loss56
Cogeneration vs. Separate Energy Production
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Owner/Developer : Dan Chang Bio-Energy Co., Ltd.Major Shareholders : Mitr Phol Sugar Co., Ltd.; Mitr Particle Board;
OthersLocation : Dan Chang, Suphanburi, ThailandTotal Capacity : 53 MWFuel : Bagasse, cane leaves, wood bark and rice huskMajor Off-takers : EGAT (SPP, 21 years, firm contract)
Mitr Phol Sugar Co., Ltd. (steam + power) Major equipment : Boilers - 2x120 tph, 68 bar, 5100C (Alstom)
Turbine - 41 MW extraction-condensing (Alstom)Existing boilers + turbine (from sugar mill)
O&M : InternalIncentives : BOI privileges, EPPO subsidy, COGEN 3 supportFinancing : Project finance
Project Structure: Dan Chang BioProject Structure: Dan Chang Bio--EnergyEnergy
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53 MWe Bagasse-Fired Cogeneration Project
Owner/developer: Dan Chang Bio-Energy Co., Ltd.Project type: Bagasse-fuelled energy plant Location: Dan Chang, Suphanburi, ThailandDescription: Dan Chang Bio-Energy is a special purpose company set up to implement this cogeneration project. The plant is located adjacent to a sugar mill which will supply bagasse as fuel. The electricity generated from the project will be sold to the sugar mill and the excess power to the Electricity Generating Authority of Thailand (EGAT). The project consists of new equipment (41 MW) & old transferred from the sugar mill.Power Purchase Agreement: “Firm” contract, 21 yearsTariff: 1) energy payment, indexed to natural gas price
2) capacity charge, indexed to Dollar exchange rateIncentives: BOI privileges, EPPO subsidyCommercial operation date: May 2004
Financing Arrangement (1)Financing Arrangement (1)
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53 MWe Bagasse-Fired Cogeneration Project
Total project cost: THB 2,170 million Shareholders’ equity: ~29 % = THB 620 millionLoan: ~71 % = THB 1,550 million Financing institution: Siam Commercial BankInterest rate: MLR before operation, Fixed for 1st yr, MLR-1.00%
afterwardsMaturity: 11 years (including grace period)Grace period: 2 yearsSecurity arrangements:
- Mortgage of all land, building and equipment to the bank- Assignment of PPA (DC vs. EGAT)- Assignment of Utilities Supply Agreement (DC vs. MP)- Corporate guarantee for the whole portion of the loan (to be released when listed in SET)- All risk insurance for equipment & all assets in the name of the bank.
Financing Arrangement (2)Financing Arrangement (2)
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Biomass Energy ProjectProject Finance Model
Financing Directly to Project
Power Salesto the Grid
OtherInvestors
Biomass Fuel Supply
Fuel Payment
Loan Repayment
LoanFundingPPA Assignment
CompletionGuarantee
ConstructionGuarantee
Construction Services
Other FuelSupply Sources
ENERGY PLANT COMPANY
FINANCING INSTITUTION
EPC CONTRACTORFACILITY SITEOWNER
Fuel Supply Power Payment
Fuel Payment Power Sales
Dividends
Equity
Construction Payment
Heat/Power
Energy Payment
Equity
Dividend
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Project finance
Mechanism: - Special purpose company takes out the loan to finance the project- The source of debt service (interest & principal) is primarily the cash flow from the project- Lending entity has no or limited recourse to the sponsors
Conditions:- Acceptable D/E ratio- Fuel supply security- Established viability on reliable cashflow projections- Acceptable debt service coverage ratio
Typical structure:- Strong involvement of local banks- Use of both Thai Baht and foreign currency tranche- Maturity of >10 years
Financing RouteFinancing Route
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Project finance (cont.)
Security arrangements: - Assets pledged as security to the bank- Assignment of contracts to the bank (PPA, SSA, etc.)- Covenants related to shareholding structure, issuance of dividends, additional loan- Accounts pledged to the lenders- Construction guarantee- Partial guarantee
Documentation: - Information memorandum- Contracts (PPA, SSA, EPC, FSA, EIA)
Financing RouteFinancing Route
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Project finance (cont.)
Advantages: - Minimum risk carried by the sponsors- Loan does not appear on the balance sheet of the sponsor- Long maturity of loan possible to achieve
Disadvantages:- May take longer time to reach financial close- Involves complex legal documentation and contractual arrangements- Strict requirements for due diligence as well as legal and technical assessments- High compliance for administration & reporting requirements
Financing RouteFinancing Route
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FUELSUPPLIER
FINANCIALINSTITUTIONS Funding agreement
MAINCONTRACTOR
INSURANCE COMPANY
Insuranceagreement
Fuel supplyAgreement
EPC/spare partscontract
Permits & licences HOSTGOVERNMENT
Operation &maintenance contract
PLANTOPERATOR
POWERPURCHASER
Shareholder'sagreement
Power purchaseagreement
PROJECT COMPANY
SHAREHOLDERS
Partner 1 Partner 2Otherequity
investors
"Deliver or payagreement"
"Take or payagreement"
Sub-contractor
Consultants/Advisers
Security ArrangementsSecurity Arrangements