Transcript Title of presentation

The Need for Robust Legal & Regulatory
Frameworks to Promote Renewables
Riccardo Puliti
Managing Director, Energy & Natural Resources
VI KAZENERGY Eurasian Forum
Astana, 5 October 2011
Agenda
1. What is EBRD?
2. Experience in Renewables
3. Regulatory Frameworks and Regulatory Risk
4. Sustainable Policy Instruments
5. Transparent & Predictable Legal Framework
6. Case Studies
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Foundation of Operations

Apply sound banking principles to all projects
– EBRD does not subsidise

Advance the transition to a full market economy
– Priority to promote private sector involvement and market
expansion

Support, but not replace, private investment: additionality
– Act as a catalyst for higher and riskier involvement of financiers

Achieve environmentally sound and sustainable development
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Where EBRD Operates
4
Experience in Renewables

EBRD was an early mover in Renewable Energy (RE) in its countries of
operations
– hundreds of projects screened, dozens analysed, many rejected,
but several successful transactions

Extensive knowledge of the market and main players

Early and steep learning curve

Knowledge of RE regulation
– As an equity investor in and lender to RE projects, EBRD
understands the importance of legal & regulatory arrangements in
this sector
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Experience in Renewables

EBRD signed
– In 2010 €220m for 6 RE deals with
project value of €820m
– In 2009 €186m for 6 RE deals with
project value of €540m
– 2011 YTD €311m of financing for 6
RE deals with potentially project
value of €700m
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Renewable Energy financing by
geography (2009-2010)
Hungary
14%
Bulgaria
12%
Baltics
8%
EBRD has been most active in
projects in Poland, Hungary,
Bulgaria and Turkey
Poland
52%
Turkey
12%
Western
Balkans
2%
Source: EBRD, Unaudited data as at 31 December 2010
Strong pipeline of projects in
Romania, Georgia, Poland,
Bulgaria and Turkey
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Regulatory Certainty is Key!
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Renewable Energy technologies
have been moving down a
steep cost curve


Economic support is an
interim solution for RE, not
expected forever
Yet most projects today still
require financial support
mechanisms

– Renewables projects are capital
intensive and have long asset
lives (often 20+ years)
– Therefore, the assets in question
require long-term regulatory
certainty to attract financing
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The Renewable Energy sector is
unique as it is policy-driven
Investors therefore face
regulatory risk for debt
repayment and equity return
This does not mean regulatory
frameworks should never be
amended:
– But should not be changed
retroactively to existing projects
– Investors will require stability in the
level of support available from the
time of investment
Regulatory Risk – the EU Experience


The European Union has ambitious 20/20/20 targets, that require large
capacity increases in Renewable Energy (20% reduction in GHG, 20%
of energy in EU from RE, and 20% reduction in primary energy us
through energy efficiency)
The countries most likely to meet those targets (e.g. Germany) are
those that have created a stable, predictable investment climate
– Numerous examples of retroactive tariff cuts in Europe (see Czech and
Spanish solar PV) have undermined the credibility of policy support to
the sector in the eyes of investors
– Certain infrastructure funds stopped investing in Renewables
– Bank financing for projects dried up while existing policies were revised

Regulatory certainty is just as important as the chosen instrument itself!
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Sustainable Policy Instruments

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Kazakhstan is moving towards implementation of feed-in-tariff
There is a trade-off in setting the level of economic support for
Renewables projects
– If level of support is too low (e.g. feed-in-tariff, Green Certificate
price) investment will not take place
– If level of support is too high, the country will attract opportunistic
investors seeking high returns, facilitating unsustainable bubble in
the sector
– Getting the level of support right is important (EBRD is assisting
through Technical Cooperation)
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Transparent & Predictable Framework

We can distinguish between (at least) two phases in renewable project
life: (i) Construction / operation phase, and (ii) Development phase
– In the Development phase transparency and predictability in the permitting
process is crucial
– Several permits are required in most jurisdictions as Renewable Energy
development is more complicated than e.g. real estate : it involves high
structures, grid connection often in environmentally sensitive areas
– For foreign investors it is important to understand what permits and
approvals will be required by what authority at what time

e.g. aviation authorities (due to height of structures), Ministry of
Defence (wind farm impact on radar), environmental authorities
– Complex legal frameworks are one reason why development phase is
usually undertaken by local developers, rather than foreign companies
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Example of Natural Resources

Kazakhstan was successful in establishing a sustainable regulatory
framework in the Natural Resources sector
– Limited restrictions on ownership of subsoil assets and a predictable
tax regime have attracted significant foreign investment
– Transparency was enhanced by the implementation of EITI
principles by oil & gas operators and more recently in mining
– Priorities was put on the development of local content

EBRD is supporting efforts to improve further regulation through
– Technical Cooperation funds to improve Health, Safety and
Environmental standards in mining and reduce accidents in mines
– Cooperation with the Government to develop emergency response
capacity in the Caspian Sea and enhance co-ordination with
neighbouring countries
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Conclusion
Strategic Priorities for Kazakhstan
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Kazakhstan is making good progress in developing a comprehensive
Renewable Energy strategy and has significant potential across diverse
Renewable Energies
Through Technical Cooperation EBRD has supported development of
Renewable Energy legislation in Kazakhstan: review of primary
legislation will pave the way for feed-in-tariff to be implemented by yearend 2011
Going forward, key themes will include:
– Searching for an adequate and yet sustainable level of economic
support
– Promoting policy / regulatory certainty
– Ensuring transparency & predictability in the legal framework to
facilitate the development phase
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Case Studies
Margonin wind farm - Poland
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In 2010 EBRD financed the 120MW
Margonin wind farm, the largest
operational wind farm in Poland
Facility Details
Borrower
Relax Wind Park I sp.
zo.o.
Sponsor
EDPR
First wind farm in CEE to be
financed on a limited recourse basis
without a long-term, fixed-price
arrangement for electricity sales.
Lenders
- EBRD: €45m
- EIB: €45m
- Commercial
Banks:€45m
Total debt size of PLN 535m
(€135m equivalent) financed by
EBRD, EIB and commercial banks,
including Bank Millennium S.A.,
BESI and Unicredit’s Pekao
Structure
- Project finance
- Without long-term
fixed-price sales
contract for electricity
Margonin is controlled by EDP
Renovaveis, the world’s 3rd largest
onshore wind farm operator
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Rotor Wind Farm - Turkey
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The EBRD signed its first Turkish
deal in May 2009 after launching
operations there in October 2008
The Bank is lending €45m for the
financing of Rotor Wind Farm, which
will be one of the largest wind farms
in Turkey (135MW)
Facility Details
Borrower
Rotor Elektrik Uretim AS
Sponsor
Zorlu Enerji
Lenders
The total investment cost is
estimated to be > €200m, including
€70-75m of Sponsor equity
- EBRD: €45m
- IFC: €55m
- EIB: €30m
Awarded European Onshore Wind
Deal of the Year 2009 by Project
Finance Magazine
Tenor
- IFC, EBRD: 12 years
+ 1 year grace
- EIB: 10 years
+1 year grace
Progressed from EBRD initial
approval to signing in four months
Structure
- Project finance
- EIB loan guarantees
from HSBC Bank plc
and DenizBank A.S.
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Saturn Biomass - Poland
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The Bank financed the first large
scale biomass fired power plant
owned by a local investor in Poland
The CHP facility provides heat and
energy to Mondi Swiecie, the largest
Polish paper producer, and operates
under a long-term off-take
agreement
The transaction was structured as
project finance exceeding €100m
and was successfully closed despite
the financial turmoil
Three month lead time:
- Initial approval May 2009
- Signing August 2009
Facility Details
Borrower
Saturn Management
Sponsor
Polish Energy Partner
Lenders
Tenor
Structure
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- EBRD: €30m
- Commercial
Banks:€56m
- EBRD: 8.5 years
- Commercial
Tranche 6.5 years
- Project finance
- Very strong off-take
contract with Mondi
Swiecie
Thank you
Riccardo Puliti
Managing Director
Energy & Natural Resources
Email: [email protected]
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