Power & Energy Utilities

The challenges of financing renewable energy projects in Romania

Wind Power Romania

17-18 January 2012 Bucharest

European Bank for Reconstruction and Development 2010 | www.ebrd.com

EBRD: Foundations of operations

Apply sound banking principles to all projects

We do 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

EBRD invests in times of crisis

Invested 64.9 bn in more than 3,268 projects since 1991* Private sector > 78.3% of portfolio Portfolio is 80% Debt, 20% Equity AAA rating, 30bn base capital 9bn invested in 2010, a 77% increase since 2008
* through 07 November, 2011

billion
12 65

10

55

Annual business volume (ABV)

45 8 35 6 25 4 15

Net cumulative business volume Net cumulative business volume

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-5

Debt ABV

Equity ABV

Net Cumulative Business Volume

EBRD Facilities

LOANS
Project finance loans Corporate loans with specified use of proceeds Tenor of 10-15 years Margin benchmarked to market Fixed rate and/or local currency possible EBRD can directly finance up to 35% of an enterprise's long term capital (or project costs for greenfield projects); additional funds mobilized through syndication

EQUITY
EBRD equity stake typically below 2025% (meaningful, but minority) Investment through capital increase Invest in Funds to address smaller projects or larger stakes Exit through IPO, trade sale or put/call agreement Political and regulatory risk mitigation

Some notes on the Romanian Energy Sector

Liberalisation: Fairly advanced electricity market fully liberalized since 2007, but ~47% of the market is still regulated OPCOM trades around 27% of the yearly consumption on DAM (16%) and Bilateral Contracts (11%), in yearly trades worth over EUR 400m Green Certificates trade on OPCOM, a market worth around EUR 24.5m in 2011

Infrastructure needs in the sector: in generation (low efficiency due to old equipment and heavy environmental footprint distribution and transport (grid cannot safely absorb more than 2,000 MW of installed wind capacity, according to a 2010 study)

Private sector participation: conventional generation: virtually all state owned greenfield projects coming slowly online such as Petroms 860 MW gas fired plant in Brazi, plus other PPP initiatives of the government, expected to materialize in 2012-2013. regional distribution: 5 out of 8 utilities

Some notes on the Romanian Energy Sector

Steps that should be taken going forward: privatisation of generation either with strategic investors or IPOs; PPP projects to replace existing power generation infrastructure investment in transmission capacity and regional interconnection focus on strategic projects such as the pump/storage plant in Tarnita renewable sector legislation to start being consistently applied

Renewables in Romania an indicative checklist

Sponsor developer / utility will a solid track record in renewable energy, capable to contribute at least 30% of the total project costs

Wind resource wind measurements for at least 1 year, performed by companies with sufficient expertise and track record.

Land situation the project should have registered rights over the land where it is sited.

Environmental and Social Impact Assessment Studies and Environmental and Social Action Plan based on EBRDs ToR. Stakeholder Engagement Plan (SEP) and Non Technical Summary (NTS) to ensure meaningful public consultation on all projects.

Grid connection concluded connection contracts to connect to the local or national grid.

Renewables in Romania an indicative checklist (2)

Technology Wind Turbines Generators (WTG) with track record (no new, untested or experimental technology is acceptable). WTG Supply and LTO&M contracts to be in place by financial closing.

Power Purchase Agreements not a deal breaker, but given the legislation, PPAs would enhance creditworthiness of projects.

Green Certificates Off-take Agreements - difficult to arrange until the GC scheme has more of a track record; if available such would highly improve projects. Mandatory for PV projects, where the dependency on GC prices is substantial.

Debt sizing criteria - DSCR at P99 or 1.2/1.3 DSCR at P90.

Renewables in Romania financing challenges

Clarity and Predictability of Regulatory Environment Operations: curtailment risk: will projects with contracted output be compensated for the loss of GCs in case of curtailment? Can a wind farm with no contracted output be dispatched and is it entitled to receive GCs?

guaranteed dispatch: by guaranteeing dispatch only for the contracted output of the wind farms, the projects will find it difficult to trade electricity on OPCOM and move towards PPAs.

overcompensation: number of GCs is subject to change, if overcompensation is determined. How will ANRE determine what projects, in development at the time of the decision, will be affected?

oversupply: what happens to GC prices if there are more GCs than required by the quota system?

Renewables in Romania financing challenges (2)

Permitting and the status of the distribution / transport network

Environmental due diligence

Projects developed in staged approach: EIA needs to assess full project including infrastructure.

Natura 2000 areas not well defined: EU is commencing infringement action against Romania.

Permitted projects developed by locals are being marketed to international companies: Poor EIA could affect the project, as permits can be withdraw or operators asked to reduce output.

Lack of cumulative assessments and ornithological studies

Why Environmental due diligence matters?

Dobrogea region: key bird migratory corridor of international importance, hence: EIA required for major wind farms Minimal bird and bat assessment 1 year minimal baseline data before operation Appropriate Assessment under Habitats Directive required when in/near Natura 2000 area. EIA to evaluate associated infrastructureroads, substations, transmission lines Public consultations also for local communities

EBRDs Environmental Due Diligence way forward

Romanian Wind Association should develop dialogue with stakeholders and develop best practice guidance: - BirdLife/Romanian Ornithological Society keen to assist Strategic Environmental Assessment (SEA) is recommended for Dobrogea and other wind-rich areas of Romania - Grant funding should be available for Dobrogea SEA. - Ultimate goal: local guidance on how and where to develop wind farms, and on cumulative assessment - Pending completion of SEA, EBRD considers all projects in Dobrogea major (Category A under the Banks Environmental and Social Policy) Developers to be aware of designated Natura 2000 areas (notably for birds or bats) Developers should screen consultants carefully for expert ornithologists and past success both in successful Romanian permitting AND in satisfying IFI due diligence requirements

EBRD: Wind farms financed

Project Romania - Cernavoda 138 MW - Pestera 90 MW - St. Nikola 156 MW Bulgaria - Suvorovo 60 MW - Wind farm portfolio - Tychowo 50 MW Poland - Wind farm portfolio - Margonin 120 MW Turkey - Rotor 135 MW - Raisner OU 130 MW - Enercap RE Fund Regional - FreEnergy - AES

Sponsor - EDP Renovaveis

EBRD Investment - EUR 42.4 mln - EUR 26.7 mln - EUR 70 mln - EUR 60 mln - EUR 50 mln - EUR 30 mln (in PLN) - EUR 75 mln (in PLN) - EUR 45 mln (in PLN) - EUR 45 mln - EUR 0.9 mln - EUR 25 mln - EUR 19 mln

Debt

Equity

- Grupo Enhol - Iberdrola Renovables - Global RPI - Iberdrola Renovables - EDP Renovaveis - Zorlu Enerji - Iberdrola Renovables - Various - Nelja Energia

Hungary

Estonia

EDP Renovaveis (EDPR) Wind Farms, Romania

The loans, signed in June 2011, financed EDPRs 228 MW wind parks at Cernavoda and Pestera (Dobrogea). EDPR is the worlds third largest onshore wind farm owner and operator The projects represent the first project finance transactions in the energy sector in Romania and in renewables. They contribute to EBRDs objective to support clean, environmental friendly, renewable energy sources and to Romanias strategy of achieving, by 2020, 38% of consumption from renewables. The project supports also EDPRs investment strategy in Central and Eastern Europe.

Facility Details Borrower Lenders Tenor

Cernavoda SPV / Pestera SA EBRD: 69.1 mln IFC: 69.1 mln Banks: 49.8 mln 15 years, including 1 years grace The construction of two wind parks with a total installed capacity of 228 MW - Project Finance - Floating rate, hedged - Repayment in semi-annual installments

Project

Structure

EBRD: Hydropower plants financed

Project - Stejaru 210 MW

Sponsor - Hidroelectrica

EBRD Investment - EUR 110 mln

Debt

Equity

Romania

Bulgaria

- Vez Svoghe 26 MW

- Petrovilla

- EUR 47 mln

Russia

- Hydro OGK 10,000 MW - RusHydro Bond Issue

- RusHydro - RusHydro

- EUR 53 mln - EUR 110 mln

Albania

- Power Sector Reconstruction 800 MW - Okami and Lopota HPPs 3.5 MW - Enguri HPP Rehab

- KESH - Various - Govt of Georgia

- EUR 30 mln - EUR 0.2 mln - EUR 56 mln

Georgia

Armenia

- 20 Various HPPs 56 MW

- Various

- EUR 5 mln

Hidroelectrica, Romania

The loan, signed in July 2011, will finance the rehabiliitation of Hidroelectricas 210 MW Stejarul Bicaz Hydro Power Plant. Hidroelectrica is the largest Romanian power generation company. The project represents the one of the largest transactions concluded by the EBRD in the renewable energy sector in Romania. It contributes to EBRDs objective to support clean, environmental friendly, renewable energy sources and to Romanias strategy of achieving, by 2020, 38% of consumption from renewables. The project supports also Hidroelectricas ambitious investment strategy.

Facility Details Borrower Lenders Tenor

Hidroelectrica SA EBRD: 70 mln Comm. banks: 40 mln EBRD: 13 years, Comm. Banks: 10 years The rehabilitation of the 210 MW Stejarul Bicaz Power plant

Project

Structure

- Unsecured Senior Loan - Floating rate - Repayment in semi-annual installments

Thank you!

Mihnea Craciun Principal Banker Power & Energy Utilities +40 21 202 7138 craciunm@ebrd.com