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How much can be borrowed

DNB Bank – Project Finance

22. april 2023

Determined by the debt capacity of the project, isdecided by the bank and expressed in cover ratios to control the project

Deriving optimal loan value

DNB Bank – Project Finance

22. april 2023

Most used cover ratios

DNB Bank – Project Finance

• PLCR • Project Life Cover Ratio

• LLCR • Loan Life Cover Ratio

• DSCR • Debt Service Cover Ratio

22. april 2023

Long term

Short term

Limited natural hedge from negative correlation between el cert prices and power prices

Historic prices in the Nordic region

DNB Bank – Project Finance

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NO

K/M

Wh

Elsertifikatpris (spot)Kraftpris (år + 1)Kraft + elsertifikat

Power prices (Fwd price + 2% p.a. 2016-20) Price of green certificates (Fwd pris + 2% p.a. 2016-20)

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

SE

KK

/MW

h

90 % 80 % 60 % Forward

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800

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

SE

KK

/MW

h

90 % 80 % 60 % Forward

Volatility in power and certificate prices are limiting the debt capacity of the projects

Volatility can be reduced with entering into long term PPA’s or Financial Hedges

Less volatility will increase the capacity of the project

The project is exposed to both power and certificates risk

DNB Bank – Project Finance

Case study from Sweden with no hedgingDNB Bank – Project Finance

-15

-5

5

15

25

35

45

20102011

20122013

20142015

20162017

20182019

2020

MS

EK

90 % 80 % 60 % Forventning

Cash Flow Available after Interest payments with no price hedging It is >10% probability that the project will not be able to service interest- NOT ACCEPTABLE In our bank base case we size the debt so that projects should be able to serve Interest + Principal with

1.4x cover ratio. Min DSCR = 1.4x

Case Study from Sweden - with financial hedging

DNB Bank – Project Finance

-15

-5

5

15

25

35

45

20102011

20122013

20142015

20162017

20182019

2020

MS

EK

90 % 80 % 60 % Forventning

Strategy ensures positive cash flow within 95% - Acceptable Sell 25% of power on 10-year contract Hedge power and certificates so that total hedge is 75-50-25% (1-2-3 years ahead)

Ref DNV White Paper IEWP0101 Wind Power Project under performance

• Average is about 10% below P50; Trend: 2006: 13%; 2008: 11%; 2009: 10%

It’s the combination of wind measurement uncertainty and modelling

Energy assessments must still consider many “technically unsettled” or subjective issues

High uncertainty in energy yield assessment Actual vs Forecasting

DNB Bank – Project Finance