Financing Renewable Energy Projects – EHI Corp.

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I want to know look at how we fund projects before we start looking at the actual calculations so you you will fund a project typically from from bank borrowing and from equity investment you can use mezzanine finance and various things but because of the because of the credit crisis and the cutback in availability of debt financed from banks for the number of banks

That would lane money for any sort of project but renewable energy specifically for our discussion and the amount as a percentage of the project the leverage they belong to value got lor and the tenor of the length of term that they would lane to over got shorter and there was a huge shortage of capital for projects not just renewable energy projects a number of

Different industrial projects but again for our purposes renewable energy and energy efficiency so what what has grown up in the last four or five years is a much larger market of what we can call broadly private equity funding equity funds that provide finance for projects so just so you understand how a private equity structure works you would have a private

Equity fund manager okay and that private equity fund manager would manage a number of private equity funds so it might manage three or four or five or eight of these blue funds different types of funds so there might be a wind fund there may be a solar fund there might be an energy efficiency fund there might be a biomass fund within the energy space okay how do

You get the money for those funds well the the private equity firm which they’re mainly in london in new york and the private equity fund managers who are regulated by the acc in new york are there in london they manage the money on behalf they are called the general partner they manage the limited liability partnerships not usually companies limited liability

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Partnerships hence the name so the general partner will manage the money on behalf of the limited partners and the limited partners are the investors and they can be public pension funds superannuation funds corporate pension funds life insurance companies high net worth individuals family offices sovereign wealth funds university endowments funds of funds a whole

Range of companies that wish to deploy or entities that wish to deploy some of their capital into renewable energy energy efficiency low-carbon project because they seek to diversify their portfolio of capital across a whole range of opportunities so bonds equities real estate emerging markets and renewable energy climate finance so the fund manager the general

Partner might raise up a hundred million pounds fund to five hundred million pounds fund from ten or fifteen or 20 different limited partners who each subscribe ten million or five million or whatever it is and that money all goes in the the the general partner might inject some money themselves but generally it’s a very small amount and the general partner the

Private equity firm will manage that individual fund and probably several funds a biomass thunder wind funder solar fund the battery storage fund energy efficiency fund whatever will manage that fund each of those funds on behalf of our limited partners who may be different for each fund will be different for each one and that fund say a hundred million pounds fund

Will then make investments in specific projects okay and those projects might range from two to five to ten million pounds per project small fund would typically be an investing two three four five million pounds per project a larger fund might be investing five to ten million pounds per project the project itself the capex the capital cost of the project might

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Be ten or fifteen or twenty million and the rest of the finance would come from other investors core they’re called or from banks or sometimes from the developer over the project themselves usually the developer has a fairly small amount that they will invest so that’s a method of funding another method that and a very important one in renewable energy and energy

Efficiency another method of funding because of the banking situation is amazing income for mayor’s council as it’s called which comes in two forms which are not mutually exclusive subordinated debt and preferred equity so where your traditional financing structure going back maybe six or seven years ago might have looked like you have a ten million pounds project

And this is the same in the us and everywhere in the world you have a ten million pounds project and you might have funded something like that say 2.5 million might have been equity and 7.5 million might have been dead so the leverage ratio would be 75 percent the loan to value would be 75 percent now because of the banking situation the bank might only lend of

60 percent so six million the equity investors might only have 2.5 million still so you would have 1.5 million missing and that 1.5 million would be provided by imagining investors and that mezzanine would be a combination of subjects junior debt as it’s called and preferred equity so what that means is the subordinated debt is subordinated to the senior lender

So that in the event of the default of the company the first call on the assets after the receiver and the taxman the first call on assets that wind turbines or whatever or they the housing or the pubs you know it could be in any business it is going to be the senior bank the bank which is lent the senior debt or the consortium of banks which have lynn flint the

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Senior day they get the phone call the asset if there are any assets left in the liquidation then the subordinated debt holder gets their next call on that so they are subordinated they’re the junior day at the lender to the senior lender consequently their capital will cost more because they have more risk in the event of an insolvency then the next call and the

Capital will be the preferred equity so the preferred equity investors if there’s any money left after their senior debt and the subordinated debt the preferred equity investors will get their our money back and after that only the shareholders so although this is a way to get financed for projects given the current banking situation that you couldn’t otherwise

Get it exposes the shareholders to a much greater risk that in the event of an insolvent weighing a couple of the company they lose all the money so that’s what mezzanine debt are amazing and capitalist

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Financing Renewable Energy Projects – EHI Corp. By EHI Corp.