Debt Financing for Geothermal

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Debt Financing for Geothermal

• GRC 2007 Annual Meeting
• October 1, 2007

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Glitnir Sustainable Energy
Unique Basis for Sustainable Energy Services
Glitnir Geothermal Business Origination
Mission is to be a leading financial provider
to the global sustainable energy sector, with
a unique interest in the Geothermal space, as
well as initiating changes for growth.

• Home markets, Iceland Norway with more than 99
  of electricity production from renewables (9 in
  the United States).
• Iceland, one of the leaders of geothermal energy
  utilization for electricity production direct
  use.
• Currently installed capacity (geothermal) in
  Iceland 422 MWe.
• Strategic partners with leading positions in the
  sector.

• Extensive geographical and industry research.
• Industry player mapping networks.
• Advisory for players in the geothermal sector,
  across the whole value chain.

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Glitnir Energy Projects in Progress
Projects

• Geothermal
• Developers, utilities, technology, supply,
  consulting
• Geographic Coverage
• Asia, North America, Europe, South Central
  America, Oceania

Glitnir Sustainable Energy Focus Regions
Glitnir Role Value-Add

• Development partner, equity raising, financial
  structuring
• Acquisition advisory, structuring origination
• Debt financing
• Business origination for clients investors

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Glitnirs US Market Report - Key Findings
Tremendous opportunities in the utilization of
geothermal energy in the U.S.

• The biggest potential for geothermal energy
  applications in electricity production is in the
  Western States, primarily in California, Nevada,
  Idaho and Oregon.
• In California, geothermal could provide about 20
  of todays electricity needs
• In Nevada this could be even 60
• 17 in Idaho
• In Hawaii it could provide around 30 of the
  islands electricity needs

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Glitnirs US Market Report - Key Findings
Most of the development (by MW) will happen in
California, Nevada, Idaho and Oregon
U.S. Geothermal Current, Projects Potential In
(total) MW installed capacity (Source GEA, WGA)
Sources Glitnir U.S. Geothermal Market Report
based on data of Geothermal Energy Association,
WGA Geothermal Task Force.
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Glitnirs US Market Report - Key Findings
Geothermal sales have potential to grow rapidly

• Sales of geothermal powered electricity could
  increase from current 1.8 bn to 11.0 bn,
  without taking into consideration the vast
  opportunities for the development of geothermal
  direct use applications, e.g. geothermal heat
  pumps.

U.S. Annual Geothermal Electricity Sales mm
(Average 2005 /kWh by individual state)
Source Glitnir Energy Research based on EIA
Electricity Sales figures.
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Glitnirs US Market Report - Key Findings
U.S. Investment Needs - 39.4 billion through
2025, plus equipment and human resources

• Glitnir estimates the investment requirement to
  service currently planned projects to be 9.5
  billion
• based on GEAs May 2007 Update on U.S. Geothermal
  Power Production and Development
• A total Investment of 16.9 billion will be
  required to develop available resources through
  2015
• A further 22.5 billion during the following 10
  years
• based on capacity estimates of Western Governors
  Association 2005 Geothermal Task Force Report
• For successful development of the geothermal
  industry it will be necessary to increase the
  capacity of drilling equipment and related human
  resources
• as the industry is recovering from a decline that
  took place in the late 1980s and is to some
  degree competing with the oil industry for human
  resources, it is crucial to train and educate
  people to work within the sector

Sources Glitnir U.S. Geothermal Market Report
based on data of GEA WGA Geothermal Task Force
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Glitnirs US Market Report - Key Findings
To develop available resources drilling capacity
needs to be heavily increased
MW
Resources Developable by 2025
Resources Developable by 2015
Glitnir Research estimates based on
conservative assumptions.
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Geothermal Project Timeline
Glitnirs view of project development stages

• Add Phases as defined by GEA, see May 2007 Update

Explorat.
Pre-Feas.
Feasibility
Detailed Design Construction
Operation Maintenance

• Exploration Geophysical surveys, geochemical
  geological data collection and analysis,
  temperature gradient drilling
• Pre-Feasibility focused exploration of most
  favorable resource area or areas, sufficient
  exploration data collected and analyzed
• Feasibility Drilling of first successful,
  full-sized production well (discovery well),
  confirmation wells, reserve estimates,
  preliminary design
• Detailed Design Construction Drilling
  testing of remaining production and injection
  wells, civil works required, final design
  testing
• Operation Maintenance running and maintaining
  the power plant, as well as possible extension of
  the plant.

GEA Categorization Projects in Development
Phase 1
Phase 2
Phase 4
Phase 3

• Identifying site, secured rights to resource
• initial exploration drilling

• Drilling confirming

• Securing PPA final permits

• Under Construction

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Geothermal Project Timeline
Sources of capital available through the
development stages
Explorat.
Pre-Feas.
Feasibility
Detailed Design Construction
Operation Maintenance
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Debt Finance For Geothermal
Mezzanine / bridge financing use is highly
situational

• Mezzanine
• Potential exists to use mezzanine debt during the
  Feasibility stage
• highly dependant on depth of knowledge of
  resource, previous successes at resource,
  existence of PPA, etc
• pricing likely to be L600 on debt plus equity
  kicker to generate IRR in mid/high teens
• Bridge Financing
• An option in select situations
• much of the work towards achieving construction
  loan (take out) precedents need to be in place
• PPA, construction loan commitment letter
• can be used to while waiting for final pieces of
  the puzzle Final Resource Report, Permits
• Example Glitnirs bridge for Nevada Geothermals
  Blue Mountain Project
• provides liquidity to continue drilling and
  development program without interruption prior to
  receipt of final permits

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Debt Finance For Geothermal
Construction Lending

• What needs be to be in place?
• PPA
• EPC contract
• confirmation of long lead time equipment
  reservations
• Equity Contribution of 20
• Independent engineers report
• All regulatory and environmental permits
• Resource verification report
• Transmission rights and interconnection agreement
• Drilling commitments
• Take out financing

• What will facilities look like?
• 2 3 year facilities
• Tax Equity likely to limit number of combined
  construction / term loan facilities
• Upfront Fees 1.25 - 1.50
• LIBOR Spread 125 175 bp
• Commitment Fees 37.5 50.0 bp
• Full security package - perfected first priority
  liens in
• all contracts PPA, insurances, etc
• all equity ownership interest of borrower and
  subsidiaries
• all present and future property and assets
• all proceeds and products of the property and
  assets
• necessary consents
• Standard covenants

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Debt Finance For Geothermal
Project Financing

• Traditional project finance debt likely to take a
  back seat to Tax Equity
• Construction Lending / Project Finance have been
  relatively insulated from recent credit market
  dislocation
• Private Placement / 144A bond markets will be
  competitive vs. bank market
• Long reserve life, base-load nature is very
  attractive to bond market
• more open to long weighted average lives
• Average DSCRs in the 1.50x range
• Reserve Accounts
• 6 month Debt Service Reserve Account
• Operating and Maintenance Reserve Accounts
• Potential to add extra leverage through HoldCo
  or subordinated tranche
• demand for sub tranches less insulated from
  credit turmoil

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United States Geothermal Energy
Debt Financing for Geothermal
Geothermal Resources Council 2007 Annual
Meeting October 1, 2007

• Market Report
• September 2007