PAN BALTIC RENEWABLES PORTFOLIO

The project comprises a portfolio of: - Seven solar photovoltaic (PV) plants, with capacities in the range of around 40- 270 megawatt peak (MWp), for a total capacity of around 880 MWp, located in Estonia (around 244 MWp), Latvia (around 553.5 MWp) and Lithuania (around 82.6 MWp). - Two hybrid plants including solar PV, onshore wind and a battery energy storage system (BESS) for a total capacity of around 106.4 MWp, 24 MWp and 31 megawatt hour (MWh) respectively, located in Lithuania. - A wind farm with a capacity of around 12 MW and BESS of around 12 MWh, located in Lithuania. The scope will include the ancillary infrastructure, like the interconnections to the grid and substations.

This operation consists of the construction and operation of new renewable energy plants that will contribute the achievement of the 2030 decarbonisation targets set out in the National Energy and Climate Plan (NECP) of Estonia, Latvia and Lithuania. The project is mostly located in Less Developed and Transition Regions. It is therefore eligible under Article 309 (a) projects for developing less-developed regions and (c) common interest.

The project is in line with the InvestEU objective of the development of the energy sector in accordance with the Energy Union priorities. It concerns the development and operation of solar PV plants, onshore wind farms and, to a lesser extent, Battery Energy Storage Systems in Latvia, Lithuania and Estonia. It will support the 2030 targets set out in the National Energy and Climate Plan of the three Member States.

The financing of this project also contributes to Bank's lending priority objectives on Energy (Renewable Energy), Climate Action (transversal) as well as Economic and Social Cohesion (transversal).

As the project will produce electricity from low carbon sources, it will address the market failure of negative climate and environmental externalities, through the reduction of carbon emissions and air pollution (compared to fossil-fuel generation).

The project is expected to rely on revenues from the wholesale market (through unsubsidised commercial power purchase agreements or day ahead market), thereby the project improves market efficiency and competition.

In terms of project results, the project is expected to have a positive economic rate of return, considering the economic value of the electricity generated. Therefore, the project is expected to deliver a positive broader social benefit by generating clean and renewable electricity at a cost reasonably below the alternatives in Lithuania. On project quality, the level of promoter's governance and risk management capability after mitigation measures is deemed to be acceptable.

The Bank's contribution will be most visible on the financial contribution side by accelerating the fundraising process and crowding in other financiers. The Bank will provide a meaningful part of the overall financing needs for this important project through a senior debt facility of up to 9 years aimed at getting the assets built and in operation. This type of loan with a balloon payment at the end of the tenor, with full merchant risk has been implemented on a Project Finance basis only in very limited number of transactions, in other markets than Baltics and with a shorter legal maturity to the one presented for this transaction. Currently, most commercial banks are still reluctant to offer such type of financing. The Bank provides expertise in structuring and lending to renewable energy projects, applying standard and well tested project finance principles. This will improve the structuring of the operation through close co-operation with the promoter and the commercial lenders. The project would not have been carried out (to the same extent) by the EIB without the InvestEU support.

The project is expected to contribute to Climate Action and Environmental Sustainability (CA&ES) objectives, in particular to climate change mitigation and pollution prevention and control.

The promoter has been assessed by the EIB as being a private company not being subject to EU rules on public procurement or concessions. However, if at the project appraisal, the EIB were to conclude that the promoter is subject to the EU public procurement legislation then the Bank would duly inform the Commission Services and would require the promoter to apply those rules. Main suppliers/contractors are not known yet at this stage of the appraisal.