Reservoir Capital Corp.: Feasibility Study Completed for the Brodarevo 1&2 Hydroelectric Projects in Serbia
June 19 2012 - 7:00AM
Marketwired Canada
Reservoir Capital Corp. (TSX VENTURE:REO)(FRANKFURT:ROC)(BERLIN:ROC)
("Reservoir" or the "Company") is pleased to report that its independent
hydroelectric power consultant, Energoprojekt Hidroinzenjering Co. Ltd. ("EHC")
of Belgrade, Serbia, has completed a feasibility study for the Company's
Brodarevo 1 and Brodarevo 2 hydroelectric projects on the River Lim in southwest
Serbia.
Highlights of the feasibility study include:
-- Recommended increase in capacity from 58.4 megawatts ("MW") to 59.1 MW;
-- Projected output of 232.5 gigawatt hours per year ("GWh/year");
-- Capital cost of approximately EUR145.83 million;
-- Estimated after-tax equity internal rate of return ("IRR") of 24.04%;
and
-- Estimated after-tax levered net present value ("NPV") using a 10%
discount rate of EUR71.72 million.
Plant Design
EHC has recommended a capacity increase from the pre-feasibility of 58.4 MW to
59.1 MW, with a corresponding output of 232.5 GWh/year. The study has also
defined dam sites and provided recommendations for the design of the
hydroelectric power plants, as summarized in the table below:
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Water Gross Installed
Level Head Discharge Capacity Output
License Plant Site (m.a.s.l.(i)) (m) (m3/s) (MW) (GWh/year)
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Brodarevo 1 Junakovina 519 19.73 150 26.0 103.4
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Brodarevo 2 Lucice 488 24.70 150 33.1 129.1
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Total 59.1 232.5
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(i) metres above sea level
Capital Cost
Total capital cost of the project is estimated to be EUR145.83 million,
including EUR34.08 million related to the construction of 7.31 kilometres of new
road and tunnels on the M21 highway between Prijepolje and Bijelo Polje, where
it will be affected by the project.
The budgeted costs are set out in the following table:
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Hydro-
mecha- Mecha- Elect-
nical nical rical
Civil Equip- Equip- Equip- Prime Working
Works ment ment ment Costs Capital Total
License (EUR000) (EUR000) (EUR000) (EUR000) (EUR000) (EUR000) (EUR000)
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Brodarevo 1 19,134 5,184 8,151 12,250 26,358 711 71,787
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Brodarevo 2 23,806 4,911 8,787 11,813 23,993 733 74,043
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Total 42,940 10,095 16,938 24,063 50,351 1,444 145,830
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% of Total 29% 7% 12% 17% 35% 1% 100%
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Note: Capital expenditure estimates include contingencies of 8% on the
civil works, 5% on equipment and roads and 15% on the construction of
the road tunnels.
Timing and associated costs of the construction pursuant to the study are set
out in the table below:
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1st year 2nd year 3rd year 4th year Total
Type of Works (EUR000) (EUR000) (EUR000) (EUR000) (EUR000)
---------------------------------------------------------------------------
Civil Works 10,398 14,422 14,284 3,835 42,939
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Equipment 10,339 14,684 17,272 8,801 51,096
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Prime Costs 44,385 2,082 2,131 1,753 50,351
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Working Capital -- -- 733 711 1,444
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Total 65,122 31,188 34,420 15,100 145,830
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% of Total 45% 21% 24% 10% 100%
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Note: Anticipated construction time for Brodarevo 1 is 4 years, and
Brodarevo 2 is 3 years.
Electricity Sales & Operating Costs
The Brodarevo 1 and 2 projects have been included in the Italy-Serbia bilateral
agreement on renewable energy, whereby Serbia may export green energy into Italy
(see Company news release of February 7, 2012). Under the terms of this
agreement, all renewable energy produced by approved projects in Serbia and
exported to Italy will receive a guaranteed price of EUR155 per MW hour ("MWh")
for a 15-year term. For the purposes of the feasibility study, EHC has used a
more conservative net realized price of EUR147.5 per MWh to reflect costs
associated with transmitting the power from Serbia to Italy and assumed that the
projects will sell electricity into the regional Serbian market following the
initial 15-year term at a projected price of EUR80 per MWh.
EHC has estimated annual operating expenses of EUR1.1 million for Brodarevo 1
and EUR1.3 million for Brodarevo 2, for a total of EUR2.4 million per year or
EUR10.2 per MWh on average.
Financial Analysis
Based on EHC's assumptions and calculations, the after-tax unlevered IRR is
estimated to be 13.14% for Brodarevo 1, 16.79% for Brodarevo 2 and 15.07% for
the combined projects. The after-tax unlevered NPV of the combined projects at
an 8% discount rate is estimated to be EUR98.657 million, and at a 10% discount
rate is estimated to be EUR58.797 million.
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Unlevered After-Tax
Financial Metric Brodarevo 1 Brodarevo 2 Combined
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IRR 13.14% 16.79% 15.07%
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NPV @ 8% (EUR000) 34,507 63,869 98,657
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NPV @ 10% (EUR000) 17,441 41,215 58,797
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Reservoir anticipates 30% of the project capital will be financed by equity and
intends to obtain debt from a syndicate of lenders for the remaining 70%. For
the purposes of the feasibility study, the Company has assumed, based on
preliminary discussions with potential lenders, that the debt will have a
15-year term from initial drawdown and be subject to an annual interest rate of
6.5%.
Based on EHC's assumptions and the capital structure outlined above, the
after-tax equity internal rate of return for the combined projects is estimated
to be 24.04%. The after-tax levered NPV of the combined projects at an 8%
discount rate is estimated to be EUR101.20 million and at a 10% discount rate is
estimated to be EUR71.72 million.
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Levered After-Tax
Financial Metric IRR NPV @ 8% (EUR000) NPV @ 10% (EUR000)
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Combined 24.04% 101,202 71,725
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"We are very pleased to have reached this important milestone and encouraged
that the feasibility study projects a solid economic return on both Brodarevo 1
and 2," said Miljana Vidovic, President & CEO.
About Reservoir
Reservoir is a renewable energy company that is engaged in the development of a
59.1 MW hydroelectric project at Brodarevo in southwest Serbia. Reservoir holds
four geothermal exploration licenses in Serbia and has applied for three
hydroelectric concessions on the Cehotina River in Bosnia (17.75 MW).
Reservoir's common shares trade on the TSX Venture Exchange (symbol "REO") and
on the Frankfurt and Berlin Exchanges (symbol "ROC").
Cautionary Note regarding Forward-Looking Statements and Information
This news release contains forward-looking statements and factual information
that are current as of the date hereof. Forward-looking statements include, but
are not limited to, statements with respect to the timing and amount of
estimated future development activities and expenditures, requirements for
additional capital and financial performance based on, among other things,
assumptions about future economic conditions.
Forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Such
factors include, among others, risks related to actual results of project
development activities; changes in project parameters as plans continue to be
refined; the ability to enter into joint ventures or to acquire or dispose of
projects; future prices of electricity; accidents, labour disputes and other
risks of the power industry; ability to obtain financing; and delays in
obtaining governmental approvals.
For further information on Reservoir Capital Corp., please consult the Company's
website www.reservoircapitalcorp.com.
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