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Highlight 2008: Supporting the Growth of Renewable Energy in Bulgaria

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Wind power generation in Kaliakra cape, Bulgaria

We contributed to the growth of regional wind power generation and the acquisition of emissions trading credits by Japanese firms.
— Mizuho supported the project through sophisticated financial technology.

Bulgaria is familiar to the Japanese as the source of a famous yogurt. Now thirty–five wind power generators have been built on Cape Kaliakra, which lies at the eastern end of the country on the coast of the Black Sea.

It is hoped that these facilities will play a major role in helping Bulgaria achieve its goal of supplying 16% of its total electricity consumption through renewable energy by 2020, in line with the commitment it made to reduce greenhouse gases when it joined the EU in January 2007.

Together with the Japan Bank for International Cooperation (JBIC), MHCB provided a syndicated loan*1 for a joint project between Mitsubishi Heavy Industries and a local firm in March 2007. The deal provided financial support for a landmark project that helped Japanese firms acquire emissions credits while contributing to the growth of renewable energy in Bulgaria. The wind power generation facilities for this project went into operation in June 2008.

  1. *1Syndicated loan
    Multiple financial institutions create a loan syndicate to meet finance needs by getting together to provide loans on common terms.

Joint Implementation (JI) Project between Japan and Bulgaria

MHCB and JBIC extended a syndicated loan totaling around EUR 37 million to Kaliakra Wind Power AD (KWP) for the funding of a wind power plant in Bulgaria. KWP was established jointly by Mitsubishi Heavy Industries and a local construction company, INOS.

KWP has applied this loan to the construction of a 35,000kW wind power generation plant on Cape Kaliakra on the Black Sea. The plant started operations in June 2008. It sells all the electricity it generates to Bulgaria's National Electricity Company (NEK), replacing some of the electricity supplied by existing power stations. In addition to reducing Bulgaria's CO2 emissions by an estimated 85,000 tons annually, it makes a major contribution to the country's commitment to promote use of renewable energy and improve energy independence.

An application has been submitted to recognize the project as a JI*2 deal between Japan and Bulgaria to reduce global warming, and if the approval comes through, the CO2 reductions will be recognized as emissions credits. Current plans call for the initial 35,000 tons' worth of emissions credits to be sold to Japan Carbon Finance, Ltd. (JCF), which was established under the leadership of JBIC. JCF will act in coordination with Japan GHG Reduction Fund (JGRF)*3 to help Japanese companies acquire the credits.


Opening Ceremony (July 25, 2008)

  1. *2JI: Joint Implementation
    Allows industrialized countries to earn emission reduction units (ERUs) from emission–reduction or emission removal projects in which they cooperate through foreign investments and technology transfers in other countries.
  2. *3Japan GHG Reduction Fund
    Established to purchase carbon credits arising from greenhouse gas reduction projects implemented in developing countries and elsewhere, and distribute the returns to investors. It is hoped that it will contribute to achieving the reduction targets stipulated in the Kyoto Protocol, or the voluntary action plans drawn up by the industrial sector.

Wind Power Generation Project Owned by Kaliakua Government


Extending Worldwide the Mechanism for Sharing the Benefits among All Project Participants

Assuming the project goes smoothly, the electricity generated by the clean energy will be distributed in Bulgaria while the Japanese firms participating in the project will earn profits on their investments and carbon credits, creating a win–win situation.

We believe this mechanism will serve as a model on which Japan can base its future participation in wind power generating projects around the world.

At the same time, the experience gained in supporting such projects through financial operations will be a major asset for Mizuho.

This is particularly true because it is the first project finance deal in eastern Europe to involve emissions trading. As such, it is expected to provide a firm foothold for expanding this business from western Europe, where the carbon credits market is steadily maturing, to eastern Europe.

Looking ahead, Mizuho will continue to accumulate know–how on emissions trading and will contribute to the growth of power generation using renewable energy sources around the world.


Participants in the Opening Ceremony

Manager's Comments


James MorrisEurope Structured Finance DivisionMizuho Corporate Bank

We Gained Invaluable Experience and Know–how as We Responded to the Risks Unique to Wind Power Generation

In serving as the sole commercial mandated lead arranger for this project finance deal, MHCB's prime focus was to minimize lenders' risk exposure while allocating risks so that JBIC, Mitsubishi Heavy Industries, Bulgarian companies, the Bulgarian government and other parties involved in the project could achieve their individual objectives.

More specifically, wind power generation projects involve several unique types of risk, including wind risk — the volatility of unpredictable wind speeds — and electricity tariff price risk — the possibility that electricity purchase prices can be affected by government policies. How to identify, analyze and mitigate these risks is therefore a major consideration.

As a result, we used our ingenuity to deal with wind risk, establishing reserves to deal with situations where the wind did not blow as expected, and adjusting repayment amounts on a seasonal basis to deal with seasonal variations in wind speeds. To deal with electricity tariff price risk, we structured long–term electricity sales contracts while carefully verifying the situation affecting electricity supplies in Bulgaria, as well as noting its commitment as part of an EU directive to increase the amount of electricity generated by renewable energy.

Drawing on the experience and know–how we have acquired through this project, we plan to extend our capabilities further, seeking additional business opportunities in the area of wind power generation deals moving forward.

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