competitive solar energy & finance solutions seminar for the gcc solar finance dubai - april 14,...
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Competitive Solar Energy & Finance Solutions Seminar for the GCC
Solar Finance
Dubai - April 14, 2014Alberto Pisanti Managing Partner & CEO
2
Background for Investing / Financing Solar PV Project
The Solar Business Model in Europe – Lessons learned
The Solar Business Model in the GCC – Expected evolution
Structuring a PV Project
Skills needed to succeed in this market
Agenda
Investment Merits of Solar PV
Proven technology
3
Comfortable risk profile
Stable and predictable cash flows
Weak correlation with Equities
Upside potential
Solar PV plants can count on: very limited development and construction risks no price risk, as feed-in-tariff / PPA are stable for 20+ years limited volume risk thanks to (i) priority of dispatch of 100% of electricity produced, (ii) low volatility of
irradiation in the long term and (iii) operational simplicity and stability
Sector has extremely low operational risk with leading EPC and O&M operators guaranteeing performance/ yields and insurance companies covering all other risks
Low / No correlation with the Equity markets
Important upside potential from operational improvements, revamping, concession renewal (>20yrs)
Solar PV is a mature technology today with almost 100 GW installed and operational worldwide Sector has achieved critical mass and is well along the experience curve Operational risks are limited while operational improvements are still underway Solar Irradiation has very low volatility especially in the long term
Cash
Fixed income
Infra assets
Equities
Source: Lazard AM
Ret
urn
Risk
Private Equity
Solar PV represent a very attractive and flexible solution for different investment styles…
…and is now becoming a New Asset Class tailored on the Institutional Investor needs
4
Positioning Solar PV Investments in the Risk/Rewards Pyramid
SPECULATIVE
Development, E&P, Venture Capital, Derivatives
Gem stones, Art, Metals
GROWTH
Equity (Direct Investments), Growth Stocks, Real Estate (construction), Non Regulated Businesses,
Sub-Investment Grade Bonds / Debt
SECURE / INCOME INSTRUMENTS
Conservative Equities (Regulated Businesses), Preferred Stocks, Investment Grade Corporate Bonds/Debt ,
Municipal Bonds, Convertible Securities
CASH AND CASH EQUIVALENTS
Cash, Government Bonds (Investment Grade), Money Markets Funds, Life insurance, Pension Plans, Term Deposits, Saving Accounts
Risk
Lower
Highe
r
Potential Reward
Higher
Lower
$
$$
$$$
?
?
?
Capital Availability
PV Risk / Attractiveness Drivers: Mature vs Developing Markets
Economic and demographic outlook
Growth in electricity demand
Existing electric generation capacity
Transmission grid infrastructure
Energy mix
Level of renewable resources
Availability of fossil fuel resources
Presence of renewable energy targets
Status of REn legal and regulatory framework
Availability of land
Financial sector, market depth and thickness
Economic and demographic outlook
Growth in electricity demand
Existing electric generation capacity
Transmission grid infrastructure
Energy mix
Level of renewable resources
Availability of fossil fuel resources
Presence of renewable energy targets
Status of REn legal and regulatory framework
Availability of land
Financial sector, market depth and thickness
M D
- +M = Mature markets D = Developing economies
M D
M D
M D
M D
M/D
D M
D M
M D
D M
Degree of Attractiveness for PV Investments
D M
EXIT
6
PV development to date in Europe
Main drivers
Climate change
Energy security
Political support (carbon reduction targets, occupational goals…)
Climate change
Energy security
Political support (carbon reduction targets, occupational goals…)
Countries Developed countries, mainly Europe Developed countries, mainly Europe
Model
Bottom-up
Disorderly development
Evolving support schemes ie changing FiTs to track cost evolution
Bottom-up
Disorderly development
Evolving support schemes ie changing FiTs to track cost evolution
Finance Disorder = Risk = Equity (vs. Debt)
Financial crisis further crunched Debt
Disorder = Risk = Equity (vs. Debt)
Financial crisis further crunched Debt
OPERATIONS CONSTRUCTIONDEVELOPMENT
FULL EQUITY MAINLY EQUITY Industrial players EPCs with
guaranteed off-takes
EPCs on-balance sheet
BANK FINANCING Project Finance Leasing
PORTFOLIO REFINANCING Project Finance BondsASSET CLASS FOR INSTITUTIONAL INVESTORSIPO/ YIELD COs
Debt often unavailable or took too long to structure generating FiT risk
Mainly policy driven with little economic sense
Exit
The Solar PV Project Life Cycle in Europe
Portfolio ofOperating Assets
OperationalUnder construction
Fully PermittedReady to build
Pre- consent
Solar PV investment cycleSolar PV investment cycle
€ €€€
25%+ 15-20% 8-15% 10% 7-10%
€ €
There is a significant change in risk and resulting yield compression progressing along the life cycle of renewable energy projects from development to operation
There is a significant change in risk and resulting yield compression progressing along the life cycle of renewable energy projects from development to operation
Capital Availability
Capital Availability
Value Creation* (IRR unlevered)
Value Creation* (IRR unlevered)
7
* Values are ball park figures based on investments carried out in Italy 2009-12
Relatively new technology Smaller scale projects – many developers Scarcity of debt available
2x
Very high arbitrage opportunities resulting in very interesting investment multiples
Entry and Exits of Main Solar PV Actors in Europe
8
Final Off takers:• Pension Funds• Insurance Co• Capital mkts
Consolidators:• Industrial players• PE Funds• Infra Funds
Developers
Bridge Capital Providers: EPC Tech Suppliers/ Manufacturers Industrial players Financial players
ExitPortfolio ofOperating Assets
OperationalUnder construction
Fully PermittedReady to build
Pre- consent
PV Risk / Attractiveness Drivers in the GCC
= GCC
- +Degree of Attractiveness for PV Investments
Economic and demographic outlook
Growth in electricity demand
Existing electric generation capacity
Transmission grid infrastructure
Energy mix
Level of renewable resources
Availability of fossil fuel resources
Presence of renewable energy targets
Status of REn legal and regulatory framework
Availability of land
Financial sector, market depth and thickness
Economic and demographic outlook
Growth in electricity demand
Existing electric generation capacity
Transmission grid infrastructure
Energy mix
Level of renewable resources
Availability of fossil fuel resources
Presence of renewable energy targets
Status of REn legal and regulatory framework
Availability of land
Financial sector, market depth and thickness
Sunbelt region with high opportunity cost of fossil fuels
10
PV development envisageable in the GCC
Main drivers
Technology driven cost reductions
Abundant resource availability
Economic development and occupational targets
Peak oil
Technology driven cost reductions
Abundant resource availability
Economic development and occupational targets
Peak oil
Countries GCC region GCC region
Model
Top-down
Structured and rapid development (tender processes...)
PPA based (no incentives, greater sustainability)
Top-down
Structured and rapid development (tender processes...)
PPA based (no incentives, greater sustainability)
Finance Order = Risk = Debt (vs. Equity)
Plenty of capital available also from Gov. and Multilateral agencies
Order = Risk = Debt (vs. Equity)
Plenty of capital available also from Gov. and Multilateral agencies
EQUITY MAINLY DEBTFavored by: clear timing PPAs Experience and
resulting lower construction risk
EXIT OPERATIONS CONSTRUCTIONDEVELOPMENT
MAINLY TO INSTITUTIONAL, LOCAL OR INTERNATIONAL, FINANCIAL INVESTORSThrough debt-like instruments (vs. equity): Pension funds Insurance Co’s
Large strategic and economic sense
Plenty of Debt available in the form of highly leveraged structures where equity control remains firmly in the hands of strategic local investors
Exit
The Solar PV Project Life Cycle in the GCC
Portfolio ofOperating Assets
OperationalUnder construction
Fully PermittedReady to build
Pre- consent
Solar PV investment cycleSolar PV investment cycle
€ €€€€ €Capital Availability
Capital Availability
Value Creation* (IRR unlevered)
Value Creation* (IRR unlevered)
11
* Values are ball park figures based on investments carried out in Italy 2009-12
7-10%10%25%+ 15-20% 8-15%
Market evolution – no longer an “experiment”
Larger Tender processes vs small developments
Consolidation along the value chain
Larger scale play from the outset – developers and construction players may coincide
Value creation in the development will be lower and higher in the LT holding to be aligned to the Region’s IRR targets
???
Exit multiples will be dependent on the ability to attract Local and International Institutional Investors / Debt providers with reduced IRR targets and appetite for cheaper debt/quasi-equity instruments
Entry and Exits of Main Solar PV Actors in the GCC
12
Final Off takers:• Pension Funds• Insurance Co• Capital mkts
Consolidators:• Industrial players• PE Funds• Infra Funds
Bridge Capital Providers: EPC Tech Suppliers/ Manufacturers Industrial players Financial players
ExitPortfolio ofOperating Assets
OperationalUnder construction
Fully PermittedReady to build
Pre- consent
Developers / Construction companies
13
SINGLE ASSET SALE
TRADE SALE
CONTRIBUTION TO MUTUAL FUND
PLAIN VANILLA IPO
YIELD CO’s
SUKUK
Multiple Investment Exit Options
Great opportunity to leverage,
extract all equity,
while maintaining firm control of
the assets
14
Structuring a PV Project
Project Finance Lenders
Senior loan
Local Developer/Investor
EPC contractor
O&M operator
EPC contract
PPA with State owned entity or
Private
Electricity saleO&M contract
Insurance company
Insurance contract
Solar SPVSolar SPV
15
Solar Operating Company or
Consolidated Operating Portfolio
Solar Operating Company or
Consolidated Operating Portfolio
Local Developer/Investor
PPA with State owned entity or
Private
1
Structuring a PV Project – Development/Construction/Consolidation
16
Solar Operating Company or
Consolidated Operating Portfolio
Solar Operating Company or
Consolidated Operating Portfolio
Local Developer/Inve
stor
PPA with State owned entity or
Private
Local Developer/Investor
2
Solar Operating Company or
Consolidated Operating Portfolio
Solar Operating Company or
Consolidated Operating Portfolio
PPA with State owned entity or
Private
In time, restructure equity
ownership through emission
of debt-like instruments
(or yield co. type floating)
with full or partial exit
mainly of “non-strategic”
shareholder/s
Structuring a PV Project – Capital Restructuring
17
Solar Operating Company or
Consolidated Operating Portfolio
Solar Operating Company or
Consolidated Operating Portfolio
Local Developer/Inve
stor
PPA with State owned entity or
Private
Local Developer/Inve
stor
Solar Operating Company or
Consolidated Operating Portfolio
Solar Operating Company or
Consolidated Operating Portfolio
PPA with State owned entity or
Private
3
Solar Operating Company or
Consolidated Operating Portfolio
Solar Operating Company or
Consolidated Operating Portfolio
PPA with State owned entity or
Private
Local Developer/Investor
Diffused ownership on Capital Markets
Diffused ownership on Capital Markets
Structuring a PV Project – final ownership structure
18
Solar Operating Company or
Consolidated Operating Portfolio
Solar Operating Company or
Consolidated Operating Portfolio
Local Developer/Inve
stor
PPA with State owned entity or
Private
Local Developer/Inve
stor
Solar Operating Company or
Consolidated Operating Portfolio
Solar Operating Company or
Consolidated Operating Portfolio
PPA with State owned entity or
Private
3 bis
Solar Operating Company or
Consolidated Operating Portfolio
Solar Operating Company or
Consolidated Operating Portfolio
PPA with State owned entity or
Private
Local Developer/Investor
Diffused ownership on Capital Markets
Diffused ownership on Capital Markets Diffused ownership
of equity
or
of debt
Bond/ bond-like debt with diffused underwriting
Bond/ bond-like debt with diffused underwriting
Structuring a PV Project – final ownership structure
19
Skills needed to Succeed in this Arena
Skills along the entire investment value chain
Experience and flexibility to ensure rapid time-to-market in development phases once market rules have been set and capital is available to be employed
Know how - to be transferred locally - to ensure sustainability and growth (organic and through acquisitions) of operating portfolio
M&A capabilities to consolidate portfolio
Practice in professional plant management in order to realize upsides
Competence in financial structuring
Familiarity with international investment community
Awareness of strategic value of energy investments as best basis for dialogue with local authorities and guarantee of long-term success of investments in solar power production
Skills along the entire investment value chain
Experience and flexibility to ensure rapid time-to-market in development phases once market rules have been set and capital is available to be employed
Know how - to be transferred locally - to ensure sustainability and growth (organic and through acquisitions) of operating portfolio
M&A capabilities to consolidate portfolio
Practice in professional plant management in order to realize upsides
Competence in financial structuring
Familiarity with international investment community
Awareness of strategic value of energy investments as best basis for dialogue with local authorities and guarantee of long-term success of investments in solar power production
A shared entry to exit project vision
and partnership between capital
and competences
Alignment of interests in the long-
term
Successful partnership model with Local Partners
20
Local Partner
Strong origination and structuring capability
Centralised relationships with– Construction companies– Lenders– Technology Suppliers
(solar panels, etc)– Best-in-class legal and
technical advisors
Know how transfer of expertise to local developer with continuous interaction for best results
Ability to optimise the capital structure reducing the average cost
Site screening
Pipeline early development / Government access
Relationships with – local authorities – civil contractors– local environment
Local employees and on-the-ground experience
Combining a global
approach with a local reach
A Unique Platform to Invest in Renewable Energy «Bridging the Gap between Projects and Capital»
Alberto Pisanti Helen Mainardi Rosenthal
Managing partner & CEO Capital Raising & Investor Relations
Direct line: +44-207-036 9601 Direct line: +39-06-8967-1586
Absolute Energy Capital LLP Absolute Energy Servizi S.R.L.
100 Pall Mall Via Bertoloni 41
London SW1Y 5NQ 00197 - Rome
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