getting ad projects to a financial close

Getting AD Projects to Financial Close

Environmentally Focussed Investment

Michael Dunn Partner at Iona Capital

Contents• Overview:

• DECC Report June 2011• Political Direction & Financial Incentives

• Key Areas / Issues• Appropriate Waste Volumes


• Appropriate Waste Volumes• Site Selection• Technology Selection• JV Partnering• Financing• Sources of Finance• Summary of Issues

Overview: DECC Report June 2011

• Supply Chain – components such as CHP available, civils low risk, perhaps FX issues.

•• Planning/ Licence – low risk vehicle movements?• UK Grid – perhaps mitigate through site selection• Technical – Application to food and farm waste still new

in UK • Financing – difficult little senior debt


UK Anaerobic Digestion Annual Build Rate (MW/yr)

The Maximum Build Rate Plot is taken from the Study Report “Review of the generation costs and deployment potential of renewable electricity technologies in the UK “ published in June 2011


Overview: Political Directions & Financial Incentives

• The Government has set out its commitment to an expansion of the energy from waste through AD*

•• Government is working to ensure that the financial incentives available for AD, under the Renewables Obligation (RO), the Feed-in Tariffs (FITs) scheme, the renewable Heat Incentive (RHI) and the Renewable Transport Fuel Obligation (RTFO), will provide revenue support for investors*

*AD Strategy and Action Plan Published 14th June 2011


Key Areas/Issues

• Appropriate Waste Volumes / Contracts• Site which works for ROC’s / FITs and RHI’s?••• Suitable Technology• Business Plan • Securing Funding Lines


Appropriate Waste Volumes

• Food• ADS estimates 5 Mtpa available for AD• Local Authorities , supper markets, food processing.• Key is COUNTER PARTY risk – possible JV?• Key is COUNTER PARTY risk – possible JV?• Procurement time scales • Key is homogeneity of feed stock or at least matched to technology selection

• Agricultural• Order of magnitude bigger• Closed loop systems• Technology simpler more robust with track records• Funding a lot easier


Site Selection

• Planning risk should be low• Grid connection critical – may vary from £100k - £1m •

plus• Ability to capture RHI scheme is a bonus• Option on land:

• 15 – 25 year lease• Ground Conditions• Existing Use


Technology Selection

• Its not necessarily the technology with the best performance that is the most fundable.

• Look to reference sites – vital with any local authority • Look to reference sites – vital with any local authority procurements.

• Quality of , and willingness to provide, the technology guarantee.

• Does the guarantee extend into processing say 2years post hot commissioning?


JV Partnering

• May be expensive and difficult• Can align with complementary skill sets / experiencing to •

increase deal flow/ market credibility:• Technology provider looking for routes to market• Constructor looking for Projects• Operator with market knowledge looking for assets


Financing

• Security of supply agreement• Convincing on contamination through robustness of process• Input guarantees• Input guarantees• Both

• Turn Key Contracts• Parent company Guarantees – EPC and Operator,

Quality• Track record management and process


Summary Issues

• Judicious Site Selection• Choice of Partners – Technology, Turn Key Contractor •

or sub contractors and Operator • Securing Waste volumes which can be processed• Raising the Finance – PCG’s and Business Case


Useful Links

• Slides will be on the www.ionacapital.co.uk site.• DECC report••• Defra report• WRAP


About Myself

• Partner Iona Capital a specialist renewables PE house• Formerly MD of Shanks PFI investments and chairman of ELWA Ltd

– Board Director responsible for Cumbria PFI ( Ecodeco MBT soln).– Board Director responsible for Cumbria PFI ( Ecodeco MBT soln).• Previously Partner PKF LLP – responsible for waste and

renewables service line. Advised on Cambridgeshire PFI ( Donarbon), other clients include Veoila, Viridor, Global Renewables various start up AD co’s

• Group Strategy Director Amey Plc and Director Veoila Environmental (closed Hampshire Waste Services)