knight capital - burges - financing renewables
DESCRIPTION
Financing RenewablesPresented by John Burges of Knight Capital at the Green Energy Act Finance Forum on Friday January 29, 2010For more information visit http://www.marsdd.com/greenenergyforumTRANSCRIPT
1
Knight Capital Group
!! Knight (NASDAQ: NITE) is one of the world’s leading financial services firms and has emerged as
a prominent part of the new Wall Street
!! Knight’s most important resource is our people; we employ over 1,000 professionals at 24
locations in the United States, Europe and Asia
!! Our business model integrates our resources enabling our investor and issuer clients direct
access and robust execution across all asset classes and in all of our capital markets activities
!! We offer high-quality trade executions through natural liquidity, capital facilitation when
necessary, and trading technology
!! Knight’s Capital Markets Group provides investment banking services and access to our many
resources for our corporate clients
Origination Sales & Trading Research
!! Originate, structure and market a range of
equity and fixed-income securities
including high-yield, high-grade and
convertible; provide related capital
structure advisory services
!! Core competencies include capital markets,
structuring, analytical support, new
product development, and rating agency
analysis
!! Knight has one of the largest and most
experienced institutional sales trading and
block trading teams in the world
!! Knight is the #1 market marker in NYSE,
NASDAQ CM, NASDAQ GM AND NASDAQ GSM
securities
!! Knight knows thousands of domestic and
international institutional investors
!! Equity Market Strategic Research offers
perspective on global markets and strategic
insight
!! Fixed Income Research takes a analytical,
fundamental “bottoms-up” approach to
issuer’s entire capital structure
!! Senior analysts have an average of over 17
years of experience in the industry
!! The team covers 80% of high yield and
distressed universe
2
Knight’s Sales & Trading Capabilities
!! Knight is the #1 market maker in NYSE securities, with 17.25% total volume YTD
!! Knight is the #1 market maker in NASDAQ CM securities, with 47.71% total volume YTD
!! Knight is the #1 market maker in NASDAQ GM securities, with 42.16% total volume YTD
!! Knight is the #1 market maker in NASDAQ GSM securities, with 18.06% total volume YTD
Source: AutEx/BlockData FY2009
Global Sales Office Locations
3
Knight is the Market Leader in Cleantech Equity Trading
Share volume in (1/1/2009 – 12/31/2009)
Source: AutEx Blockdata advertised US trade volume
#1 in Volume
4
What Does Our Trading Share Mean to Capital Markets?
We track institutional buy and sell activity and generate
real time insight for our capital markets team
The best intelligence on the “new” Wall Street
Capital market targeting and placement is
significantly more efficient and cost effective
5
6
Follow the Money
Source: Capital IQ
Total Revenue (!)
Market Cap at Year End (!)
7
Debt Financing for Projects is the bulk of Investment
Asset Finance for Renewable Projects are 80% of capital – 70-80% debt financed
8
PV Capital Requirements: Who Finances?
Source: Good Energies
9
Renewable Energy Policies Matter
10
Solar Markets: Germany vs. California
Sources: CPUC, CEC, SEIA and German equivalents.
Germany added 10 times more solar than California last year even though California’s solar resource is about 70% better
Cu
mu
lati
ve
MW
s
11
The Holy Grail for attracting Capital
!! Regulatory stability
!! Avoid stop/start; no cap
!! Simplicity
!! Federal vs. State vs. IOU vs. Muni
!! Numerous variations
!! Barriers to entry – for capital and business
!! Predictable cashflows from selling power
!! Guaranteed transmission access
!! Must take contracts
!! Long term contracts to match long term assets
!! Reasonable Returns across different projects
!! Technology, size
!! Expedited Permitting
…the US share of worldwide solar shrunk to 5%
12
Source: Gary Gerber, President of CalSEIA and Sun Light & Power, Jun09
Typical Germany paperwork for one project Typical California paperwork for one project
Could be a 1kW-sized project, but maximum
1MW (via CSI program). Even more paperwork
for California projects larger than 1MW (via RPS
program).
Could be a 1kW or 20MW-sized project, or bigger.
Frictional Costs add 10% on the ratepayer for California projects vs. German ones
Parasitic Transaction Costs & Parasitic Transaction Time are Near-Zero
13
Global Financial Meltdown
!! Exacerbated winners from losers
!! Less tax capacity & capital available by institutional investors
!! Federal tax credits were becoming “worthless”
!! Equity supply dries up; returns increase
!! Fewer renewable energy projects
!! ~3,000 MW less wind farms installed in US in ’09 vs. ’08
!! Loss of 38,000 “green collar” jobs
Warren Buffet: “When the tide goes out you can see who has been
swimming naked”
14
Shortfall in Tax Equity
Source – GE Energy Financial Services
15
NREL Research Findings
!! Countries with FITs:
!! Have highest RE deployment
!! Have highest job creation; highest economist
benefits tied to industry, manufacturing &
services
!! Have counter-intuitively delivered lower-cost RE
generation than countries employing
“competitive” policies like the RPS & RO in the UK
16
FITS vs. Alternative Policies
Wind power deployment in the EU:
Source: EUROSTAT, 2008; NREL, 2008
17
NREL Findings - RE Policy & Cost
* Electricity price + Tradable Green Certificate (i.e. REC)
Source: BMU 2008; ISI, 2008; Fouquet, D. et al., 2008
FITs
RPS +
RECs
18
NREL - FITS vs. RPS on Cost
Source: OPTRES, 2007; NREL 2009
" NREL Research finding that FITs offer better value for money
19
How Does Ontario’s RE Policy Compare?
Ontario has the best RE policies in the Western Hemisphere
20
Investment Return for ON FIT
Yield to worst for Independent Power Producers
Implied Debt Costs
Source: Bloomberg, Knight as of 01/25/10
Notes: MIR: Mirant Corp, NRG: NRG Energy, RRI: Reliant Energy
Source: Bloomberg, Knight as of 01/25/10
Notes: ONT: Province of Ontario, FPL: FPL Group
Yield to worst for Electric Utilities
MIR: 9.1%
NRG: 8.4%
RRI: 8.2%
FPL: 4.9%
ONT: 4.2%
!! Investment appetite has returned – HY index has improved from 20% to ~ 8-9%; bank appetite remains restrained
!! The FIT must take obligation from OPA (100% owned by the Province of Ontario) provides a stable source of cash
flows for FIT projects and makes them financeable
!! Province of Ontario’s (Corp rating: Aa1/AA-) bonds are trading at 4.2%; similar regulated US utilities trade
within 100bps risk premium Treasuries
!! FPL Group’s (Corp rating: A2/A) bonds are trading at 4.9%; US IPP’s long term bonds are trading between 8%
to 9%
!! Project Finance debt spreads for RE projects 300-350bps for all in costs 6.5-7%; cost of debt not the issue
21
Ontario Projected IRRs
OPA targeted 11% levered IRR
OPA targeted 11% levered IRR
22
Attractive Post Tax Levered Equity IRR Returns
Solar Ground Mounted (Installed $4.20-5.60)
Wind Onshore (Installed $2.50-3.20)
Scotia Capital Research
23
Conclusion
!! Investment is fungible – it will flow to the best risk weighted returns
!!Without debt financing RE isn’t scalable
!! High IRRs are healthy but based on European experience show flexibility
!! Get organized to protect FITs; articulate benefits
Investors will pay a premium for liquidity – Knight is the leading
provider of equity liquidity
24
Contact Information
Corporate Headquarters
545 Washington Blvd Jersey City, NJ 07310
New York City – ECM Headquarters
405 Lexington Ave, 46th Fl New York, NY 10017
Greenwich, CT – DCM
Headquarters 1 Greenwich Office Park South
2nd Floor Greenwich, CT 06831
Capital Markets Office Locations
Capital Markets Contact Information
Please contact John Burges for Clean Tech and Energy inquiries:
212-479-7498