luke panchal - ey - investing and financing in solar – the how and why

Investing and financing in solar

Presentation to the Large Scale Solar Conference

19 July 2016

Topics

► Global trends in renewables financing

► Recent activities and observable trends

► Relevance to solar projects in Australia

► What investors are looking for …

► Opportunities

► Policy environment

► Certainty

► Investment trends observed in Australia


Global trends in renewables financing


Size ► Too big or too small - not a barrier for the right project

Solar is very

investable

► Getting a track record

► Greater acceptance of solar as a risk class

Capital knows no

boundaries

► Moving away from markets where policy is shifting

► Moving toward non-traditional markets here

► Investors are nimble and shift country focus quickly with

any relative improvement/reduction in policy/opportunities

► Investors are facing a global opportunity set

Moving along the

value chain

► More parties willing to move into development as utility

returns come under pressure

Corporate PPAs ► Providing an alternative pathway for new projects –

especially in developed energy markets

Developed vs

developing markets

► Developing markets: Numerous opportunities coming

► Developed markets: switching to auction based schemes

Global trends – relevance to Australian Solar


Size ► Numerous projects large to small with scalabity

Solar is very

investable ► Need for financial support (ARENA) lessening over time

Capital knows no

boundaries

► Policy environment now conducive to renewables

investment

► Attracting the attention of many foreign equity investors

► Less aware of implied demand and breadth of

opportunities

Moving along the

value chain

► Some utilities moving into developments

► Others providing pathways for others to participate

Corporate PPAs ► Beginning to be investigated

► Need to find the right contractual mechanisms that work

Developed vs

developing markets

► As a developed market, offering a good mix of current

policy environment opportunities

How Australia has compared relatively


Australia, 10th

0

2

4

6

8

10

12

14

RE

CA

I R

an

kin

g

Renewable Energy Country Attractiveness Index Historical rankings

How Australia has compared relatively


Australia, 10th

UK, 13th

0

2

4

6

8

10

12

14

RE

CA

I R

an

kin

g

Renewable Energy Country Attractiveness Index Historical rankings

What are investors are looking for?


Demand/supply

balance

► Undersupplied market

► But with lots of opportunities

Yes – especially in northern

states

CER: 9,000MW in DA pipeline vs

6,000MW needed

Market

fundamentals

► Easy to understand

fundamentals

► Especially demand drivers for

renewables

Yes – clearly understandable

requirement for ~6,000+MW

Numerous government

procurement processes

underway

Certainty ► … from policy

► … from the market

? Policy certainty for about a year

now

? Still reliant on PPAs for

commodity price certainty

Secondary market

liquidity

► Ability to exit development to

long term capital

Yes – strong demand

? But “leakages” given Australian

tax regimes (stamp duty and

CGT)

What they want … Australian context

Demand/supply balance: Still lacking in many states


QLD

NSW

VIC

SA

TAS

WA

Operating large-scale renewable generators by region developed

since the RET

NEM States – Current Generation Mix

Demand/supply balance: Wind to date – but solar is growing fast


Wind turbine

Solar thermal

Solar PV

Geothermal

Bagasse

Biomass

Operating large-scale renewable generators by type developed since

the RET

LGCs by renewable energy source since 2011

0

50,000

100,000

150,000

200,000

250,000

201

1

201

2

201

3

201

4

201

5

Solar certificates validated

Source: Clean Energy Regulator 2015 RET Administrative Report and Annual Statement

Market fundamentals Policy that can be understood easily


► Underlying demand from

the RET target can be

understood easily by

investors

► A clear requirement for

~ 6,000 MW

Average Capacity Factors 30% 35% 40%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

An

nu

al G

Wh

tar

get

RET target (GWh per annum)

Incremental GWh required

Actual generation

Market fundamentals Plus State based programs adding demand


ACT

► 2013 – 40MW solar

► 2014/15 - 200MW wind

► 2015/16 - 200MW wind

► 2016 – 200MW+ Next Gen

renewables (underway)

100% by 2020 VIC

► City of Melbourne – 120 GWh

► State auction processes in development

25% by 2020 / 40% by 2025

WA

► Synergy, tendering for

up to 500,000 LGCs

(was placed on hold)

SA

► 481GWh in low carbon energy

(<400kg CO2 per MWh) for

government sites

50% by 2025

Federal

► CEFC $250m large

scale solar financing

program

► ARENA $100m solar

grants program

TAS

100% by 2020

QLD

► Ergon procuring 150MW+

► State government support

of 120MW for ARENA

selected projects

50% by 2030

NSW

► Sydney Metro process

► Other processes in early

preparatory stages

Certainty History of electricity and LGC prices


Electricity price history

LGC price history

► Accordingly, investors and

lenders have required revenue

certainty (PPAs) to take forward

development projects

► LGC price moving over

time from shifting policy

expectations

► Electricity market volatility

from market structure

Investment trends observed in Australian renewables


Range of investment

“models”

► Projects being taken forward under a range of contracting

models

Pre-PPA is more

acceptable, for the

right project

► Investors beginning to look to enter into developments at

the pre-PPA stage

► A way to circumvent the eventual “cost-of-capital shootout”

► Lots of opportunities for this audience

► However volume of capital still sits at post PPA

Inbound interest ► A large volume of capital looking to enter Australian

Renewables

Low cost capital

exists

► Some very low costs of capital observed in the Australian

market

► But do require the right project characteristics and

contractual terms

luke panchal - ey - investing and financing in solar – the how and why

Technology