matt daly - project financing approaches for utility-scale renewable energy

7/31/2019 Matt Daly - Project Financing Approaches for Utility-Scale Renewable Energy

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RENEWABLE ENERGY CORPORATION

Project Financing

Approaches for Utility-Scale RenewableEnergy

Matt DalyGeneral Manager, REC Solar Asia Pacific

ADB Asia Clean Energy Forum, Manila

June 7, 2012


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2 2011 REC All rights reserved. Confidential

Disclaimer

This Presentation includes and is based, inter alia, on forward-looking information and statements that are subject torisks and uncertainties that could cause actual results to differ. These statements and this Presentation are based on

current expectations, estimates and projections about global economic conditions, the economic conditions of theregions and industries that are major markets for REC ASA and REC ASAs (including subsidiaries and affiliates) lines ofbusiness. These expectations, estimates and projections are generally identifiable by statements containing words suchas expects, believes, estimates or similar expressions. Important factors that could cause actual results to differ

materially from those expectations include, among others, economic and market conditions in the geographic areas andindustries that are or will be major markets for RECs businesses, energy prices, market acceptance of new products

and services, changes in governmental regulations, interest rates, fluctuations in currency exchange rates and suchother factors as may be discussed from time to time in the Presentation. Although REC ASA believes that itsexpectations and the Presentation are based upon reasonable assumptions, it can give no assurance that those

expectations will be achieved or that the actual results will be as set out in the Presentation. REC ASA is making norepresentation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the Presentation, andneither REC ASA nor any of its directors, officers or employees will have any liability to you or any other personsresulting from your use.

This presentation was prepared for Clean Power Asia 2012 held on May 15, 2012. Information contained within will notbe updated. The following slides should be read and considered in connection with the information given orally duringthe presentation.

The REC shares have not been registered under the U.S. Securities Act of 1933, as amended (the "Act"), and may notbe offered or sold in the United States absent registration or an applicable exemption from the registration requirementsof the Act.


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About REC

Founded in Norway in 1996, REC is a leading

vertically integrated solar energy companyand employs more than 3,200 peopleworldwide

REC produces polysilicon, wafers, cells andmodules for the solar industry, and siliconmaterials for the electronics industry

REC is also engaged in project developmentactivities in selected PV segments

REC had revenues close to USD 2.4 billion in2011

REC is listed on the Oslo Stock Exchangeunder the ticker: REC


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Industry pioneer with commitment to PV

Presence throughout the entire value chain

World-class manufacturing facilities

REC an integrated company

Strong focus on operational excellence

Increased market presence throughpartners

Polysilicon Wafer Cells Modules Systems

Chemical process Casting and cutting Surface treatment Assembly Installation, additionalcomponents

Operations in USA Operations inSingapore

Operations inSingapore

Operations inSingapore


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Global manufacturing and sales footprint

Butte, MT, USA

Moses Lake,

WA, USA

San Luis Obispo,CA, USA Houston, TX, USA

Foster City, CA,USA (R&D)

Milan, ItalyMunich, GermanyParis, France

Barcelona, Spain

Oslo, Norway

Singapore

Shanghai, China

Tokyo, Japan

Taipei, Taiwan

REC sales offices

REC representative

office / sales support

REC R&D units

REC production facilities

REC headquarters


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Agenda

Maximizing The Income Stream

Reducing Capital Expenditure

Risk Mitigation For The Revenue Stream

Loan Guarantor GIEK


7/347 2011 REC All rights reserved. Confidential

Large scale projects require critical competence

Identify and securelocal developmentpartner / bid to tender

Secure all permits,building,environmental, grid

connection, etc.

Secure economics ofprojects, e.g., FIT,PPA, subsidies, etc

Perform due diligence

on the above

Assess financialattractiveness incl.yield analysis

Set up SPV anddevelop debt andequity , tax andinsurance structure

Identify equity sponsorsand start salesprocess

Build streamlined

financing processes

Design layout,

Perform cost calculationfor BOS and installation

Perform yield analysisand technical planning

Organize tenderprocess for EPC subcontractors andnegotiate contracts

Manage project ,

supervise site andcommission project

Manage closingprocedure of projectsinstalled + sold

Ensure sufficientfinancing for furtherdevelopment

Contract managementconcerning warrantiesand bank-guarantees

Monitor and Operate

Organize /outsourcelong-term services

Development or tendering

Finance / Legal / SaleEngineering and Construction

Own + Operate
http://www.pixmac.com/picture/green-fileds-of-young-cereal/000000378002http://www.pixmac.com/picture/numerals-and-finance/000010281181



Major contributing factors to PV project returns

IRR

COST OF FINANCE

- Interest rate

- Term of loan

- Loan guarantor

- Timing of repayments

MAXIMISE REVENUE STREAM

- High yielding equipment

- Optimised design

- Ongoing maintenance

- Minimising degradation rates

REDUCE COSTS- Reduce capital expenditureof equipment

- Maximise performance ratiovia equipment and design

- Efficient systems to limitoperating expenditure

- Incentives and subsidies

MITIGATION OF RISK

- Securing PPA- Technology selection

- System durability

- Service and support



REC panels installed in a power plant in Alicante, Spain.System size of 8 MW, powering 4 896 householdsRIGHT HERE IN ALICANTE

Maximizing The

Income Stream



How yield impacts project return

Al-BSF + Al

Assumptions: Site location in Perth, Australia with a Base yield of 1650kWh/m2/yr, Debt:Equity ratio of 70/30,

WACC of 11%, FiT of US$0.11/kWh and a CAPEX of US$2.70/W

Increases in yield can accelerate the project IRR in a non-linear fashion

PV modules are not a commodity! Project developers are prepared to pay a premiumfor higher yielding modules

There are inherent technical features of REC modules that enable higher yieldgeneration throughout the modules life

-10%

-7%

-3%

0%

5%

8%

11%

-15%

-10%

-5%

0%

5%

10%

15%

-10% -5% 0% 5% 10%

IRR

Yield

Change In Yield

Linear Reference

8%

6%



Module part load efficiency is extremely important

Al-BSF + Al

Every module will have a different efficiency curve

REC maintains high performance through all levels of irradiance

Source: REC efficiencies generated from TUV Rheinland test reports, Tier-1 and Poor-Si irradiation numbers havebeen recreated form electrical data using the one-diode model

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

102%

0 100 200 300 400 500 600 700 800 900 1000

RelativeEfficiency (%)

Irradiance (W/m2)

REC Tier 1 -Si Poor Si



Average irradiance levels highlight the STC deficiency

Al-BSF + Al

The STC nominal power rating is not the best indicator of expected performance

To make an appropriate assessment of a product special attention must be given to theefficiency level at the prevailing irradiance levels. Bangkok irradiance distribution showsthe importance of the curve



Average irradiance levels in APAC 300-600W/m2

The majority of Asia has average irradiance levels under 600W/m2 between

sunrise and sunset

If you are not sure of the low-light efficiency levels of a module, ask themanufacturer

A performance simulation used to underpin project finance should take thisfactor into account

Al-BSF + Al Sydney 408 W/m2

Dehli 500 W/m2Tokyo 320 W/m2

Manila 346 W/m2

Beijing 320 W/m2

Bangkok 403 W/m2

Jakarta 370 W/m2


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REC ranks as number 1 in yield

Photon test 2011: most recognized test comparing module brands under real

life conditions, over several years

Generated more electricity than all its 45 competitors,6% more than test average

Average irradiance in this region is approx 230W/m2


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Residential home with 61 REC solar panels installed in Monterey, California.Annual capacity: 19 435 kWh 13.1 tons of CO2 saved annuallyRIGHT HERE IN CALIFORNIA

Reducing CapitalExpenditure


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How a module can reduce capital expenditure

Reducing system cost is more involved than simply

reducing the cost price of the module ($/W)

Modules can influence the developed cost in thefollowing ways:

Increasing efficiency reduces land and mounting structurecosts

Increased reverse current rating reduces the amount offusing

A high maximum system voltage that minimises the amountof strings and protection devices

Cable length that minimises additional string cables

Innovative frame design that allows for rapid installation rates

Equipment accessories that streamline the installationprocess

Packaging that reduces waste or simplifies transportation

By-pass diodes used to minimise yield loss from shading

Antireflection coatings to maximise sunlight transmission

Availability to finance via ECA


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REC is reducing module cost at a high rate

Q1 2012 costs;

March run rate at 90 Eurocents/Watt

2012 cost reductions;

Increased average cell efficiency

Improved sourcing of materials

Improved operational performance,debottlenecking and higher equipmentavailability

Reduced fixed costs and economies ofscale in support functions

-27%

Q412

57

Q112

78

-39%

Q310

127

Singapore module cash cost

Eurocents/watt

target

Costs include SG&A, amortization, R&D, silicon atmarket price, cash production costs and excludesdepreciation


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Increasing yield performance reduces CAPEX

REC is known for its high performing yield throughout the world

As simulated in PVsyst, in Asia Pacific the advantage still exists, whichtranslates to real value

1,120

1,124

1,124

1,143

1,154

1,154

1,191

1,191

1,080 1,100 1,120 1,140 1,160 1,180 1,200

Sharp

Kyocera

Trina

JA Solar

SunTech

Yingli

Sanyo HIT

REC

Annual Yield (kWh/kWp)

Assumptions: Yield numbers generated in Pvsyst v5.51. Site location in Tokyo with a tilt of 28 degrees oriented due

South. Sunny Tripower 10000TL inverters and module specific values for NOCT, mismatch and module quality loss.


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REC can command a $/W premium based on yield alone

Translating the yield numbers into a project IRR calculation, the premium REC can justifyagainst the major competitors is evident

This premium will change depending on climatic and financial factors, however the clearpattern is that REC maintains a yield advantage that has translated to higher ASPs

Warranty, bankability and quality advantages will further extend the premium

Assumptions: Debt:Equity ratio of 70/30, Cost of Debt 2%, cost of equity 9%, FiT of JPY38/kWh and a project

lifetime of 25 years. System specific capital costs based on module efficiency and equivalent BoS costs

-$0.11

-$0.11

-$0.11

-$0.09

-$0.07

-$0.07

$0.00

$0.05

-$0.12 -$0.10 -$0.08 -$0.06 -$0.04 -$0.02 $0.00 $0.02 $0.04 $0.06

Sharp

Kyocera

Trina

JA Solar

SunTech

Yingli

REC

Sanyo HIT


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REC production plant, Tuas, SingaporeRIGHT HERE IN SINGAPORE

Risk Mitigation for

the Revenue Stream


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Durability tests to gain comfort in long-term performance

Most PV modules are warranted for a period of 25 years but few havebeen in the field for that time.

How REC guarantees the lifetime of its module:

Highly automated production facility

Complete quality control (machine, man, method & material)

ISO 9001, ISO14001 & OHSAS18001 Certified in Singapore Optional loading up to 5400Pa under IEC61215 (551kg/m2)

TUV Salt Mist Corrosion - Severity 6

TUV Ammonia Corrosion

Extended qualification beyond IEC (DHT, TC, HF)


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Industry leading linear warranty for REC modules

Module bankability is key criteria for solar

REC holds a strong reputation with banksin our active markets

25 year linear performance warranty

10 year product warranty

Maximum degradation rate of 0.7%


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Low customer claims provide evidence of quality

Reduced module power or plant downtime will adversely affect the financial

performance of a PV plant Faults can occur at periodic times throughout the life of a plant. Remoteness

and lack of access to adequately trained personnel can cause systems to havedowntimes of weeks or months.

One bad module can affect the performance of an entire string of sub-array

49

79

35

72

98

33

110

5779

90

34

97

0

50

100

150

200

250

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Claim PPM Acc PPM 2011 TargetPPM


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REC has a strong track record of proven performance

Pandit Deendayal Petroleum University in Gujarat, India

(7.61% Above Expectations)


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100kW REC Factory Rooftop, Tuas, Singapore

7.3%

4.3%

4.7%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%

Section 3

Section 2

Section 1

Energy Yield Compared to PVsystPrediction

Predicted

REC modules exceed expectations by deliveringbetween 4% to 7% more energy


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81.980.5

85.791.8

83.784.0

Freiburg582kW

Italy5.7MW

France5MW

Yield report

Actual

REC Systems Performance Ratio* Examples (%)

* The performance ratio (PR) describes the relationship between the actual and theoretical energy outputs of the PV plant. Low

conversion losses (glass reflection, temperature losses, transformer losses ...) are leading to a high PR.


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More Energy per M

Robust and Durable Design

Easy to Install

Energy Payback Time of One Year

Optimized for all Sunlight Conditions

The 5 Unique Selling Points of REC Modules


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Powerplant with REC Peak Energy modulesRIGHT HERE IN ITALY

Loan Guarantor

- Garanti-instituttet foreksportkreditt (GIEK)


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Who is GIEK?

GIEK is the Norwegian ECA (Export Credit Agency)Guarantees for Norwegian exporters on behalf of the Norwegian

Government

Buyer credit (export credit)

Supplier credit guarantees

Bond guarantees

Investment guarantees

GIEKs general guarantee framework EUR 15.5 bn

GIEK manages a portfolio of around EUR 10 bn (80% in the offshore

and maritime sectors)


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What are Commercial and Political Risks

Commercial risk:

Loss due to debtor becoming insolvent / going bankrupt

GIEK covers up to 70 90%

Political risk:

Loss due to conditions in the importing country: Confiscation, expropriation,nationalization, war or other agitation

GIEK covers up to 95 100 %


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GIEKs credit analysis

Pre-delivery risk

Performance risk EPC contractor

Credit evaluation debtor / sponsor

Cash Flow

Technical risk

Operation and maintenance risk

Legal due diligence of the underlying contracts, permits, licences, PPAetc

Political risk

Securities

Environmental impact / CSR


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Typical Financial Structure of a PV Installation

Courtesy of GIEK


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RENEWABLE ENERGY CORPORATION

THANK YOU

Contact:

Matt Daly

General [email protected]

The content of this presentation is strictly confidential. REC is the exclusive owner or licensee of the content, material, and information in this presentation. Any reproduction, publication or reprint, in whole or in part,is strictly prohibited. The information in this presentation may not be accurate, complete or up to date, and is provided without warranties or representations of any kind, either express or implied. REC, as well as its

directors, officers and employees, shall not be responsible for and disclaims any liability for any loss or damages, including without limitation, direct, indirect, incidental, consequential and special damages, alleged tohave been caused by or in connection with using and/or relying on the information contained in this presentation.

REC is the exclusive owner or licensee of the content, material, and information in this presentation. Any reproduction, publication or reprint, in whole or in part, is strictly prohibited. The information in thispresentation may not be accurate, complete or up to date, and is provided without warranties or representations of any kind, either express or implied. REC, as well as its directors, officers and employees, shall not

be responsible for and disclaims any liability for any loss or damages, including without limitation, direct, indirect, incidental, consequential and special damages, alleged to have been caused by or in connection withusing and/or relying on the information contained in this presentation.

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