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Renewable Energy ConferenceInvestors’ View on the Renewable Sector*080610
*connectedthinking
Investors’ View on the Renewable Sector with Some BusinessCases
• Increased interest in Cleantech• Some experiences from Sweden• Investment considerations• Conclusions
Section one
• Increased interest in Cleantech• Some experiences from Sweden• Investment considerations• Conclusions
Öhrlings PricewaterhouseCoopers
Cleantech can be defined as any product, service or process thatcreates efficiency gains that has a positive environmental impact
• 1980´s EnviroTech driven by regulatory decisions and “save the world” incentives• Late 1990´s Cleantech driven by economic decisions and a entrepreneurial mentality• Cleantech: Resource management through Resource Lifecycle
• Variety of Resources:- Water - Power- Fuels - Commodities- Material - Chemicals- Air - Emissions
• Affects most Industries:- Utilities - Agriculture- Chemicals - Consumer- Electronics - Service- Industrials - Transportation- Manufacturing
Increased interest in Cleantech
Öhrlings PricewaterhouseCoopers
There are four major driving market forces behind the expansionin cleantech
• Resource constraints- Energy supply and demand imbalances- Shortage of clean air, water and power- Aging power and water delivery infrastructure
• Global competition- Increasing focus on resources efficiency and cost of production- Corporate responsibility for product life LCA
• Tightening environmental regulation- Acceleration of global concern and government mandates- Public awareness and shareholder influence
• Technological advances- Ability to apply advances in other fields to resource constraints problems- Biotech, communication, advances materials etc
Increased interest in Cleantech
Öhrlings PricewaterhouseCoopers
EU has set ambitious targets on Renewable Energy that provideinvestment incentives
• EU sets targets of 20 % from Renewable Energy to 2020- Current level 6,5 %- an intended increase of > 200 % in 13 years!
• and EU leads the way in Initial Public Offering - 55 % of world value• 4 EU countries had 20 % or more Renewable energy use in 2004
Increased interest in Cleantech
> 20 %
Source: EU
Öhrlings PricewaterhouseCoopers
The projected major increase in biomass and wind are alsosignificant drivers of cleantech investment
• 130 % increase in Renewable used in electricity production- Significant increase projected in wind and biomass- Increase also in biogas, photovoltaics
• 80 % increase in biomass in heating• Biofuels the only large scale substitute for petrol and diesel in transport
Increased interest in Cleantech
Wind + 350 %
Solid biomass + 300 %
Source: EU
Öhrlings PricewaterhouseCoopers
As a result dramatic increase in Clean-Tech investments in 2006have been projected worldwide
• Cleantech investments exploded in 2006- 70 % relates to energy- air, water and waste still to come
Increased interest in Cleantech
Cleantech Venture Capital by Segment (2004-2006)*
-
0,50
1,00
1,50
2,00
2,50
2 004 2 005 2 006
Year
US
$bn
SustainabilityWasteWaterAirEnergy
*Source: The Cleantech Report, Lux Research Inc.www.luxresearchinc.com/cleantech
Öhrlings PricewaterhouseCoopers
…and Sweden is no exception
• Energy and environmental investmentshas increased 300 % last from Q4 2006to Q1 2007.
- but counts for only 4 % of totalinvestment
• 74 % of the venture capital companiessee “Cleantech” as the most interestingsector for future investments.
Increased interest in Cleantech
Cleantech Venture Capital InvestmentsGlobal and Sweden (2004-Q1 2007)
0
500
1000
1500
2000
2500
2004 2005 2006 Q1 2007US
$ m
illio
ns0
50
100
150
200
250
300
350
400
450
500
MSE
K
World Cleantech venture capitalSweden SVCA Energy&Environmental Tech
Öhrlings PricewaterhouseCoopers
….but despite some increase in investments the Europeancleantech sector still lags internationally
• But US leads the in venture capital – 72 % of world value
• …….and in patents issued – 46 %
• Where are the European Cleantech venture capital?- 40 % of European Cleantech investments from the UK – driven by
government support
• .. or where are the European Cleantech companies?- Possible signs of a bubble?
Increased interest in Cleantech
Section two
• Increased interest in Cleantech• Investment considerations• Some experiences from Sweden• Conclusions
Öhrlings PricewaterhouseCoopers
Renewable Energy Investment value drivers
• Cost of capital (WACC)
• - Market risk premium 4,5 %according to PwC poll March 2007
• Systematic risk, Beta 0,8 – 1,1
• Possible size premium
• Electricity future spot price
• Green certificate future price
• Bioenergy fuel market development
• Governmental regulations
Investment considerations
0
200
400
600
800
1000
1200
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
Spotpris Forwardpris PwC High PwC Middle PwC Low
0
50
100
150
200
250
300
350
400
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
Elcertifikat PwC High PwC Middle PwC Low
Section three
• Increased interest in Cleantech• Investment considerations• Experiences from Sweden• The Business Case• Conclusions
Öhrlings PricewaterhouseCoopers
The number of Cleantech companies have increaseddramatically since the early 1980s
Experiences from Sweden
• Cleantech – broad definition thatincludes several types of companies
• Cleantech not a new phenomenon –companies specialising in efficiency,cleaning, waste etc have existed for along time
• Since around 2000 correlation withOMX index noticable indicating anincreased interest from the capitalmarkets
New Cleantech Companies by Year and Sector
Consultancies
Recycling &WasteAgriculture
Production &industryMaterialAir &Environment
Water
Transport
Energy-efficiency
EnergyinfrastructureEnergy storage
Energyproduction
Öhrlings PricewaterhouseCoopers
CleanTech companies have now reached different levels ofmaturity
Noticeable Swedish Cleantech Companiesby expansion phase• Predominantly companies in energy
production and efficiency, andtransport in line with current prioritisedareas
• Two thirds are in start-up or growthphases
• Air & Environment only in growth andmature
• Least amount of firms in mature stage
Seed Start-up Growth Mature
Consultancies
Recycling & Waste
Production & industry
Material
Air & Environment
Water
Transport
Energy-efficiency
Energy infrastructure
Energy storage
Energy production
Experiences from Sweden
Section four
• Increased interest in Cleantech• Investment considerations• Experiences from Sweden• The Business Case• Conclusions
Öhrlings PricewaterhouseCoopers
Future electricity price dominant value driver for cleantechinvestments
• Case study:
• Investment in power productionbased on biofuels
• Cost of equity 8 %
• WACC 6,9 %
• Electricity price dominant valuedriver
• Fuel price also significant impacton value
The Business Case
-70%
-80%
-105%
-35% 31%
75%
23%
209%
Green certificateLow/High
Fuel price High/Low
ReinvestmentHigh/Low
Electricity priceLow/High
Sensitivity Analysis
Öhrlings PricewaterhouseCoopers
The sector offers great potential but also high risk
The Business Case
Scenarioanalysis of Investment in cleantech (Example)
-285 %
147 %
Base case "Worst case" "Best case"
Val
ue
Section five
• Increased interest in Cleantech• Investment considerations• Experiences from Sweden• The Business Case• Conclusions
Öhrlings PricewaterhouseCoopers
Investments in cleantech will increase based on the strongunderlying fundamentals but still some way to go
§ Cleantech is today a result of economic drivers andentrepreneurship
§ Strong economic fundamentals and moreconnected to the financial markets
§ EU sets ambitious targets on Renewable Energy
§ Major increase in biomass and wind are projected
§ US leads the in venture capital – EU a slow-starter
§ Dramatic increase in world Clean-Tech investmentsin 2006 where USA leads the way and Europefollower
§ Possible signs of increase in investments also inSweden
Conclusions
Öhrlings PricewaterhouseCoopers
Investments in cleantech will increase based on the strongunderlying fundamentals but still some way to go
§ Great underlying market potential incleantech§ However, market largely determined by
political decisions such as greencertificates and subsidies
§ Lack of seed capital during early investmentstage to date
§ Majority of investments in energy – wasteand water undercapitalised
§ Investment in power production based onbioenergy is heavily dependent on futureelectricity price
Conclusions
Thanks for Your Time!
Martin GaveliusDirectorSustainable Business [email protected]
Johan EricsonManagerEnergy & [email protected]
© 2004 Öhrlings PricewaterhouseCoopers Gruppen AB. Att mångfaldiga innehållet helt eller delvis ärförbjudet enligt lagen (1960:729) om upphovsrätt till litterära och konstnärliga verk. Förbudet gällervarje form av mångfaldigande genom tryckning, kopiering etc. *connectedthinking är ett varumärkeinom PricewaterhouseCoopers LLP.