Presentation Transcript

1. Competitive Solar Energy & Finance Solutions Seminar for the GCCSolar Finance

   Dubai - April 14, 2014 Alberto Pisanti Managing Partner & CEO
2. Agenda Background for Investing / Financing Solar PV Project The Solar Business Model in Europe – Lessons learned The Solar Business Model in the GCC – Expected evolution Structuring a PV Project Skills needed to succeed in this market
3. Investment Merits of Solar PV Proven technology Solar PV is a maturetechnology today with almost 100 GW installed and operational worldwide Sector has achieved critical massand is well along the experience curve Operational risks are limited while operational improvements are still underway Solar Irradiation has very low volatility especially in the long term Solar PV plants can count on: very limited development and construction risks no price risk, as feed-in-tariff / PPA are stable for 20+ years limited volume risk thanks to (i) priority of dispatch of 100% of electricity produced, (ii) low volatility of irradiation in the long term and (iii) operational simplicity and stability Sector has extremely low operational risk with leading EPC and O&M operators guaranteeing performance/ yields and insurance companies covering all other risks Low / No correlation with the Equity markets Important upside potential from operational improvements, revamping, concession renewal (>20yrs) Comfortable risk profile Stable and predictable cash flows Weak correlation with Equities Upside potential Return Equities Infra assets Fixed income Cash Risk Source: Lazard AM Private Equity Solar PV represent a very attractive and flexible solution for different investment styles… …and is now becoming a New Asset Class tailored on the Institutional Investor needs
4. Positioning Solar PV Investments in the Risk/RewardsPyramid Capital Availability Higher $ SPECULATIVE Development, E&P, Venture Capital, Derivatives Gem stones, Art, Metals Higher $$ GROWTH Equity (Direct Investments), Growth Stocks, Real Estate (construction), Non Regulated Businesses, Sub-Investment Grade Bonds / Debt SECURE / INCOME INSTRUMENTS Conservative Equities (Regulated Businesses), Preferred Stocks, Investment Grade Corporate Bonds/Debt , Municipal Bonds, Convertible Securities ? $$$ Potential Reward Risk CASH AND CASH EQUIVALENTS Cash, Government Bonds (Investment Grade), Money Markets Funds, Life insurance, Pension Plans, Term Deposits, Saving Accounts ? ? Lower Lower
5. PV Risk / AttractivenessDrivers: Mature vs DevelopingMarkets - Degree of Attractiveness for PV Investments + M D = Mature markets = Developingeconomies Economic and demographic outlook Growth in electricity demand Existing electric generation capacity Transmission grid infrastructure Energy mix Level of renewable resources Availability of fossil fuel resources Presence of renewable energy targets Status of REn legal and regulatory framework Availability of land Financial sector, market depth and thickness D M D M D M D M D M M/D D M M D M D D M M D
6. PV development to date in Europe Main drivers Climate change Energy security Political support (carbon reduction targets, occupational goals…) Countries Developed countries, mainly Europe Mainly policy driven with little economic sense Model Bottom-up Disorderly development Evolving support schemes iechanging FiTs to track cost evolution Finance Disorder = Risk = Equity (vs. Debt) Financial crisis further crunched Debt DEVELOPMENT CONSTRUCTION OPERATIONS EXIT Debt often unavailable or took too long to structure generating FiT risk FULL EQUITY MAINLY EQUITY Industrial players EPCs with guaranteed off-takes EPCs on-balance sheet BANK FINANCING Project Finance Leasing PORTFOLIO REFINANCING Project Finance Bonds ASSET CLASS FOR INSTITUTIONAL INVESTORS IPO/ YIELD COs
7. TheSolar PV Project Life Cycle in Europe There is a significant change in risk and resulting yield compression progressing along the life cycle of renewable energy projects from development to operation Solar PV investment cycle Pre- consent Fully Permitted Ready to build Under construction Operational Portfolio of Operating Assets Exit Capital Availability € € €€€ € Value Creation* (IRR unlevered) 25%+ 15-20% 8-15% 10% 7-10% 2x * Values are ball park figures based on investments carried out in Italy 2009-12 Relatively new technology Smaller scale projects – many developers Scarcity of debt available Very high arbitrage opportunities resulting in very interesting investment multiples
8. Entry and Exits of Main Solar PV Actors in Europe Pre- consent Fully Permitted Ready to build Under construction Operational Portfolio of Operating Assets Exit Developers Bridge Capital Providers: EPC Tech Suppliers/ Manufacturers Industrial players Financial players Consolidators: Industrial players PE Funds Infra Funds Final Off takers: Pension Funds Insurance Co Capital mkts
9. PV Risk / Attractiveness Drivers in the GCC - Degree of Attractiveness for PV Investments + = GCC Economic and demographic outlook Growth in electricity demand Existing electric generation capacity Transmission grid infrastructure Energy mix Level of renewable resources Availability of fossil fuel resources Presence of renewable energy targets Status of REn legal and regulatory framework Availability of land Financial sector, market depth and thickness Sunbelt region with high opportunity cost of fossil fuels
10. PV development envisageable in the GCC Main drivers Technology driven cost reductions Abundant resource availability Economic development and occupational targets Peak oil Countries GCC region Large strategic and economic sense Model Top-down Structured and rapid development (tender processes...) PPA based (no incentives, greater sustainability) Finance Order = Risk = Debt (vs. Equity) Plenty of capital available also from Gov. and Multilateral agencies DEVELOPMENT CONSTRUCTION OPERATIONS EXIT Plenty of Debt available in the form of highly leveraged structures where equity control remains firmly in the hands of strategic local investors EQUITY MAINLY DEBT Favored by: clear timing PPAs Experience and resulting lower construction risk MAINLY TO INSTITUTIONAL, LOCAL OR INTERNATIONAL, FINANCIAL INVESTORS Through debt-like instruments (vs. equity): Pension funds Insurance Co’s
11. The Solar PV Project Life Cycle in the GCC Solar PV investment cycle Pre- consent Fully Permitted Ready to build Under construction Operational Portfolio of Operating Assets Exit Capital Availability € € €€€ € ??? Value Creation* (IRR unlevered) 25%+ 15-20% 8-15% 10% 7-10% * Values are ball park figures based on investments carried out in Italy 2009-12 Market evolution – no longer an “experiment” Larger Tender processes vs small developments Consolidation along the value chain Larger scale play from the outset – developers and construction players may coincide Value creation in the development will be lower and higher in the LT holding to be aligned to the Region’s IRR targets Exit multiples will be dependent on the ability to attract Local and International Institutional Investors / Debt providers with reduced IRR targets and appetite for cheaper debt/quasi-equity instruments
12. Entry and Exits of Main Solar PV Actors in the GCC Pre- consent Fully Permitted Ready to build Under construction Operational Portfolio of Operating Assets Exit Developers / Construction companies Bridge Capital Providers: EPC Tech Suppliers/ Manufacturers Industrial players Financial players Consolidators: Industrial players PE Funds Infra Funds Final Off takers: Pension Funds Insurance Co Capital mkts
13. Multiple InvestmentExit Options SINGLE ASSET SALE TRADE SALE CONTRIBUTION TO MUTUAL FUND PLAIN VANILLA IPO YIELD CO’s SUKUK Great opportunity to leverage, extract all equity, while maintaining firm control of the assets
14. Structuring a PV Project Local Developer/Investor EPC contractor EPC contract O&M operator PPA with State owned entity or Private Solar SPV Electricity sale O&M contract Insurance company Insurance contract Senior loan Project Finance Lenders
15. Structuring a PV Project – Development/Construction/Consolidation 1 Local Developer/Investor Solar Operating Company or Consolidated Operating Portfolio PPA with State owned entity or Private
16. Structuring a PV Project – Capital Restructuring 2 Local Developer/Investor Local Developer/Investor In time, restructure equity ownership through emission of debt-like instruments (or yield co. type floating) with full or partial exit mainly of “non-strategic” shareholder/s Solar Operating Company or Consolidated Operating Portfolio Solar Operating Company or Consolidated Operating Portfolio PPA with State owned entity or Private PPA with State owned entity or Private
17. Structuring a PV Project – final ownership structure 3 Local Developer/Investor Diffused ownership on Capital Markets Local Developer/Investor Local Developer/Investor Solar Operating Company or Consolidated Operating Portfolio Solar Operating Company or Consolidated Operating Portfolio Solar Operating Company or Consolidated Operating Portfolio PPA with State owned entity or Private PPA with State owned entity or Private PPA with State owned entity or Private
18. Structuring a PV Project – final ownership structure 3 bis Local Developer/Investor Diffused ownership on Capital Markets Local Developer/Investor Local Developer/Investor Diffused ownership of equity or of debt Bond/ bond-like debt with diffused underwriting Solar Operating Company or Consolidated Operating Portfolio Solar Operating Company or Consolidated Operating Portfolio Solar Operating Company or Consolidated Operating Portfolio PPA with State owned entity or Private PPA with State owned entity or Private PPA with State owned entity or Private
19. Skills needed to Succeed in this Arena A shared entry to exit project vision and partnership between capital and competences Skills along the entire investment value chain Experience and flexibility to ensure rapid time-to-market in development phases once market rules have been set and capital is available to be employed Know how - to be transferred locally - to ensure sustainability and growth (organic and through acquisitions) of operating portfolio M&A capabilities to consolidate portfolio Practice in professional plant management in order to realize upsides Competence in financial structuring Familiarity with international investment community Awareness of strategic value of energy investments as best basis for dialogue with local authorities and guarantee of long-term success of investments in solar power production Alignment of interests in the long-term
20. Successful partnership model with Local Partners Local Partner Strong origination and structuring capability Centralised relationships with Construction companies Lenders Technology Suppliers (solar panels, etc) Best-in-class legal and technical advisors Know how transfer of expertise to local developer with continuous interaction for best results Ability to optimise the capital structure reducing the average cost Site screening Pipeline early development / Government access Relationships with local authorities civil contractors local environment Local employees and on-the-ground experience Combining a global approach with a local reach
21. A Unique Platform to Invest in Renewable Energy «Bridging the Gap between Projects and Capital» Alberto PisantiHelen Mainardi Rosenthal Managing partner & CEO Capital Raising & Investor Relations Direct line:  +44-207-036 9601 Direct line:  +39-06-8967-1586 Absolute Energy Capital LLP Absolute Energy ServiziS.R.L. 100 Pall Mall Via Bertoloni 41 London SW1Y 5NQ00197 - Rome