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ETTC – Montreal August 2004

I M P A X Equity Finance for Renewable Energy ETTC – Montreal August 2004 Renewable Energy in Europe A Broad Agenda £19,575,000 Construction Finance for the Crystal Rig Wind Farm

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ETTC – Montreal August 2004

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  1. I M P A X Equity Finance for Renewable Energy ETTC – Montreal August 2004

  2. Renewable Energy in Europe

  3. A Broad Agenda £19,575,000 Construction Finance for the Crystal Rig Wind Farm Impax advised Nordex on the restructuring of construction finance and operating period bank-bond for this 50MW wind project EPR Ely Ltd. Financial adviser to the Crown Estate’s Round 2 offshore windfarm lease bid evaluations for award of lease options for up to 7.2GW of capacity. £ 60 million Project finance for a 31 MW straw-fired power station • Onshore wind • Offshore Wind • Biomass • Portfolio Refinancings • Etc.

  4. Lessons in Europe • Regulation is key to Renewable Energy Tariffs/Businesses • - Debt oriented tariffs = Germany, Spain, Denmark, Italy CIP 6 • - Equity oriented tariffs = UK ROCs, Italy CVs • Project Debt Is Widely Available • - Skills in the banking sector - familiarity with regulatory issues • - Capital allocated by banks - even post Basel 2! • Returns are “Infrastructure Returns” • - 12%-18% IRR is proven to be acceptable to institutions • - 5%-12% IRR plus tax breaks was briefly a retail product where capital markets were reasonably developed

  5. Appearances vs Reality

  6. Renewable Energyin Emerging Markets

  7. International Mezzanine Finance $10 Million Deal with Nordic Hydropower and EDF

  8. GEF and IFC – Micro-finance for PV Deal Example: Barclays Bank of Kenya Barclays Bank of Kenya co-invests with PVMTI to provide loans to multiple Kenyan Savings and Credit Co-Operatives (“SACCO’s”) in partnership with KUSCCO, an umbrella organisation representing over 1,500 SACCO’s. SACCO’s will on-lend funds to their members to purchase PV systems, which will be supplied by Solagen and other quality PV companies.

  9. Lessons in Emerging Markets • Government Regulation is key to Renewable Energy Tariffs • - Tariffs may be new, changing or not widely available • Project Debt Is Less Widely Available • - Skills exist in the banking sector • - Regulatory support not as developed • - Capital allocations vary - country debt risk ratings, etc. • Returns are “Infrastructure Returns” and less! • - 12%-18% IRR less proven to be acceptable to institutions given additional risks • - 5%-12% IRR not acceptable to traditional investors

  10. Bridging the Market – Grant Gap! • Technology Transfer • Applications – not R&D • Long term, market forces are more sustainable • Regulation can support investment • Applications Require Private Funding: • IRR levels create “market funding gap” • ODA funds: • Country Co-financing – process is heavy as you know! • Even risk being drawn into “debt relief” debate • Largely focussed on non-energy issues • May need to be given more “leverage and efficiency”

  11. Developing Market Funding Sources Type of Investment Existing Funding Programmes Public sector deal Private sector deal Debt World Bank (IBRD, IDA) Regional Development Banks (ADB) EIB Government Aid Agencies Development Banks EIB, IFC Regional Development Banks Government Aid Agencies Development Banks: Export credit agencies KFW, FMO, JDA, etc. Equity Not applicable to public sector DEG, FMO and IFC *1] Few others except through funds (Frmer CDC – now private as “Actis”) Grant KfW Government Aid Ag’ys/Dev.’t Banks World Bank KfW Government Aid Ag’ys/Dev.’t Banks: Economic Cooperation Funding [1]* DEG, FMO and IFC usually invest in minimums of €5-15 million, not in smaller deals.

  12. Key Issues Addressed by the PCI • Technology Transfer • Applications – not R&D • Only market forces are sustainable long term • Regulation can support investment • ODA funds: • Miss the Energy-Poverty Link • Need to recognise the oil bill impact = debt bill impact • May need to be given more “leverage and efficiency” • Points remain: • IRR levels create “market funding gap”

  13. “Patient Capital Initiative” Global Renewable Energy Fund of Funds Presented at the World Conference for Renewable Energy Bonn, June 2004 In Support Of The Johannesburg Renewable Energy Coalition

  14. Public – Private Partnership Process • 2003 - Private Sector Informs Public Sector (JREC context) • Expert Group meetings and high-level political discussion • Equity “Funding Gap” Defined • Patient Capital Initiative Emerges • 2004 - Public Sector Engages Private Sector to Address Issues EC Feasibility Study of Patient Capital Initiative • Expert group meetings • Financial and market feasibility review • Public presentations/consultations • 2005-2006 - Public Sector invests in Public-Private Partnership • Subject to private sector co-investment - leverage • Requiring private sector execution skills

  15. Basics of the PCI Fund of Funds • Outsourcing what is most economically done by others • Policy guidelines in force • Private sector executes what policy investors cannot achieve directly • Separation of Strategic and Operational Roles • Policy controls retained – Top Level Role • Investment Identification and Execution on the ground • Bring in Other Sources of Funds • Leverage – commercial and other co-investment funds multiply funds committed by the PCI – at both the subfund level and the investee company level • IRR Buy-down • “subordination terms” of patient capital!

  16. Structure of PCI Fund of Funds

  17. The PCI = A One Stop Shop • Co-funding for Local / Regional Subfunds • Invest with local institutions • Invest with local experts on the ground • On “subordinated terms” – “first in, last out” • Funding for Carbon Credit purchase • Funding for Technical Assistance

  18. Prospective Carbon Credit Funding Structure

  19. The PCI - What and Where? • Funding for Specialist subfunds • Regionally Specialised = Africa, AOSIS, LA, etc. • SME and technology specialist options for the subfunds • Solicitation Process • Market changes, one cannot prejudge “best opportunity” • Subfund proposal solicitations • Where (policy), How much (leverage), Patience (Deal Terms)

  20. Operational Structure of the Fund of Funds • Investment Remit: Approves investments based on policy and economic criteria • Policy remit: Oversees fund activities (and may include an audit subcommittee) • Communicates official Fund instructions and reports to outside parties and investors

  21. Base Case Full Life Cycle Sources and Uses of Funds

  22. PCI Scenarios Altering Subfund Size, Number and Performance

  23. Time Frames • Project launch -- January 2004 • Bonn – June 2004 • Draft Feasibility Study of “Patient Capital” Vehicle • Deal Flow to Substantiate the Investment Agenda • Vehicle structure reviewed with Stakeholders • Final Feasibility Analysis – September 2004 • Report socialised with stakeholders • Fund-raising for the Fund of Funds • Subfund Solicitations in 2005-2006 • Investments on the Ground – Late 2006 Target

  24. Peter Rossbach Impax Group plc Broughton House 6-8 Sackville Street London, W1S 3DG UK Tel: +44 207 434 1122 E-mail: p.rossbach@impax.co.uk Contact Us Directly

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