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RES as a Growth Tool. By George Kofinakos Country Advisor > StormHarbour UK CEO > Enolia Premium Capital Luxemburg Vice Chairman > Enolia Energy. Contents. RES Globally RES in Greece Growth Barriers in Greece Overview of Policy Instruments for RES Action Plan & De-Risking Conclusion.

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RES as a Growth Tool


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res as a growth tool
RES as a Growth Tool
  • By George Kofinakos
  • Country Advisor > StormHarbour UK
  • CEO > Enolia Premium Capital Luxemburg
  • Vice Chairman > Enolia Energy
contents

Contents

RES Globally

RES in Greece

Growth Barriers in Greece

Overview of Policy Instruments for RES

Action Plan & De-Risking

Conclusion

global warming
Global Warming

World Average

No data

0

93.9 tonnes CO2e per capita

Industrialised Nations Average

Source: World Resources Institute.; DB research

Today’s atmospheric CO2 concentrations are higher than they have been for at least 900,000 years

  • Climate change is one of the greatest environmental, social and economic challenges the planet is facing
  • Global warming is evident from increases in global average air and ocean temperatures, widespread melting of snow and ice and rising global mean sea level
  • Concentration of CO2 in the atmosphere has increased by 30% from pre-industrial levels

Concentration in 2008: 385 ppm

Global CO2 emissions map

why is an active res policy valid globally
Why is an active RES Policy valid Globally?

This is a summary of some of the most important arguments for an active renewable energy promotion policy, valid for all countries, though to varying degrees:

The current level of renewable energy in most countries is even lower than would be economically efficient at today's market prices. As newcomers, renewable energy technologies (RET) face a series of market barriers

Many analysts are convinced that the long-term resource scarcity fossil energy faces is still not entirely priced-in. If current prices of fossil fuels reflected their scarcity correctly, RET would become more competitive

The prices of fossil fuels are highly volatile due to short-term changes and incidences in the world's energy markets. Renewables are generally local energies and, as such, provide diversification of the energy mix with a security premium. It is widely agreed that renewables should have a higher share for energy security reasons in the energy portfolio, particularly in oil and gas importing countries

The use of fossil fuels is, to varying degrees, damaging to thehuman health and the local environment. The reduction of these impacts by technical means increases the cost of fossil fuel use. Negative environmental effects (externalities) must be internalized, i.e. reflected in the energy price. All this improves the competitive position of renewable energy technologies

Renewable energy technologies offer prospects for a dynamic industrial policy. In industrialized economies plagued by unemployment and reduced growth perspectives, as well as in some developing countries, RET have proven to be an option of developing industries with a future

The deployment of RET in rural areas in developing countries offers opportunities for the use of local natural resources, employment, and ultimately institutional capacity.

overview of renewables in europe
Overview of Renewables in Europe

Renewable energy > 30 %

Renewable energy > 20 %

Renewable energy > 10 %

Renewable energy > 5 %

Renewable energy < 5 %

  • EU is developing a framework for the promotion of renewable energy sources for electricity generation; renewables are set to increase their contribution, reaching 20% of energy consumption by 2020
  • Such an ambitious target requires firm political support with regulation being the strongest tool towards meeting the objective
  • Each of the member-state governments has agreedto a target rate of renewable energy production and established feed-in tariffs or quota obligations as well as tradable certificates
  • A feed-in tariff is a regulated purchase price of electricity passed through to the consumer. Electricity utilities are obliged to buy renewable electricity through Power Purchase Agreements (PPAs) of 10 to 25 years
  • A Green Certificate is a tradable commodity proving that certain amount of electricity is generated from renewable sources and can be traded separately from the energy produced
sector themes and trends
Sector Themes and Trends

Worldwide Energy Consumption

  • Demand for electricity is growing faster than total energy production, hence many countries are expected to run supply deficits over the next decade; the trend applies predominantly to developing countries where electricity consumption is growing at a higher rate.
  • Electricity generation in Greece, Turkey, Romania and Bulgaria is expected to increase by c.40% over the next 10 years (from 380 TWh in 2008 to c.530 TWh in 2018):
    • Such an increase will entail significant generation capacity to be added to the system; Renewable energy has strong political support and will contribute to this increase.

Worldwide Renewables Investment

  • Europe has traditionally been on the forefront of renewables with notable success stories, including:
    • Germany
    • Denmark
    • Spain
  • Europe has policies in place and is committed to continue leading the sector.
  • Energy security, fossil fuel prices and environmental issues are the critical challenges for the global energy industry.

Annual worldwide clean technology investment

is expected to reach $450bn by 2012 and $600bn by 2020

global and local energy mix
Global and Local Energy Mix

Global Energy Mix

Greece’s Energy Mix

  • 0.2%
  • 27%
  • 10.6%
  • 20%
licencing procedure for res projects
Licencing Procedure for RES Projects

Investor

Applications are submitted in the 1st 10 days of even months

Installation

License

issued by

MEECC

or

Regional

General

Secretary

Application for Installation License

Relevant Authorities

Central Level

MEECC

Regional Level

Regional DDP

RAE

(Techno-economic evaluation/

Compatibility with the

National RES framework/

Capacity Availability)

Investor

HTSO(1)

Authorities

& County Council

Preliminary Connection Terms

Final

Connection

Terms

ETA

SEA /DRP

Production License

MEECC Notification

Submit EIA Study

Intervention approval

Forest Department

Investor

Application for intervention in forest area

Installation

Protocol

&

Building

Permit

HTSO(2)

Application for final Connection terms

MAA:Ministry of Agricultural Affairs

SEA:Special Environmental Authority

MEECC:Ministry of Environment, Energy and Climate Change

RAE : Regulatory Authority of Energy

HTSO:Hellenic Transmission System Operator

DDP : Direction of Development and Planning

DRP :Direction of Regional Planning

EIA : Environmental Impact Assessment

ETA : Environmental Terms Approval

slide19

(as of September 2011)

  • RES Licence Evolution in Greece
quick assessment of the greek energy market
Quick assessment of the Greek Energy market

The assessment of the current state of Greece's energy sector is rather devastating ("high energy consumption, low fuel efficiency, low labor and capital productivity and an expensive energy mix characterize the Greek energy sector"). Consequently, the sector should be turned around to offer significant potential. Action should be taken in the form of the following steps:

  • Improving energy efficiency - streamline energy consumption mainly in buildings and transportation (adjustment and increased specificity of relevant standards; effective incentive schemes; parametric and progressive electricity pricing)
  • Boosting productivity- revisit regulatory framework; consider 'price and cap' system; fuel efficiency of plants; labour and capital productivity
  • Optimizing energy mix- develop National Energy Strategy
  • Increasing 'extroversion' and sector impact- leverage up on geographical position of Greece (hub for gas?); involvement of Greek players in regional infrastructure and power generation projects
growth barriers in greece the usual suspects
Growth barriers in Greece:the Usual Suspects
  • Investments in scale discouraged

fragmentation and small scale of business across sectors - over regulation of markets and professions - complex and restrictive licensing and operating processes - lack of integrated and systemic zoning and real estate planning - highly complex and volatile tax framework

  • Large and inefficient public sector

large, expensive public sector with low quality outputs - lack of mechanism to inject market -sourced management and technical talent

  • Rigid and narrow use of human resources

low rates in youth and female employment - binding and inflexible collective agreements - disconnection between market and education

  • Cumbersome legal and judicial system

overabundance of laws sometimes conflicting - heavy administrative burden in courts, resulting to long lead times

  • Widespread informality

extensive tax evasion - substantial wealth from the black economy

fiscal incentives
Fiscal Incentives

investment tax credits

production tax credits

reductions in sales,

energy, carbon, excise, VAT

annual income tax credit based on the amount invested or the amount of electricity generated

reduction in taxes on the purchase (or production) of renewable energy technologies

  • Focus on cost reductions and improvement of the relative competitiveness of RE Technologies in given markets

capital grants - third-party finance - investment tax credits - property tax exemptions - production tax credits - sales tax rebates - exercise tax exemptions

  • Capital subsidy, grant or rebate

one-time payments by the government to cover a percentage of the capital cost of an investment

  • Tax incentives
  • Energy production payment

direct payment from the government per unit of renewable energy produced

public financing
Public Financing
  • awards contracts for
  • construction
  • operation
  • fixed quantities of renewable capacity

assists funding distribution for

  • implementation
  • infrastructure development

Public Investment, Loans, Grants

Public Competitive Bidding

regulatory policies
Regulatory Policies

Institutional Development

Transportation Fuel

Electricity Generation

Price-guaranteeing regulatory policies

Market share-ensuring regulatory policies

corrective action plan i
Corrective Action Plan (I)

Launch awareness campaigns on energy efficiency benefits, costs of buildings and transportation

Create a Stock-Exchange RIC for RES or establish a Local Fund specialized in RES with Government Guarantees

Exploit Renewable Energy Hubs all over Greece with existent licenses and supportive framework ready to be constructed by Investors

Revisit incentives for retrofits (e.g. tax rebates instead of subsidies)

Accelerate the implementation of financially viable island interconnections to reduce costs and emissions

Investigate the viability to locally manufacture renewable energy parts and equipment

Create Supportive Policy and Institutional Frameworks

Promote Private Sector Involvement

Level the Playing Field

slide30

Corrective Action Plan (II)

Nurture Micro-Enterprise

Build Projects Around Local Needs and Capacities

Use structural funds and framework programmes better

Increase use of funds from the European Investment Bank and other public finance institutions

Improve access to Risk Capital

Coordinate Community and National funding and other forms of support

Upgrade Smart Grid

Support Helios Project as a strategic investment

Interconnect Universities with RES business to provide technical resources

Prioritize high local renewable investors

slide31

Most RES technologies have high risk and long-term return

  • De-risking Renewable Energy

Risk is a key parameter in explaining the difficulties of RES technology and projects when accessing capital due to the specific risk/return ratio for RES projects. To reduce financing risks, access to low-cost finance should be increased through an extended use of –sometime innovative- measures.

The mitigated risk scenarios in these cases indicate that the annual consumer expenditures can be reduced by 50%.

reduction of cost of capital
Reduction of cost of Capital

Reducing the cost of capital will result in lower consumer expenditures and an accelerated uptake of RES. The main approach is to reduce risk at all stages in the project lifecycle, via:

Ensuring a long-term commitment towards renewable energy

Removing deployment barriers

Sharing risk via improved financial instruments

e.g. government loan guarantees and/or project participation

increasing public finance participation in projects ppp
Increasing public finance participation in projects (PPP)

The benefits of a pro-active and participating government are manifold and have a significant impact on the access to capital and its costs:

  • Government participation can provide a significant amount of capital

in either equity, (subordinated) debt, or mezzanine finance form

  • Cost of capital would be significantly reduced

by bringing down the regulatory risk

  • Project financing would be achieved more easily and at a lower cost

the percentage of project initiatives to be actually realized would increase - this would strengthen the confidence of the market

  • Windfall profits would be avoided or reduced

via government participation, part of these profits flow back to the treasury

  • Supporting policies could be developed

through the better insight obtained of the challenges and barriers the market is facing, the government could develop a policy e.g. for mobilizing the industry supply chain

  • A state-owned entity can be a safeguard for ensuring a stable renewable energy policy
increase the access to low cost finance
Increase the Accessto low-cost finance
  • Stability, transparency and coordination

The appropriateness of financial instruments is highly dependent on technology or the project’s development stage. Current perceptions indicate that access to finance can be enhanced by innovative public-private approaches for equity provision to technology developers, and on guarantee mechanisms for project developers

  • Multiplier effect

Some innovative instruments such as guarantees or mezzanine funds can have a significant multiplier effect as they contribute to cover technical and political risks (certainty for investors). From the perspective of debt and equity providers, there are no one-size-fits-all solutions, but rather a mix of instruments that will be appropriate to specific levels of maturity of technologies or projects, and to various country-specific contexts

conclusion
Conclusion

Greece clearly has the potential (Solar, Wind, Water)

of becoming the Saudi Arabia for Renewables in Europe.

To achieve this goal, it only needs

Political Commitment

and a

National Strategy

slide37

This documentation is provided on an individual basis and is strictly confidential; it should not be distributed, published or reproduced, in whole or in part and may not be considered as a public offer. The contents of this document are strictly indicative and for discussion purposes only. Under no circumstances does it represent an offer of sale or a request of subscription and does not constitute the sole base on which the investment decision is made. The only record between the parties is the final documentation, issued or signed for subscription to the investment.

Although the information contained in the documentation comes from sources that ENOLIA INVESTMENT PARTNERS Sàrl considers reliable, ENOLIA INVESTMENT PARTNERS Sàrl does not guarantee expressly or implicitly, nor does it accept any responsibility for the exhaustiveness, reliability or exactitude of the information provided in this document.

Each interested investor shall be responsible for carrying out his own examination and consulting, if necessary, his own legal advisors in order to evaluate, in respect to his personal situation, the appropriateness of an investment in the ENOLIA PREMIUM CAPITAL SIF, S.C.A. (“the Fund”). The investor’s attention is drawn to the fact that the tax treatment that will be applied to investment in the Fund depends on his particular circumstances and may change. Therefore it is recommended that each investor consult with his tax advisor. An investment in the Fund is subject to having read and understood the Offering Document of the Fund which describes in detail the rights and obligations of each investor; this is available on request from the head office of ENOLIA INVESTMENT PARTNERS Sàrl.

Investment in the Fund is not being advised by the official Luxembourg Authorities and these authorities have neither approved nor confirmed the information contained in this document.

More specially, the attention of potential investors is drawn to the risks associated with this investment, which are detailed in the Offering Document and it is strongly recommended that each potential investor consult this Document.

Past yields of similar investments are no indication of future returns on investments that the Fund will carry out, as past performance is no guarantee of future results.

Some legal, tax, or regulatory changes may occur during the life of the Fund, and may have an unfavourable effect on the performance of the Fund. The investment in the shares of the Fund is not publicly traded and no secondary market exists. The Fund’s success will depend on the skills and competence of the ENOLIA INVESTMENT PARTNERS team, particularly on its ability to identify, select and acquire suitable assets, but future market conditions could also be a determining factor.

There is no guarantee that the Fund s targeted returns will be achieved. Hence, potential investor must form his own on the risks of this investment opportunity prior to taking the decision to invest in the Fund.

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