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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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Presentation Transcript
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I

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Equity Finance for Renewable Energy

ETTC – Montreal

August 2004

a broad agenda
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.
lessons in europe
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
international mezzanine finance
International Mezzanine Finance

$10 Million Deal with Nordic Hydropower and EDF

gef and ifc micro finance for pv
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.

lessons in emerging markets
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
bridging the market grant gap
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”
existing funding programmes
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.

key issues addressed by the pci
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”
patient capital initiative
“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

public private partnership process
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
basics of the pci fund of funds
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!
the pci a one stop shop
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
the pci what and where
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)
operational structure of the fund of funds
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
time frames
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
contact us directly
Peter Rossbach

Impax Group plc

Broughton House

6-8 Sackville Street

London, W1S 3DG

UK

Tel: +44 207 434 1122

E-mail: [email protected]

Contact Us Directly
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