ETTC – Montreal August 2004

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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
IMPAXEquity Finance for Renewable EnergyETTC – MontrealAugust 2004Renewable Energy in EuropeA Broad Agenda£19,575,000Construction Finance for the Crystal Rig Wind FarmImpax advised Nordex on the restructuring of construction finance and operating period bank-bond for this 50MW wind projectEPR 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
  • 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
  • Appearances vs RealityRenewable Energyin Emerging MarketsInternational Mezzanine Finance$10 Million Deal with Nordic Hydropower and EDFGEF and IFC – Micro-finance for PVDeal 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
  • 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!
  • 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”
  • Developing Market Funding SourcesType of InvestmentExisting Funding ProgrammesPublic sector dealPrivate sector dealDebtWorld Bank (IBRD, IDA)Regional Development Banks (ADB)EIBGovernment Aid AgenciesDevelopment BanksEIB, IFCRegional Development BanksGovernment Aid AgenciesDevelopment Banks:Export credit agenciesKFW, FMO, JDA, etc. EquityNot applicable to public sector DEG, FMO and IFC *1]Few others except through funds(Frmer CDC – now private as “Actis”)GrantKfWGovernment Aid Ag’ys/Dev.’t BanksWorld BankKfWGovernment 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
  • 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”Global Renewable Energy Fund of FundsPresented at the World Conference for Renewable EnergyBonn, June 2004In Support Of The Johannesburg Renewable Energy CoalitionPublic – 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
  • 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!
  • Structure of PCI Fund of FundsThe 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
  • Prospective Carbon Credit Funding StructureThe 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
  • 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
  • Base Case Full Life Cycle Sources and Uses of FundsPCI Scenarios Altering Subfund Size, Number and PerformanceTime 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
  • Peter RossbachImpax Group plc Broughton House 6-8 Sackville Street London, W1S 3DG UKTel: +44 207 434 1122E-mail: Us Directly
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