Competitive Solar Energy & Finance Solutions Seminar for the GCC
Solar Finance
Alberto Pisanti
Managing Partner & CEO
Dubai - April 14, 2014
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
2
Investment Merits of Solar PV




Comfortable
risk profile

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)
Stable and
predictable
cash flows
Weak
correlation
with Equities
Upside
potential
Solar PV is a mature technology today with almost 100 GW installed and operational worldwide
Sector has achieved critical mass and 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
Return
Proven
technology
Private
Equity
Equities
Infra
assets
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
Fixed
income
Cash
Source: Lazard AM
Risk
3
Positioning Solar PV Investments in the Risk/Rewards Pyramid
Capital
Availability
$
SPECULATIVE
?
Development, E&P,
Venture Capital, Derivatives
Gem stones, Art, Metals
$$
GROWTH
?
Equity (Direct Investments), Growth Stocks,
Real Estate (construction), Non Regulated Businesses,
Sub-Investment Grade Bonds / Debt
SECURE / INCOME INSTRUMENTS
?
$$$
Conservative Equities (Regulated Businesses),
Preferred Stocks, Investment Grade Corporate Bonds/Debt ,
Municipal Bonds, Convertible Securities
CASH AND CASH EQUIVALENTS
Cash, Government Bonds (Investment Grade), Money Markets Funds, Life insurance,
Pension Plans, Term Deposits, Saving Accounts
4
PV Risk / Attractiveness Drivers: Mature vs Developing Markets
M = Mature markets
D
= Developing economies
-
Degree of Attractiveness for PV Investments
 Economic and demographic outlook
D
M
 Growth in electricity demand
M
D
 Existing electric generation capacity
M
D
 Transmission grid infrastructure
M
D
 Energy mix
D
M
 Level of renewable resources
M/D
 Availability of fossil fuel resources
D
 Presence of renewable energy targets
D
M
M
 Status of REn legal and regulatory framework
D
M
 Availability of land
M
D
 Financial sector, market depth and thickness
D
M
+
PV development to date in Europe
 Climate change
Main drivers
 Energy security
 Political support (carbon reduction targets, occupational goals…)
Countries
 Developed countries, mainly Europe
Mainly policy driven
with little economic
sense
 Bottom-up
Model
 Disorderly development
 Evolving support schemes ie changing FiTs to track cost evolution
Finance
 Disorder = Risk = Equity (vs. Debt)
 Financial crisis further crunched Debt
DEVELOPMENT
Debt often unavailable
or took too long to
structure
generating FiT risk
FULL EQUITY
CONSTRUCTION
MAINLY EQUITY
 Industrial players
 EPCs with
guaranteed offtakes
 EPCs on-balance
sheet
OPERATIONS
EXIT
BANK FINANCING
 Project Finance
 Leasing
PORTFOLIO REFINANCING
 Project Finance
 Bonds
ASSET CLASS FOR INSTITUTIONAL
INVESTORS
IPO/ YIELD COs
6
The Solar 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
Capital
Availability
€
Value Creation*
(IRR unlevered)
25%+
Fully Permitted
Ready to build
€
15-20%
Under
construction
Operational
€
8-15%
Portfolio of
Operating
Assets
Exit
€€€
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
7
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
8
PV Risk / Attractiveness Drivers in the GCC
-
= GCC
 Economic and demographic outlook
 Growth in electricity demand
 Existing electric generation capacity
 Transmission grid infrastructure
 Energy mix
 Level of renewable resources
Sunbelt region
with high
opportunity cost
of fossil fuels
 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
Degree of Attractiveness for PV Investments
+
PV development envisageable in the GCC
Main drivers
Countries




Technology driven cost reductions
Abundant resource availability
Economic development and occupational targets
Peak oil
 GCC region
Large strategic and
economic sense
 Top-down
Model
 Structured and rapid development (tender processes...)
 PPA based (no incentives, greater sustainability)
Finance
Plenty of Debt
available in the form
of highly leveraged
structures where
equity control remains
firmly in the hands of
strategic local
investors
 Order = Risk = Debt (vs. Equity)
 Plenty of capital available also from Gov. and Multilateral agencies
DEVELOPMENT
EQUITY
CONSTRUCTION
MAINLY DEBT
Favored by:
 clear timing
 PPAs
 Experience and
resulting lower
construction risk
OPERATIONS
EXIT
MAINLY TO INSTITUTIONAL,
LOCAL OR INTERNATIONAL,
FINANCIAL INVESTORS
Through debt-like instruments
(vs. equity):
 Pension funds
 Insurance Co’s
10
The Solar PV Project Life Cycle in the GCC
Solar PV investment cycle
Pre- consent
Capital
Availability
Fully Permitted
Ready to build
€
€
Under
construction
Operational
€
Portfolio of
Operating
Assets
Exit
€€€
???
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
11
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
12
Multiple Investment Exit Options

SINGLE ASSET SALE

TRADE SALE

CONTRIBUTION TO MUTUAL FUND

PLAIN VANILLA IPO

YIELD CO’s

SUKUK
13
Structuring a PV Project
Local
Developer/Investor
EPC contract
EPC contractor
O&M operator
Insurance
company
O&M contract
Insurance
contract
Electricity sale
Solar SPV
PPA with State
owned entity or
Private
Senior loan
Project Finance
Lenders
14
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
15
Structuring a PV Project – Capital Restructuring
2
Local
Local
Developer/Inve
Developer/Investor
stor
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
16
Structuring a PV Project – final ownership structure
3
Local
Local
Developer/Inve
Developer/Inve
stor stor
Local
Developer/Investor
Diffused ownership on
Capital Markets
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
17
Structuring a PV Project – final ownership structure
3 bis
Local
Local
Developer/Inve
Developer/Inve
stor stor
Local
Developer/Investor
Diffused ownership on
Capital Markets
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
18
Skills needed to Succeed in this Arena
 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
19
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
Site screening
Pipeline early development /
Government access
Combining a
global
approach with a
local reach
Relationships with
– local authorities
– civil contractors
– local environment
Local employees and onthe-ground experience
Ability to optimise the capital
structure reducing the average
cost
20
A Unique Platform to Invest in Renewable Energy
«Bridging the Gap between Projects and Capital»
Alberto Pisanti
Helen 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 Servizi S.R.L.
100 Pall Mall
Via Bertoloni 41
London SW1Y 5NQ
00197 - Rome