Solar PV: Lenders Engineer                     Ben Lumby             Solar Team Leader    ben.lumby@sgurrenergy.com
Presentation Outline•   Introduction to SgurrEnergy•   Resource & energy yield•   Technology•   Completion risk•   EPC and...
SgurrEnergy•   Leading renewable energy consultancy•   Formed in 2002•   Joined Wood Group in 2010•   Global network of of...
Global track recordWe have consulted on over 65,000 MW of renewable energy in over 40countries covering both project devel...
ExperienceDue Diligence – Owner, Lender & Acquisition•   Acquisition due diligence for solar PV plant, Italy, 25 MW, 2012,...
Due Diligence- IntroductionThe due diligence phase of evaluating a project takes threemain forms:   1. Legal due diligence...
Project Stages  • Feasibility      – Solar Resource & Energy Yield  • Planning & Permitting  • Technical development      ...
Energy Yield Prediction Accuracy  • Losses     •   Shading     •   Soiling     •   AC/DC cable     •   Temperature     •  ...
Effect of Solar Resource on Energy Yield  • Power is approximately proportional to the plane of    array irradiance  • Unc...
Solar Resource Assessment • Require historical data close to site and over a long period   of time • Data sources typicall...
Solar Resource AssessmentWMO supervised base         Satellite derived datastations
Which Data are Most Representative? There is disparity between different information sources • 20 km from a WMO MET   stat...
Key Messages – Resource and Yield• Key to yield prediction is  quantification of resource• Use a variety of resource datas...
Resource and Yield– Common Mistakes• Only using one resource dataset• No assessment of inter-annual variability in resourc...
TechnologyModule Type:• Crystalline Silicon (mono or  multi)• Thin film (CdTe, a-si)Inverter Type:• Central Inverter• Stri...
Bankability of Modules Quality & Management Standards                                            Cell          Performance...
Technology risk- modules• Reliability Issues   –   Quick connector reliability   –   Corrosion   –   Improper insulation  ...
IEC Certification• Is IEC 61215 or 61646 proof that a  product is durable and reliable? No!• Not intended, or capable of  ...
Third Party Insurance • Module manufacturing industry currently in period of consolidation. • Ther is uncertain whether su...
Inverters• Temperature factors   – Derating   – Shutdown• Enclosure ratings   – Indoor / outdoor• Cooling   – Forced or na...
Bankability of Inverters                            Voltage Range          Product Warranty andEuro Efficiency            ...
Technology (2)Inverter Risks                   Module Risks• Temperature factors            •   IEC certification   – De-r...
Mounting systems• Security of foundations   • Security of modules
Team Capability – Completion Risk• Contract strategy (EPC or Multi-contract)   – Both have benefits & drawbacks• Interface...
Completion• Trial Operation (10 days - 4 weeks) • Acceptance   – Reliability of:                     – Provisional Accepta...
Typical Acceptance Procedure               Mechanical Completion               Commissioning/start-up                Test ...
Provisional Acceptance• Provisional Acceptance Testing starts after a short test  operation.• Successful completion of the...
Provisional Acceptance Tests (1)Performance Ratio Test:• Checks if the power plant is performing at or above the PR  agree...
Performance Ratio• The quality of a PV power plant may be described by its Performance  Ratio (PR). The PR, usually expres...
Final Acceptance• Final Acceptance takes place after a successful repeated PR test.• The period of operation between Provi...
Acceptance Testing: Lessons Learned• Use good quality calibrated measuring devices- this is often  not observed• A two yea...
Sensor DevicesPyranometer• Measures solar irradiation• Typical manufacturers: Kipp & Zonen, Eppley.• Calibrated at least e...
Monitoring RequirementsMeasurement                                              DescriptionPlane of Array Irradiance (Pyra...
Monitoring: Common Mistakes• Monitoring systems not installed in representative locations.• Pyranometers not kept clean.• ...
Financial Model: What are The Risks?• Sensitivity Analysis:   –   Annual module degradation 0.3% - 0.5% - 0.8%   –   O&M c...
Key Messages• The process of technical due diligence can require  considerable effort from the developer to satisfy the  r...
Any questions?www.sgurrenergy.comben.lumby@sgurrenergy.com
Risk ManagementLee Moscovitch, Infrastructure Principal
Introduction to Zouk Capital    Private equity investor focused on renewable energy     infrastructure and cleantech growt...
Zouk’s dual track approach to the cleantech market               Clean Technology                                         ...
Zouk’s cleantech growth capital strategy           Focus on European expansion-stage cleantech companies      Targeting hi...
Select cleantech company investments       Energy efficiency services                              Advanced thermal insula...
Zouk Infrastructure Fund I    10 projects                      39 MW    Portfolio: 5 in Italy, 5 in UK   Capacity built fr...
Zouk Infrastructure Fund II              Financing renewable energy and environmental assets         Focusing on late-stag...
Projects with Predictable Cash Flows                        Long term feed-in tariff framework with no or limited price an...
Typical Project Structure                                                                 SH                Lenders       ...
Risk Allocation                                                                                                          C...
Legal notices     The information contained in this document (the "Information") is issued by Zouk Capital LLP (the "Issue...
Contact details     Zouk Capital LLP     100 Brompton Road     Lead contacts     London     SW3 1ER               Lee Mosc...
The UK solar PV investment opportunityEversheds conference02 July 2012Ref: 1126192
AgendaThe Ernst & Young Environmental Finance teamThe solar PV investment opportunityNavigating incentivesThe funding back...
Ernst & Young Energy Infrastructure Advisory team                                                                         ...
Sector thought leadershipOur market leading thought leadership and research addresses a broad spectrum of challenges, from...
Infrastructure Advisory– our awards                          2011 Middle East Power                                       ...
Section 2The PV investment opportunityRef: 1126192
A snapshot of UK Solar PVGreg Barker – 24 May 2012►    “We can now look with confidence to a future for solar which will s...
Investment through the transaction lifecycle                                                                         c.1-6...
Section 3Navigating incentivesRef: XX00000
FiTs indexed linked revenues give stability, but in unstable regime                      1,400                      1,200 ...
So projects under ROC regime gaining traction  The ROC market                                                             ...
And the future for the proposed FiT CfD The key to achieving these objectives will be to bring forward the level of invest...
Section 4The fundingRef: XX00000
Renewable equity investors - typical risk-return profile                         Stage of development                  Ful...
Debt finance►         Increasing trend towards:                                                     Global project f inanc...
Solar PV funding – the capital journey               Time period (X months)                   Exit arranged whereby value ...
The road to the PV financing future►        Aggregation and consolidation►        Flight to quality►        How do you del...
Section 5SummaryRef: 1126192
SummarySolar investment opportunity► 22GW           of deployment in UK► Cost         reductions look set to continue – 50...
Thank you                          Louise Shaw, Senior Executive,                          Environmental Finance          ...
Ernst & Young LLPAssurance | Tax | Transactions | Advisorywww.ey.com/ukThe UK firm Ernst & Young LLP is a limited liabilit...
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Attracting and Maintaining Institutional Investment: Solar PV

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Slides from the Solar PV workshop at the Eversheds event: Attracting and Maintaining Institutional Investment in Renewable Energy - 2nd July 2012

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Attracting and Maintaining Institutional Investment: Solar PV

  1. 1. Solar PV: Lenders Engineer Ben Lumby Solar Team Leader ben.lumby@sgurrenergy.com
  2. 2. Presentation Outline• Introduction to SgurrEnergy• Resource & energy yield• Technology• Completion risk• EPC and O&M contracts• Financial modelling• Key messages
  3. 3. SgurrEnergy• Leading renewable energy consultancy• Formed in 2002• Joined Wood Group in 2010• Global network of offices• 100+ experienced consultants• People and technology focused• Company wide triple BSI accreditation & UKAS ISO/IEC accreditation for wind farm power curve analysis
  4. 4. Global track recordWe have consulted on over 65,000 MW of renewable energy in over 40countries covering both project development and due diligence Europe Asia Africa • Belgium • China • Angola • Bulgaria • India • Kenya • Estonia • Israel • South Africa • France • Korea Oceania • Germany • Mongolia • Greece • Australia • Pakistan • New Zealand • Ireland • Philippines • Italy • Sri Lanka • Malta • Turkey • Netherlands • United Arab Emirates • Norway • Vietnam • Poland • Portugal North America • Russia • Canada • Romania • Mexico • Slovakia • USA • Spain South America • Sweden • Brazil • UK • Chile • Ukraine • Galapagos Islands (Ecuador)
  5. 5. ExperienceDue Diligence – Owner, Lender & Acquisition• Acquisition due diligence for solar PV plant, Italy, 25 MW, 2012, confidential client• Lenders due diligence of Charanka solar PV plant, India, 15 MW, 2012, Standard Chartered• Technical due diligence of Lorraine solar PV plant, France, 36 MW, 2012, Marguerite Advisor• Acquisition due diligence for European solar PV portfolio, 120+ MW, 2011, confidential client• Technical due diligence for solar PV project, France, 36 MW, 2011, confidential client• Provisional Acceptance and witnessing commissioning, UK, 4.4 MW, 2011, Low Carbon Solar• Owner’s Engineer/ Solar Resource Assessment for proposed PV Plant, Pakistan, 2011, Sapphire• Owners Engineer/ Design verification and handover acceptance support, Belgium, 6.5 MW, 2011• Acquisition due diligence of Rete Rinnovabile Solar PV Portfolio, Italy, 150 MW, 2010, Terra Firma Capital Partners• Acquisition due diligence for solar PV project, Spain, 6.7 MW, 2011, confidential client• Lender’s Engineer/ Construction monitoring on three PV plants, UK, 15 MW, 2011, Low Carbon• Solar Rooftop PV Portfolio Technical Due Diligence, France, 2.4 MW, 2010, confidential client• Solar Rooftop and Ground mounted PV Portfolio technical due diligence, France, 170 MW+, 2010, confidential client
  6. 6. Due Diligence- IntroductionThe due diligence phase of evaluating a project takes threemain forms: 1. Legal due diligence – assessing the permits and contracts (EPC and O&M). 2. Insurance due diligence – assessing the adequacy of the insurance policies and gaps in cover. 3. Technical due diligence – assessing the technology, integration and technical aspects of the permits and contracts.
  7. 7. Project Stages • Feasibility – Solar Resource & Energy Yield • Planning & Permitting • Technical development – Grid connection – Design and Technology • Contracts – EPC – O&M – Power Purchase Agreement (PPA) • Financial Close • Construction – Provisional Acceptance Test • Operation - Revenue – Final Acceptance Test
  8. 8. Energy Yield Prediction Accuracy • Losses • Shading • Soiling • AC/DC cable • Temperature • Inverter • Transformer • Downtime • Mismatch • Module degradation • Total prediction uncertainty
  9. 9. Effect of Solar Resource on Energy Yield • Power is approximately proportional to the plane of array irradiance • Uncertainty in the yield prediction is dominated by uncertainty in the solar irradiation
  10. 10. Solar Resource Assessment • Require historical data close to site and over a long period of time • Data sources typically provide global horizontal irradiation (GHI) in hourly intervals • Use transposition algorithms to convert from the horizontal plane to the tilted plane
  11. 11. Solar Resource AssessmentWMO supervised base Satellite derived datastations
  12. 12. Which Data are Most Representative? There is disparity between different information sources • 20 km from a WMO MET station (France) good agreement
  13. 13. Key Messages – Resource and Yield• Key to yield prediction is quantification of resource• Use a variety of resource datasets - Understand the uncertainty - Obtain probability of exceedance energy yield prediction values (e.g. P90)• Understanding the yield prediction uncertainty can help lenders give more favourable terms• Uncertainty is site dependent (distance from ground measurements, accuracy of satellite data)• On-site measurements may be used to calibrate satellite derived estimates for site location
  14. 14. Resource and Yield– Common Mistakes• Only using one resource dataset• No assessment of inter-annual variability in resource• No assessment of the yield uncertainty (P90)• No assessment of inter-row shading or horizon shading losses• Ignoring shading from nearby obstructions including poles, control rooms and switch yard equipment• AC losses and plant self consumption ignored• Plant downtime and grid unavailability ignored• Degradation of the modules and plant components over the lifetime of the plant ignored
  15. 15. TechnologyModule Type:• Crystalline Silicon (mono or multi)• Thin film (CdTe, a-si)Inverter Type:• Central Inverter• String inverterSystem Design:• Row spacing• Electrical design• Orientation and tilt• Shading
  16. 16. Bankability of Modules Quality & Management Standards Cell Performance Warranty Manufacturer Track Record Total Installed Capacity / Production Capacity Length of time in production End of life recyclingModule Technology(c-Si or TF) Product Warranty Third Party Warranty Insurance Recommend factory inspection IEC Certification
  17. 17. Technology risk- modules• Reliability Issues – Quick connector reliability – Corrosion – Improper insulation – Delamination – Discolouration – Moisture ingress – Bypass diode failure
  18. 18. IEC Certification• Is IEC 61215 or 61646 proof that a product is durable and reliable? No!• Not intended, or capable of showing long term performance• Some Accelerated Life Testing, but not representative of real field conditions• IEC Proves that the module meets certain standards.
  19. 19. Third Party Insurance • Module manufacturing industry currently in period of consolidation. • Ther is uncertain whether suppliers will be around for lifetime of warranty. • Third-party warranty insurance provides security even if company becomes insolvent. • Several mainly tier 2 manufacturers now offer this, although not industry standard. • Expect more manufacturers to offer in the next year due to highly competitive nature of the market. Not Backed by third party insurance Backed by third party insurance Suntech Jinko First Solar Chint (Astronergy) Yingli LDK Trina Canadian Solar Sharp Solar Frontier Sunpower Solairedirect SA Hanwha Solar One NexPower Technology Corp Kyocera Signet Solar Inc SolFocus Inc. China Sunergy Insurance Providers: PowerGuard, Zurich, SPIB, Chartis, Solarif
  20. 20. Inverters• Temperature factors – Derating – Shutdown• Enclosure ratings – Indoor / outdoor• Cooling – Forced or natural • Fans – dusty environments• Matched to the modules and strings• Efficiency (Eu η%)• Lifetime – Mid term replacements
  21. 21. Bankability of Inverters Voltage Range Product Warranty andEuro Efficiency extensionsIP Rating Track Record Number of MPP IEC Certification Trackers Compatibility with site climatic conditions Harmonic current Conformity with conformity with grid national grid (G59/2 for UK)
  22. 22. Technology (2)Inverter Risks Module Risks• Temperature factors • IEC certification – De-rating – Shutdown • Power tolerance• Enclosure IP ratings • Track record – Indoor / outdoor• Cooling • Financial standing – Forced or natural – Fans – dusty environments • De-rate with temperature• Matched to the modules and • Degradation rate strings • Guarantees for power
  23. 23. Mounting systems• Security of foundations • Security of modules
  24. 24. Team Capability – Completion Risk• Contract strategy (EPC or Multi-contract) – Both have benefits & drawbacks• Interfaces • Design • Construction • Who handles them?• Programme • Realistic • Lead times • Critical path • Weather delays• Adequate liquidated damages • Supply contracts • EPC contract
  25. 25. Completion• Trial Operation (10 days - 4 weeks) • Acceptance – Reliability of: – Provisional Acceptance • Inverters – Final Acceptance • Tracking (12-24 months later?) • Whole System – Performance Ratio Tests
  26. 26. Typical Acceptance Procedure Mechanical Completion Commissioning/start-up Test Operation Period (couple of days) Performance Testing for Provisional Acceptance (around 10 days) Performance Testing for Final Acceptance (over 1 or 2 years)
  27. 27. Provisional Acceptance• Provisional Acceptance Testing starts after a short test operation.• Successful completion of the tests marks the Provisional Acceptance of the plant.• Failure of Provisional Acceptance Testing may require remedial measures and repeat testing.• If the Plant again fails the test then liquidated damages will be payable.
  28. 28. Provisional Acceptance Tests (1)Performance Ratio Test:• Checks if the power plant is performing at or above the PR agreed or warranted within the EPC contract.• Standard testing period would be continuous testing for around 10 consecutive days.• If there are significant differences between the contracted and actual PR, the EPC contractor should identify and rectify the problem before repeating the PR test.
  29. 29. Performance Ratio• The quality of a PV power plant may be described by its Performance Ratio (PR). The PR, usually expressed as a percentage, can be used to compare PV systems independent of size and solar resource. It quantifies loss associated with electrical elements of the plant.• PR is a measure of actual generation versus the maximum based on DC capacity and irradiation received over a given time period.• Installed DC capacity is defined at: – 1,000W/m2 irradiance – 25 degrees C – A defined solar spectrum
  30. 30. Final Acceptance• Final Acceptance takes place after a successful repeated PR test.• The period of operation between Provisional Acceptance and Final Acceptance is dependent on the EPC contract and the level of risk that may be accepted.• A two year PR Warranty provided by the EPC Contractor followed by Final Acceptance provides good comfort to Investors since it covers risk degradation of the modules.
  31. 31. Acceptance Testing: Lessons Learned• Use good quality calibrated measuring devices- this is often not observed• A two year PR Warranty followed by Final Acceptance is often not observed• PR tests should be carried out using clean pyranometers- often soiled pyranometers are used• Availability formulas should take into account the scenario when only a proportion of the plant is operational- this is often overlooked
  32. 32. Sensor DevicesPyranometer• Measures solar irradiation• Typical manufacturers: Kipp & Zonen, Eppley.• Calibrated at least every 2 years.• Measures full solar spectrum compared to reference cell which only measures part of spectrum.• Should be cleaned regularly.• Within 3% inaccuracy.
  33. 33. Monitoring RequirementsMeasurement DescriptionPlane of Array Irradiance (Pyranometer) W/m2Ambient Temperature °CModule Temperature °CArray DC Voltage VArray DC Current IInverter AC Power VAExported Power VAImported Power VAWind Speed & direction if detailed modelling of system requiredHorizontal Irradiance for comparisons with resource data sourcesInverter Output Current & Voltage I, VInverter Temperature Additional ventilation/cooling required?Humidity Can effect lifetime of low quality modules
  34. 34. Monitoring: Common Mistakes• Monitoring systems not installed in representative locations.• Pyranometers not kept clean.• Pyranometers not installed at module tilt.• Only one pyranometer used. For a 5 MWp plant would expect two plane of array pyranometers (3 for >20MW) and one pyranometer on the horizontal plane.• Reference cells should not be used in place of pyranometers as they may under-estimate the irradiation
  35. 35. Financial Model: What are The Risks?• Sensitivity Analysis: – Annual module degradation 0.3% - 0.5% - 0.8% – O&M costs ±10% – Inverter replacement- once over project life? – Module soiling losses: 2% , 3%, 4% (O&M dependent) – Unavailability: 99%, 98% and 97% (dependent on grid strength)• Reduce the likelihood or impact of the risk – Module cleaning linked to performance monitoring – Include a maintenance reserve account• Yield is often skewed seasonally – Include additional financial reserves to ease financial strain
  36. 36. Key Messages• The process of technical due diligence can require considerable effort from the developer to satisfy the requirements of the lender.• When well performed the lenders will fully understand the technical risks associated with the project and can decide if these are acceptable.• A robust technical due diligence prior to designs being implemented can also pick up errors the developers have missed, and save them money.• With experienced project partners, effective due diligence and good technical advisors, solar PV can be a low risk investment.
  37. 37. Any questions?www.sgurrenergy.comben.lumby@sgurrenergy.com
  38. 38. Risk ManagementLee Moscovitch, Infrastructure Principal
  39. 39. Introduction to Zouk Capital Private equity investor focused on renewable energy infrastructure and cleantech growth companies Over €400m under management in 4 funds Largest cleantech growth capital fund in Europe2
  40. 40. Zouk’s dual track approach to the cleantech market Clean Technology Clean Infrastructure Alternative & Resource Efficiency Renewable Energy Resource Efficiency Renewable Energy Technologies Generation Infrastructure Solar Energy efficiency Solar PV Smart grid Wind Transportation Biomass Energy storage Market intelligence Biomass TransmissionWind Deal flow Hydro Building Smart grid efficiencyFuel cells Commercial insight Geothermal Energy storage Transport Waste-to-Energy Marine Sector knowledge Cleantech networks Recycling Water Biogas Water treatment Emissions solutions Advanced materials Waste management Waste management Recycling Environmental Services & Technologies Environmental Infrastructure3
  41. 41. Zouk’s cleantech growth capital strategy Focus on European expansion-stage cleantech companies Targeting high growth companies with established revenues (>€10m) Cleantech Europe II raised €230m and is the largest fund of its type in EU 12 cleantech investments made over 2 funds4
  42. 42. Select cleantech company investments Energy efficiency services Advanced thermal insulation Solar / Recycling Electrical contractor Waste to Energy Water Solutions Smart Grid Rural / Semi-urban Solar Building-integrated Solar5
  43. 43. Zouk Infrastructure Fund I 10 projects 39 MW Portfolio: 5 in Italy, 5 in UK Capacity built from late-stage development Italy: large scale UK: distributed solar6
  44. 44. Zouk Infrastructure Fund II Financing renewable energy and environmental assets Focusing on late-stage development and operational (distressed) Investing primarily in Europe Diversified range of sectors: geothermal, wind, solar, waste, hydro, biomass7
  45. 45. Projects with Predictable Cash Flows Long term feed-in tariff framework with no or limited price and volume risk Long-term take-or-pay offtake agreements Revenues Limited merchant risk, if any, in liquid, transparent markets Operation in countries with stable track-record in relation to regulatory regimes Creditworthy / diversified counterparties Insurance for operation disruptions due to unpredictable events Predictable cost structure over the life of the project Costs Fixed-price, fixed date, turn-key construction contracts Long-term fixed price operating and maintenance contracts Cost hedging over the life of the Project (to the extent possible) Insurance for unpredictable events Non- or limited-recourse financing with adequate contingencies built into project budget Long-term financing with no or very limited refinancing risk Financing Reputable, experienced lenders ideally with relationship with Zouk Debt / revenues / costs currency matching Hedging (interest rates, inflation, etc)8
  46. 46. Typical Project Structure SH Lenders Sponsor Agreement Sponsor Project SPA Project Seller Financing Capitalisation Contracts Contract Development Offtaker(s) Agreements Developer Offtake Contracts Centralised Offtake Land Rights Contracts Project SPV Agreements Land Owners MKTs FITs, Govt. Subsidies Project Authorities Authorisations Fuel Supply Insurance Asset Mngmt Service EPC Contract O&M Contract Contract Contract Contract Contracts EPC O&M Fuel Insurance Asset Service Contractor Contractor Supplier Providers Manager Providers9
  47. 47. Risk Allocation Comments Risks should be allocated Lenders Sponsors to the parties best able to manage themCentralised Project contracts are the Financing MKTs Risks Some means to transfer risks residual risk, (if limited- Offtaker(s) recourse) Tender processes for the assignment of Project Price / Project SPV contracts should ensure Volume Risk maximum risk transfer at (Residual Risks) lowest possible costs Govt. The Project company is left with the residual risks which were not transferred Construction Operation Fuel Supply Authorisation Risk Risk Risk FM Risk Risk to other parties Recourse to the Sponsors, EPC O&M Fuel Insurance Developer / if any, is always limited in Contractor Contractor Supplier Providers Project Seller amount, scope and time10
  48. 48. Legal notices The information contained in this document (the "Information") is issued by Zouk Capital LLP (the "Issuer") on a confidential basis to a limited number of prospective investors ("Prospective Investors") and their respective legal counsel and/or other advisers ("Advisers") for the sole purpose of providing information in relation to the potential investment by Prospective Investors in interests ("Interests") in the fund to be known as Renewable Energy and Environmental Infrastructure Fund II (the "Fund"). Neither Prospective Investors nor their Advisers should construe the Information as legal, tax, financial, investment, accounting or other advice, or as a recommendation by the Issuer, any of its affiliates, advisers, directors, employees or agents, that any Prospective Investor should acquire any Interest. Prior to making any investment, potential investors should arrive at an independent evaluation of such investment opportunity. The Information is qualified in its entirety by reference to the subscription agreements, limited partnership agreement(s) and any other legal documents constituting the Fund (the "Fund Documents"). Each investor who acquires an Interest will be bound by the terms and conditions of the Fund Documents. In the event that the descriptions in, or terms of, the Information are inconsistent with, or contrary to, the descriptions in, or terms of, the Fund Documents, the Fund Documents shall prevail. The Information is subject to withdrawal, cancellation, modification or updating without notice, and is subject to the approval of certain legal matters by counsel and certain other conditions. This document is strictly private, proprietary and confidential. This document may not be distributed, published, reproduced or transmitted in whole or in part, and the information contained herein (including the potential investment opportunity) may not be disclosed by a recipient to any third party. By accepting delivery of this document, the recipient agrees to keep the information it contains strictly private and confidential, and to return this document to the Issuer at any time upon the Issuers request. No representation or warranty, express or implied, is or will be given by the Issuer or its affiliates, advisers, directors, employees or agents, and, without prejudice to any liability for, or remedy in respect of, fraudulent misrepresentation, no responsibility or liability or duty of care is or will be accepted by the Issuer or its affiliates, advisers, directors, employees or agents, as to the fairness, accuracy, completeness, currency, reliability or reasonableness of the information or opinions contained in the Information or any other written or oral information made available to any Prospective Investor or its Advisers in connection with any application to subscribe for interests in the Fund (a "Proposed Subscription") or otherwise in connection with the Information. In particular, but without prejudice to the generality of the foregoing, no representation or warranty is given as to the achievement or reasonableness of any future projections, forecasts, targeted or illustrative returns (“Forward-Looking Information”). Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. A number of factors could cause actual results to differ materially from those in any Forward- Looking Information. There can be no assurance that the Fund’s investment strategy or objective will be achieved or that investors will receive a return of the amount invested. To the fullest extent possible by receipt of, and using, the Information, you release the Issuer and each of its affiliates, advisers, directors, employees and agents, in all circumstances (other than fraud) from any liability whatsoever and howsoever arising from your use of the Information or any information or communications provided in connection with any Proposed Subscription. In addition, no responsibility or liability or duty of care is or will be accepted by the Issuer or its respective affiliates, advisers, directors, employees or agents, for updating the Information (or any additional information), correcting any inaccuracies in it or providing any additional information to any Prospective Investor or its Advisers. Accordingly, none of the Issuer or its affiliates, advisers, directors, employees or agents shall be liable (save in the case of fraud) for any loss (whether direct, indirect or consequential) or damage suffered by any person as a result of relying on any statement in, or omission from, the Information or in, or omitted from, any other information or communications provided in connection with any Proposed Subscription. Investment in the Interests will involve significant risks. An investment in the Fund is only suitable for sophisticated investors and requires the financial ability and willingness to accept the high risks and lack of liquidity inherent in an investment in the Fund. The Funds investments may be difficult to value and involve an above-average level of risk. No assurance can be given, and no representation is made herein, that the Funds investment strategy will be achieved or that investors will receive a return of their capital. Any offer or sale of securities (or Interests such as those described in this Information) may in certain jurisdictions be restricted by law. Any Prospective Investors who are considering making an investment in the Fund are required to inform themselves about, and to observe, any such restrictions. It is the responsibility of each Prospective Investor to satisfy themselves as to full compliance with the applicable laws and regulations of any relevant territory, including obtaining any requisite governmental or other consent and observing any other formality presented in such territory. No action has been taken to permit a public offering of the Interests in any jurisdiction where action for that purpose would be required. This Information does not constitute an offer to sell or a solicitation of an offer to buy Interests in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.11
  49. 49. Contact details Zouk Capital LLP 100 Brompton Road Lead contacts London SW3 1ER Lee Moscovitch lmoscovitch@zouk.com +44 (0)20 7947 3414 United Kingdom +44 (0)20 7947 3400 www.zouk.com12
  50. 50. The UK solar PV investment opportunityEversheds conference02 July 2012Ref: 1126192
  51. 51. AgendaThe Ernst & Young Environmental Finance teamThe solar PV investment opportunityNavigating incentivesThe funding backdropSummaryRef: 1126192 Eversheds conference June 2012 2
  52. 52. Ernst & Young Energy Infrastructure Advisory team This announcement appears as a matter of record only. This announcement appears as a mat t er of record only. March 2011 This announcement appears as a matter of record only.We are a market leading renewable energy Eaga plc SeaEnergy Plccorporate finance team, with over 60 UK Solar PV project financing has disposed its offshore wind development subsidiary,dedicated professionals advising on has provided accounting, tax and modelling services onenergy and environmental finance Eagas £300m project financing Ongoing SeaEnergy Renewables of a portfolio of social housing Ltd to rooftop solar PV installations Structuring and financing advice on £1.5bn major infrastructure roll out We are currently advising on: Repsol Financial Advisor ► Over 5GW of renewable M&A for £50 million transactions in Europe Ernst & Young provided accounting, tax Ernst & Young acted as lead financial advisor to SeaEnergy Plc. and modelling services to Eaga plc. ► Over £300m of project financing for renewable projects in Europe In the last 15 months, we have: ► Disposed of four consented onshore This announcement appears as a mat t er of record only. August 2011 This announcement appears as a matter of record only. This announcement appears as a matter of record only. wind farms in the UK RES UK & Ireland Lt d Eco2 Lincs Limited ► Secured c.£115m senior debt and a has raised £115 million of senior debt funding to construct and operate the Lincolnshire based 38 MW PPA for Sleaford biomass plant has disposed of a majority straw fired stake of ► Advised on PPAs for over 130MW of Ongoing renewable energy capacity. Wadlow Energy Lt d Sleaford Renewable £1.5bn Smart meter funding and commercial Energy Plant to ► Provided complex financial modelling strategy The lending club consisted of NIBC Bank NV, The Royal Bank of Scotland, Siemens Bank GmbH and Unicredit and structuring services to the largest Barclays Infrast ruct ure Financial Advisor Bank AG solar project finance facility in the UK Funds (Eaga - £225m) Ernst & Young acted as financial advisor to RES UK & Ireland Ltd. Ernst & Young acted as financial advisor to the shareholders of Eco2 Lincs Limited. Since 2005, we have: ► Raised project finance for over 785MW of renewable energy assets ► Advised on PPAs for over 1.1GW of renewable assets Our EEIA team sits within the wider EMEIA Infrastructure Advisory team currently advising on £10 billion of infrastructure project financings, allowing us to understand financing trends across a broad range of asset classes.Ref: 1126192 Eversheds conference June 2012 3
  53. 53. Sector thought leadershipOur market leading thought leadership and research addresses a broad spectrum of challenges, from industry-wide issues to specific technical, business, regulatory and compliance concerns Country attractiveness indices Our quarterly Country Attractiveness Indices have become a benchmark for all our clients. It provides scores for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies (wind, solar and biomass). The CAI has been reported in 107 different publications worldwide, spanning most forms of media including TV, global and national mainstream press and trade press and is one of the leading publications in the global renewable energy market. Utilities unbundled Utilities Unbundled, Ernst & Young’s semi-annual global power and utilities magazine, features insight from leading industry figures, comment on key industry issues and analysis of the latest trends. Read about what your peers around the world are thinking and doing about common industry concerns. Cleantech matters The cleantech-enabled transformation to a resource-efficient and low carbon economy is characterised by many observers as the next industrial revolution. Our quarterly “Cleantech Matters” publication includes material covering the sector’s key drivers, trends and issues. Growing beyond The EY Global Cleantech Centre produces its “Growing beyond: the cleantech growth journey” publication on an annual basis. It includes the findings from our annual Cleantech CEO Growth Journey retreat. Developed with Bloomberg New Energy Finance, the event brings together nearly 50 CEOs to address the industrys capital, partnership and expansion challenges. .Ref: 1126192 Eversheds conference June 2012 4 4
  54. 54. Infrastructure Advisory– our awards 2011 Middle East Power Ernst & Young Deal of the Year 2011 No.1 by Global Sur IPP Mandates Won No.1 by Global PFI/PPP Deals closed 2005, 2007 & 2009 2009 & 2011 2009 Renewable Energy PPP Financial Advisor Advisor of Choice of the Year Ernst & Young 2011 Best Infrastructure Deal in CEE - Polish Airports State Enterprise’s PLN700mn fund 2010 No.1 by Global raising Mandates Won No.1 by Global and EMEA Mandates Won 2005 - 2009 2011 Best Project Finance Adviser in 2008 EMEA and CEE Best Advisory Firm – 2011 PPP Deal of the Year Financial Advisor of the Year – 2009 Best Project Finance House – Renewable Energy Europe Suffolk Waste PFI Renewables Financial Advisor European Transmission Deal of the Year - Robin Rigg OFTO Financial Adviser of the Year - Renewable Energy Financial Adviser of the Year - Power 2011 Best PPP Deal in the Middle East Financial Adviser of the Year - Social Infrastructure Overall Project Finance Firm of the Year: – Bahrain Housing UK Partnerships Awards 2012 Partnerships Awards 2012 Partnerships Awards 2012 Partnerships Awards 2012 2011 Asia-Pacific PPP Deal Best Local Government Project Team Best Waste/Energy/Water Project Project Grand Prix of the Year Adelaide Hospital South West Devon Energy from Waste PFI South West Devon Energy from Waste PFI Devon Waste Partnership Best Financial Adviser Eversheds conference June 2012 5
  55. 55. Section 2The PV investment opportunityRef: 1126192
  56. 56. A snapshot of UK Solar PVGreg Barker – 24 May 2012► “We can now look with confidence to a future for solar which will see it go from a small cottage industry, anticipated under the previous scheme, to playing a significant part in Britains clean energy economy”DECC recognise solar in RE roadmap► DECC 2020 solar power pathway central scenario delivers 22GW of solar PVBuyers market► Continued over supply with ever decreasing panel and EPC prices► Falling tariff regimes across Europe► Grid parity around the corner?Consultation, consultation, consultation► DECC RO Banding consultation (ongoing) 2.0 ROCs falling to1.8 ROC► FIT consultations known for now, awaiting response on Phase 2BOther policy Renewable Heat Incentive / Green deal► First of its kind support for renewable heat generation including solar thermal► Energy efficiency loan scheme, domestic market minimum EPC requirementsRef: XX00000 Eversheds conference June 2012 7
  57. 57. Investment through the transaction lifecycle c.1-6 months c.1-6 months Planning fully consented Financial close Commercial operational dateLand/feasibility study Leases signed and surveys completePlanning/EIAGrid Informal offer agreed Offer signed including indicative grid live dateSolar irradiation Preliminary data Pyranometer 12 months wind dataProject Finance Bank terms agreed at closePrincipal contract suite PPA and construction contracts agreed at close Estimated constructionConstruction period and grid live date 100% coincidesIndicative value 80%realisation1(% of total 60%realisable sitevalue assumingsale at given point 40%in time) 20%Note: 0%1. Based on a limited number of UK transactions and Ernst & Young experience working with leading developers in the field who tend to apply these percentages to estimate value once set milestones are achieved Ref: XX00000 Eversheds conference June 2012 8
  58. 58. Section 3Navigating incentivesRef: XX00000
  59. 59. FiTs indexed linked revenues give stability, but in unstable regime 1,400 1,200 1,000 Deployment (MW) 800 600 400 200 0 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Domestic Commercial Industrial Community April 2010 March 2011 June 2011 October 2011 December 2011 Feb2012 May 2012 FiT launched DECC publish fast Response to fast DECC publish DECC issue publish DECC issue publish Confirmed cut in FiT track review on FiTs track review comprehensive response to Phase 1 response to Phase 1 in August 2012 confirming cut to PV consultation to consultation and consultation and tariffs >50kWp reduce tariffs on 10 issue Phase 2 issue Phase 2 December consult consult August 2011 December 2012 August 2012 New rates for Judicial review 20yr tariff installations <50kW rejected, high court Quarterly degression take effect appeal granted to be Deployment heard dependant 90% multi installation January 2012 March 2012 tariff (>25 systems) DECC looses court Supreme court Increased export of appeal decision rejects DECC appeal E EPC rating or getRef: XX00000 standalone tariff
  60. 60. So projects under ROC regime gaining traction The ROC market How the ROC market works 1. Ofgem issues ROCs to generators End user according to renewable MWh generated. 2. Suppliers obtain ROCs by: UtilitiesSuppliers ► Owning qualifying assets. (e.g., E.ON, Scottish Power, Centrica, SSE, RWE) ► Buying ROCs through a PPA with a generator. 2 3 4 ► Buying ROCs from another Trade ROCs supplier (with surplus ROCs), or through the commodity market. Surrender ROCs ROC recycle Independent Infrastructure Utilities 3. To comply with their obligation,RE generators developers funds (e.g., Scottish suppliers must surrender ROCs. (e.g., RES, Falck) (e.g., HG Capital) Power) 4. Where there is a ROC market shortfall, under-compliance is fined and the proceeds distributed to Issue ROCs 1 compliers as a ‘recycle’.Regulator OfgemRef: XX00000
  61. 61. And the future for the proposed FiT CfD The key to achieving these objectives will be to bring forward the level of investment needed in new low-carbon generation capacity and infrastructure at the required pace and through a combination of measures.Source: DECC ► Will investors be turned off by lack of power price exposure? ► Overlap of RO provides some continuity, but without ► Will 15 year tenor attract investors seeking long term, low absolute certainty on revenue risk returns? ► Gross margin indexation linkeage RO and FiT CFD – ► Strike price mechanism? loss of natural hedge? ► Guarantor between generator and supplier ► Competition against transport fuels (revenues linked to oil price)Ref: XX00000
  62. 62. Section 4The fundingRef: XX00000
  63. 63. Renewable equity investors - typical risk-return profile Stage of development Fully consented Financial close Commercial operational date Existing ► Appetite for development risk – increased risk for developers higher returns ► Exit after construction to fund pipeline ► Strategic objectiveEquity cost of capital UK/ International ► Project development chain utilities ► Low WACC Infrastructure ► May take on construction risk funds ► Desire to place funds drives return ► Long-term predictable cash Secondary funds flows (e.g., pension) ► Limited appetite for construction risk ► Varying comfort with power price risk Deal size £5 – 10mn £10 – 50mn £100 – 500mn Ref: XX00000 03 July 2012
  64. 64. Debt finance► Increasing trend towards: Global project f inance volume by f unding source 1. Club lending 350 2. Credit committee decision making driven by 300 relationships and geography 3. Mini-perm structures 250 Aggressive cash sweeps and restrictions on US$ bn 4. 200 payments to equity 150 5. Rise in margins (although offset by recent fall in the 100 long-term swap rate► Attitude towards long term strategy in the project 50 Source: Infrastructure Journal finance market will vary by bank, however major deals 0 continue to be done (see graphic) 2005 2006 2007 2008 2009 2010 2011► Role of ECAs and Multilaterals key for overall funding Equity Bonds Loans IFI Suppor t strategy and market approach► Limited appetite for rooftop UK solar PV beyond solar► Future for Ground mounted under ROCs?Ref: XX00000 Eversheds conference June 2012 15
  65. 65. Solar PV funding – the capital journey Time period (X months) Exit arranged whereby value of assets transferred to long-term owner Equity capital at 15% (business model inertia risk) Ownership capital at 6 – 7% cost of funds Installation Spend Investment (X £m) Capital increase realised through cost of funds arbitrage, releasing capital for further installation programme Installation spend funded unencumbered with external capital, i.e. equity or corporate debt Constraints: Ideal world: ► Pension funds/insurance funds/life funds do not have significant ► Long-term ownership resides capital allocations specifically for renewables investments with low cost, long-term cash ► Conduits do not exist that enable PV market to effectively yield investors access this capital – these funds do not invest directly (pension/insurance/life funds) ► Inertia risk, technology performance risk, and resource risk ► Cost of funds: c 6 – 7% needs to be properly understood to access low-cost funds ► Deal size: £100mn plus ► Large equity capital sources needed to build installation capex to levels to attract such investorsRef: XX00000 Eversheds conference June 2012 16
  66. 66. The road to the PV financing future► Aggregation and consolidation► Flight to quality► How do you deliver long term institutional capital? ► Right conduit ► Right portfolio ► Right structure ► Right management ► Right advisorsRef: XX00000 Eversheds conference June 2012 17
  67. 67. Section 5SummaryRef: 1126192
  68. 68. SummarySolar investment opportunity► 22GW of deployment in UK► Cost reductions look set to continue – 50% -70% cost reduction in few years► Grid parity► Low(er) risk renewable technologyRevenues – which TLA will you invest in?► FiTs► ROCs► CfDThe funding backdrop► Conventional financing solutions are not a perfect fit for highly aggregated portfolios► Optimising finance is a major value lever of UK PV – how long will it take► Aggregation and flight to quality likelyRef: 1126192 Eversheds conference June 2012 19
  69. 69. Thank you Louise Shaw, Senior Executive, Environmental Finance Tel: +44 (0)20 7951 4806 Email: lshaw@uk.ey.com www.ey.com/renewablesRef: 1126192 Eversheds conference June 2012 20
  70. 70. Ernst & Young LLPAssurance | Tax | Transactions | Advisorywww.ey.com/ukThe UK firm Ernst & Young LLP is a limited liabilitypartnership registered in England and Waleswith registered number OC300001 and is a member firmof Ernst & Young Global Limited.Ernst & Young LLP, 1 More London Place, London SE1 2AF.© Ernst & Young LLP 2012. Published in the UK.All rights reserved. This document has been prepared by Ernst & Young. The information and opinions contained in this document are derived from public and private sources which we believe to be reliable and accurate but which, without further investigation, cannot be warranted as to their accuracy, completeness or correctness. This information is supplied on the condition that Ernst & Young, and any partner or employee of Ernst & Young, are not liable for any error or inaccuracy contained herein, whether negligently caused or otherwise, or for loss or damage suffered by any person due to such error, omission or inaccuracy as a result of such supply. In particular any numbers, initial valuations and schedules contained in this document are preliminary and are for discussion purposes only.Ref: 1126192
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