KEY INVESTOR’S RETURNS AND VALUE CONSIDERATIONS IN PVE PROJECT

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KEY INVESTOR’S RETURNS AND VALUE CONSIDERATIONS IN PVE PROJECT

  1. 1. PVs in Bloom Seminar PVE’s from the investors and M&A angle 24th November 2010 CORPORATE FINANCE ADVISORY
  2. 2. 1©2010KPMGSlovenskospol.sr.o.,the Slovakmemberfirmof KPMGInternationalCooperative("KPMG International"),aSwiss entity. All rightsreserved. Page PVE M&A market in Europe 2-3 Illustrative1MWp PVE financial model 4 Key factors affecting financial performance of PVE 5-6 How tofurther improvePVE projectreturns 7 Summary conclusion 8 Contactsand disclaimer 9 Contents
  3. 3. 2© 2010 KPMG Slovensko spol. s r.o., the Slovak member firm of KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. 2007 20102009 20112008 Rete Rinnovabile S.r.l. (IT) 150MWp Montalto di Castro PVE (IT) 20MWp GP Energia SpA (IT) 11MWp BP Solar Italia Srl (IT) 5MWp First Solar GmbH (DE) 53MWp Aldesa Construcciones SA (ES) 46MWp Grupo Tagoro (ES) 20MWp Alcala de Gurrea (ES) 2MWp Almeria; Solon (ES) 30MWp Renewagy A/S (ES) 45MWp 5.25MWp PVE (ES) 5MWp Jimenez Belinchon SA (Malagon PVE) (DE) 7MWp 3x PVE in Spain (ES) 35MWp Pozohondo solar farm (ES) 4MWp Aleph Sun Capital (ES) 5MWp Foresta Capital (ES) 14MWp Montebalito (Abenojar & Herencia PVE) (ES) 14MWp Solar farm (Located in Alange) (ES) 15MWp Solar farm (Located in Alange) (ES) 8MWp 0 2 4 6 8 10 12 Apr 07 Nov 07 Jun 08 Dec 08 Jul 09 Jan 10 Aug 10 Feb 11 Sep 11 €milper1MWp Historic enterprise value per 1 MWp PVE M&A market in Europe PVE market values are declining, ranging between €2mil. to €4mil. per MWp in 2010 Note: RepresentsonlyEuropeantransactions Source: Mergermarket,KPMGAnalysis
  4. 4. 3© 2010 KPMG Slovensko spol. s r.o., the Slovak member firm of KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. PVE M&A market in Europe Most of the PVE buyers are financial investors targeting PVEs in Spain and Italy Transactions by type of investors:  Financial investors  Most of the buyers comprise financial investors, pension and other investment funds.  Funds may offer higher purchase prices as they tend to require lower rates of return,  most of them would also however require seller remaining operating the PVE  Strategic investors:  Due to usually higher required returns on equity (around 20%+), purchase prices can be expected lower. Transactions by geography  As expected most of the transactions are focused on Spain and Italy PVE’s given their higher irradiaion levels ( above 2,000 hours per year) 68% 52% 50% 21% 37% 38% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share in # of deals Value (enterprise value) Volume (MWp) Share of PVEs in M&A by Type of investor Strategic Financial investors 68% 52% 50% 21% 37% 38% 11% 10% 12% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share in # of deals Value (enterprise value) Volume (MWp) Share of PVEs in M&A by Geographic location of PVE Germany Italy Spain By Type of Investor By Geography Location of PVE Source: Mergermarket,KPMGAnalysis Source: Mergermarket,KPMGAnalysis
  5. 5. 4© 2010 KPMG Slovensko spol. s r.o., the Slovak member firm of KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Illustrative 1MWp PVE model Based on 2010 FIT, the IRRs can range between 10% to 20% Based on the 2010 conditions PVE sufficiently attractive also thanks to considerable financial leverage: Assumptions of the illustrative PVE 1MWp financial model Reference / benchmark Model Min. Max assumption Production/ Operational CAPEX (EUR/Wp) 2.5 4.5 3 OPEX (EUR/Wp) 40 70 50 Irradiation (h/year) 900 1090 1,090 Selling price (FIT) (EUR/kWh) ?? 0.425 0.425 Installed capacity (MWp) n/a n/a 1 Operating period (Years) 15 25 20 Financial assumptions Fin. leverage (%) 0% 80% 80% (D/ (D+E)) Loan Interest Rate (% p.a.) 3.00% 8.00% 6.00% Loan repayment period (years) 5 15 12 Depreciation period (Years) 10 20 20 Corporate Income Tax (%) 19% 19% 19% Inlfation (% p.a.) 0% 7% 0% Financial performance 1st Year Avg. 20yrs 20 years total Production (MWh) 1,090 1,011 20,220 Sales (EUR'000) 463 364 7,286 EBITDA (EUR'000) 413 318 6,358 FCFF (EUR'000) 391 295 5,891 FCFE (EUR'000) 104 122 2,433 Valuation ratios 15 years 20 years 25 years Project IRR (%) 8.8% 9.4% 9.7% Equity IRR (%) 15.3% 16.3% 16.7% Enterprise value (at 15% Disc. rate) (EUR'000) 610 651 667 Equity value (at 15% Disc. rate) (EUR'000) 3,010 3,051 3,067 8.8% 9.4% 9.7% 15 years 20 years 25 years Project IRR based on the project lifespan 15.3% 16.3% 16.7% 15 years 20 years 25 years Equity IRR based on the project lifespan Source: KPMGAnalysis Source: KPMGAnalysis Source: KPMGAnalysisSource: PVResources.com,LazardInvestments;KPMGAnalysis Source: KPMGAnalysis
  6. 6. 5© 2010 KPMG Slovensko spol. s r.o., the Slovak member firm of KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. 22.1% 17.0% 10.7% 11.0% 14.1% 17.4% 16.1% 11.8% 15.7% 22.2% 22.1% 20.6% 15.3% 18.1% 5.0% 10.0% 15.0% 20.0% 25.0% 2.94 3.08 2.83 2.84 2.96 3.09 3.05 3.16 3.03 3.27 3.26 3.15 3.01 3.11 2.60 2.80 3.00 3.20 3.40 Sensitivity testing values Equity IRR (%) Project IRR (%) Project value (EUR per Wp) -10% Default value +10% CAPEX (EUR/Wp) 2.7 3 3.3 OPEX (EUR/Wp) 45 50 55 Irradiation (h/year) 981 1090 1199 Selling price (FIT) (EUR/kWh ) 0.382 0.425 0.4675 Debt / (Debt + Equity) (%) 72% 80% 88% Loan Interest Rate (% p.a.) 5.4% 6.0% 6.6% Loan repayment period (years) 11 12 13 Key factors affecting financial performance of PVE The most influential financial factors for PVE are Price/FIT and CAPEX (development costs Key factors affecting PVE projects are:  CAPEX expenditures – 10% saving represent increase in Equity IRR of 6% points  Electricity selling price – 10% increase translates into 6% points.  Irradiation – even though of a significant importance, there are only limited opportunities to influence this factor, given the geographic boundaries. 16.3% 3.05 11.1% 9.6% 7.7% 7.8% 9.3% 9.3% 9.3% 8.0% 9.2% 11.1% 11.0% 9.5% 9.5% 9.5% 7.0% 9.0% 11.0% 9.4% Source: KPMGAnalysis
  7. 7. 6© 2010 KPMG Slovensko spol. s r.o., the Slovak member firm of KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Key factors affecting financial performance of PVE What would be the target CAPEX under certain FIT/selling price to achieve required rate of return  Following chart illustrates under assumed condition what is the relation between various combinations of electricity selling prices and CAPEX costs  In order to allow for acceptable investment returns and feasibility of PVE’s following correlation should be taken into consideration  If selling price for example would be proposed 387 Eur/MWh, maximum development cost would need to reach 2.7 mil. EUR per MWp, in order to achieve equity rate of return above 15%. Equity IRR of PVE as combination of FIT/selling price and CAPEX per Wp CAPEX (EUR per Wp) % change 0% -5% -10% -15% -20% -25% -30% -40% -50% -60% -70% -80% EUR 3.0 2.85 2.7 2.55 2.4 2.25 2.1 1.8 1.5 1.2 0.9 0.6 Sellingprice(EURperkWh) 0% 0.425 16.3% 19.0% 22.1% 25.6% 29.6% 34.1% 39.4% 52.8% 71.6% 99.7% 146.4% 239.5% -10% 0.383 11.0% 13.2% 15.8% 18.7% 22.1% 26.0% 30.6% 42.3% 59.0% 83.9% 125.4% 208.2% -20% 0.340 6.1% 7.9% 10.0% 12.4% 15.1% 18.3% 22.1% 32.0% 46.4% 68.2% 104.5% 176.9% -30% 0.298 1.7% 3.2% 4.8% 6.7% 8.8% 11.3% 14.3% 22.1% 33.9% 52.4% 83.5% 145.5% -40% 0.255 0.0% -1.2% 0.2% 1.7% 3.4% 5.3% 7.5% 13.2% 22.1% 36.8% 62.5% 114.1% -50% 0.213 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.7% 5.8% 11.8% 22.1% 41.6% 82.7% -60% 0.170 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -0.4% 3.7% 10.0% 22.1% 51.2% -70% 0.128 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.1% 7.6% 22.0% -80% 0.085 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4.1% -90% 0.043 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -95% 0.021 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Source: KPMGAnalysis
  8. 8. 7© 2010 KPMG Slovensko spol. s r.o., the Slovak member firm of KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Strategy and timing matters When looking at IRR, timing of cash flows and exit strategy can significantly improve returns.  Time value of money plays important role in achieving profitability objectives  Detailed planning of steps, cash flows planning and exit strategies can significantly improve overall profitability of the project.  Investing and developing PVE for example after the peak season (summer) can result in 16.3% Equity IRR, whereas 19.5% can be reached when invested just before the positive cash flows can be expected.  Improved IRR can be achieved when exiting the project to investor, who requires lower return on equity than IRR of the project. Accelerated project – development and exit happen in the same year 11.3% 19.5% 49.5% 8.3% 29.9% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Project IRR Financial leveraging (at 6% interest rate) Equity IRR Exit strategy (at 15% required equity return) Developers final IRR 9.4% 16.3% 20.2% 6.9% 3.8% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Project IRR Financial leveraging (at 6% interest rate) Equity IRR Exit strategy (at 15% required equity return) Developers final IRR Year-over-year timing of the project – Development and exit happen year after year. Example of two theoretical timing variations of the same project: 1 Year1st Year 2nd Year Source: KPMGAnalysis Source: KPMGAnalysis
  9. 9. 8© 2010 KPMG Slovensko spol. s r.o., the Slovak member firm of KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Summary Conclusion PVE market price is declining  2010 prices ranged between 2 to 4 mil. EUR per MWp, very often at or below 3mil. EUR Usual PVE acquisition targets represent PVEs located in Spain and Italy  This is due to combination of favorable geographical and climate factors (double irradiation compared to Slovakia) and local regulatory support.  Very difficult to compete with under local Slovak conditions. Main type of buyers of PVE represent financial investors  Looking for stable and secured investment returns.  Compared to strategic, can often offer higher price, due to lower equity returns required compared to strategic ones. Key factors affecting financial performance of PVE’s in the given geographic boundaries are price and Capex  10% savings on development costs (CAPEX) (from 3€ to 2.7€ per Wp) alone can bring additional 6 percent points in terms of Equity IRR.  On the other hand, 10% decline in prices (from € 425 to €382 per MWh) can result in in 5.4 percent point deterioration of Equity IRR  Investment attractiveness should be therefore carefully assessed in defining price regulation policies. Proper analysis, and planning can help achieve higher investment returns.  Cash flow planning, leveraging and exit strategy can significantly help reaching attractive investment returns.
  10. 10. 9© 2010 KPMG Slovensko spol. s r.o., the Slovak member firm of KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Contacts and disclaimer Important notice: This presentation has been prepared exclusively for the participants of PVs in Bloom conference held in 23rd and 24th of November 2010 and does not carry any right of publication or disclosure to any other party. This presentation is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by KPMG. Neither this presentation nor its content may be used for any other purpose without prior written consent of KPMG. The information in this presentation is based upon publicly available information as well as information provided by the companies and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of any information available from public sources. All information contained in this presentation are only for illustrative purposes only, and should not be relied upon ore referred. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Whilst the information presented and views expressed in this presentation and the oral briefing have been prepared in good faith, KPMG accepts no responsibility or liability to any party in connection with such information or views. Contact details: Katarína Virčíková Transaction Services Senior Associate, KPMG Slovensko, spol. s r.o. Tel: + 421-(2)-599 84 443 email: kvircikova@kpmg.sk Ján Hurban Corporate Finance Senior Associate, KPMG Slovensko, spol. s r.o. Tel: + 421-(2)-599 84 487 email: jhurban@kpmg.sk KPMG Slovensko spol. s r.o. Dvořákovo nábrežie 10 811 02 Bratislava Slovakia Tel.: +421-(2)-59984111 Fax: +421-2-59984888 Internet: www.kpmg.sk
  11. 11. 10© 2010 KPMG Slovensko spol. s r.o., the Slovak member firm of KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Section heading As much as 88% of all PVE targets are in Spain and Italy Target Company Country Completed Bidder Company Seller Company Capacity (MWp) Enterprise Value EV/ MWp Rete Rinnovabile S.r.l. IT Oct 10 Terra Firm a Capital Partners Fund III Terna - Rete Elettrica Nazionale SpA 150.0 620.0 4.1 Montalto di Castro PV power plant (20 MW alternating IT Aug 10 Etrion Corporation SunPower Corporation 20.0 36.0 1.8 GP Energia SpA IT Jul 10 GWM Renewable Energy Solar Utility SpA 11.0 17.3 1.6 BP Solar Italia Srl (Six Solar Parks) IT May 10 Allianz Specialized Investm ents Lim ited BP Solar Italia Srl 5.0 30.0 6.0 First Solar Gm bH DE Mar 10 WealthCap Juwi Solar Gm bH 53.0 160.0 3.0 Aldesa Construcciones SA (9 Solar sites) (49% ES Feb 10 NIBC European Infrastructure Fund; Am pere Equity Fund BV Aldesa Construcciones SA 46.0 54.8 1.2 Grupo Tagoro ES Nov 09 Anem oi Renovables SL Acevedo Reid SAT 20.0 70.0 3.5 Alcala de Gurrea solar farm ES Oct 09 Abraxa Integrated Financial Solutions RYC SL Energy and Environm ent 2.0 20.0 10.0 Alm eria; Solon ES Oct 09 Konstantin Strasser (Private Investor) PI Power International Ltd 30.0 87.5 2.9 Renewagy A/S ES Jun 09 Colexon Energy AG n/a 45.0 159.6 3.5 5.25MWp solar photovoltaic plant ES May 09 HgCapital Renewable Power Partners Fund Montebalito, SA; Invercartera Energía S.L. 5.3 35.0 6.7 Jim enez Belinchon SA (Malagon Solar Plant) DE May 09 AES Solar Espana SL Jim enez Belinchon SA 7.0 35.0 5.0 Three solar photovoltaic plants in Spain (85% ES Mar 09 HgCapital Renewable Power Partners Fund 360 Corporate; AIG Financial Products Corporation 35.4 300.0 8.5 Pozohondo solar farm (4MWp) ES Feb 09 Alten Energias Renovables n/a 4.0 26.0 6.5 Aleph Sun Capital ES Aug 08 Abaco Energy SA Aleph Sun Capital 4.7 37.0 7.9 Foresta Capital ES Jul 08 Im pax Group plc n/a 14.0 44.5 3.2 Montebalito (Abenojar and Herencia ES Jul 08 Elidecos Spain SL Caixa Catalunya Invercartera SA; Montebalito, SA 14.0 27.3 2.0 Solar farm (Located in Alange) ES Feb 08 Alten Energias Renovables n/a 15.2 65.0 4.3 Solar farm (Located in Alange) ES Feb 08 Alten Energias Renovables n/a 8.0 60.0 7.5 68% 52% 50% 21% 37% 38% 11% 10% 12% 0% 20% 40% 60% 80% 100% Share in # of deals Value (enterprise value) Volume (MWp) Share of M&A deals by country of origin Germany Italy Spain

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