Jonathan maxwell


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Founding Partner - SDCL-Sustainable Development Capital Ltd. - UK
Investing in Renewable Energy Infrastructure - Private Equity Funds vs. CDOs?

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Jonathan maxwell

  1. 1. Inves&ng  in  Sustainable   Infrastructure  in   Interna&onal  Markets     Presenta&on  For  TBLI   12th  November  2010   Presented  by:   Jonathan  Maxwell   Founding  Partner  and  CEO   Sustainable  Development  Capital  LLP   Inves&ng  in  Low  Carbon  and  Resource  Efficient   Infrastructure  
  2. 2. Introduction to SDCL Group INTRODUCTION  TO  SDCL   IntroducFon  to  SDCL   SDCL  is  an  independent,  mulF-­‐disciplinary  investment  banking  and  advisory  firm  providing  financial  and   strategic  advice  on:   Investment  advisory   •  unds  –  advising  financial  insFtuFons  and  corporaFons  on  creaFng  sustainable  investment  vehicles   F firm   •  rojects  –  structuring  and  raising  finance  for  large  scale  sustainable  developments   P •  pecial  opportuniFes  –  facilitaFng  investment  in  sustainable  innovaFons   S SDCL  is  authorized  and  regulated  in  the  UK  by  the  Financial  Services  Authority   SDCL  focuses  on  projects  which  have  the  opportunity  to:   • Create  aTracFve  levels  of  return  on  investment   Strategic  Focus   • PosiFvely  impact  the  environment  and  society   • Create  sustainable  and  replicable  business  models   SDCL  has  a  diversified  and  mulF-­‐disciplinary  team,  with  professionals  with  a  background  in  banking,  finance  and   industry  in:   Professional  team     •  ondon   L •  ew  York   N •  ong  Kong  and  PRC   H SDCL  has  team  members  who  serve  on  the:   • Advisory  Council  to  the  United  NaFons  Environmental  Programme  (UNEP)  Green  Economy  IniFaFve   Industry  network     • Advisory  Council  on  the  Clinton  Climate  IniFaFve  Climate  PosiFve  Development  Programme   • Board  of  Directors  &  Trustees  for  the  London  Thames  Gateway  InsFtute  for  Sustainability   2  
  3. 3. Mobilizing Private Equity into Environmental Markets INTRODUCTION  TO  SDCL     SDCL  advises  financial  ins&tu&ons,   governments  and  corpora&ons  on  creaFng   sustainable  investment  vehicles,  thereby  moving   capital  from  the  financial  markets  into  the   environmental  markets.     The  Firm  advises  on  the  design,  structuring   and  capital  raising  for  vehicles  involving   investment  in  the  Private  Equity,  Infrastructure,   Real  Estate  and  Listed  SecuriFes  sectors.   Funds   Projects   SDCL  structures  and  raises  finance  for  large   scale  sustainable  development  projects  in   partnership  with  financial  insFtuFons,   corporaFons,  project  developers,  engineering   firms,  governments,  academic  insFtuFons  and   NGO’s.   The  Firm  advises  on  the  design,  implementaFon   and  management  of  various  projects  such  as:   sustainable  urban  development,  resource   management  and  energy  infrastructure.     3  
  4. 4. Disclaimer   Clean  Energy  Infrastructure   4  
  5. 5. Disclaimer   Global  Trends  in  Investment  in  Clean  Energy   5  
  6. 6. Disclaimer   Public  and  Private  Capital  Markets   6  
  7. 7. Disclaimer   Investment  in  Sub-­‐Sectors  of  Clean  Energy   7  
  8. 8. Disclaimer   Approach  to  Inves&ng  in  Clean   Infrastructure  in  Emerging  Markets   8  
  9. 9. Target  investments   Demand  for  sustainable  energy  and  water,  natural  resources,  waste  management,   transportaFon  etc  is  going  to  exceed  supply,  creaFng  investment  opportuniFes  at  scale  in:                      low  carbon  and  resource  efficient  infrastructure   Clean and renewable energy Energy efficiency Waste management assets Water treatment Transport Land Use 9  
  10. 10. The  Need  for  Equity  Investment   Illustration of Investment Lifecycle and Financing Requirement of a Typical Environmental Infrastructure Project Planning   Development   ConstrucFon   OperaFon   Supply/Value Chain: Developers, Utilities/IPPs, Manufacturers, Contractors & Suppliers Infrastructure Services Companies Private Equity at Development and Construction Phase Investment of Equity Capital: - Project requires risk capital to support planning and development Project Debt & Equity - Project requires capital for construction during Operational Phase - Project generates little or no income during pre-construction completion Project Finance: - Project generates income - Cash flow supports debt financing 10  
  11. 11. The  need  for  scale   If  current  popula4on  and  consump4on  trends  con4nue,  by  the  middle  of  the  next  decade  we  will   need  the  equivalent  of  two  Earths  to  support  us     Copenhagen  Accord  calls  upon  the  industrialised  countries  to  contribute:     o  €30  billion  in  short-­‐term  funding  between  2010  and  2012   o  up  to  €100  billion  per  year  by  2020     to  finance  climate  change  miFgaFon  and  adaptaFon  in  developing  countries.         InsFtuFonal  investors,  parFcularly  pension  funds,  sovereign  wealth  funds,  insurance   companies,  development  banks  and  foundaFons  are  part  of  the  soluFon  given  their  objecFve   to  make  investments  both  in  the  short  and  long  term.   11  
  12. 12. Why  Asia?    Why  low  carbon?   Why  Asia?   Where  in  Asia?    Half  of  the  world’s  populaFon    One  billion  people  to  move  to  ciFes  by   2030    Energy  consumpFon  to  double                       by  2030    Share  of  worldwide  GHG  emissions   increased  from  9%  in  1973  to  24%  in   2003  and  could  increase  to  29%                   by  2030   Why  low  carbon?    Energy  and  water  shortages,   deforestaFon  and  soil  degradaFon  are   driven  by  populaFon  growth  and   Based  on  GDP  growth  ,  urbanisa&on  trends  and  energy   consump&on,  impact  of  investments:   urbanisaFon  -­‐  economic  costs,  lower   High   life  expectancies,  health  costs  and                                  Medium   natural  disasters  follow                                                                                Low   12  
  13. 13. Results  of  a  consulta&on  process   Why  is  it  not  already  happening?     Market  failures     Perceived  risks  inherent  in  region   and  sector     o  PoliFcal,  regulatory,  technology,   execuFon,  currency  and  governance  risks   o  Lack  of  adequate  market  incenFves   o  Lack  of  appropriately  bundled  risk   miFgaFon  tools     Perceived  lack  of  quality  pipeline     Funding  gap  associated  with  an   informaFon  and  knowledge  gap     ExisFng  iniFaFves  lack  scale     Projects  themselves  tend  to  be  small   and  have  high  transacFon  costs   13  
  14. 14. The  consulta&on  process   What  do  investors  need?     Commercial/market  investment  terms  and   financial  return  profile     Risk  miFgaFon  &  government  involvement  –   the  influence  of  mulFlateral  insFtuFons  as   well  as  host  country  governments     Structured  program  to  invest  and  co-­‐invest  in   funds  and  projects   o  Some  prefer  co-­‐investment  to  ensure  minimise  costs   Ins&tu&onal   Sovereign   Public  Sector   and  maximise  control   Investors   Wealth  Funds   o  Others  prefer  managed  and  diversified  market   access  via  a  private  markets  with  specific  experFse   o  Exposure  and  balance  to  be  customised  for  investors     Access  to  technical  assistance  &  concessionary   P1   P2   P3   finance  at  underlying  project  level     A  cost-­‐effecFve  and  value-­‐addiFve  delivery   plamorm   14  
  15. 15. Example  of  a  “PPP”  structure   The  Climate  Public  -­‐  Private  Partnership  Fund  Structure   Donors   Public  and  Private  LPs            $          $   Technical   GP  2B     GP  1 Assistance  and  Risk   “Best    of  Class”   Fund  Investments   Co  -­‐  Investments   Mi&ga&on  Facility   Team2            $            $   GP  2   GP  2   GP  2s3   Funds3            $            $   P1   P2   P3   1  Technical  Assistance  and  Risk  MiFgaFon  Facility  will  be  built  around  the  strengths  of  the  MDBs  and  others  (including  possibly  host  governments)  to  maximize  synergies  and  minimize  costs;   draw  on  skills  &  capabiliFes  of  the  MDBs  to  raise  and  deliver  new  and  addiFonal  resources  including  targeted  subsidy  and  concessional  financing,  policy  dialogue,  sector  and  regional  experFse   and  technical  assistance,  at  significant  scale.   2High  quality  management  and  investment  team  with  an  established  track  record  and  pipeline.   3The  Fund  will  invest  in  mulFple  lower  level  funds,  each  managed  by  its  own  GP2  and  having  an  investment  scope  defined  by  country  and  sector.   15  
  16. 16. Equity  Investment  Allied  with  Risk  Mi&ga&on   with  assistance  from  mul4-­‐  and  bi-­‐lateral  ins4tu4ons   Iden&fied  risk   Mi&gated  by   A  funding  gap  associated  with  an   An  insFtuFonal  vehicle  that  can   informaFon  and  knowledge  gap   provide  both  capital  and  know-­‐how   Lack  of  scale:  projects  tend  to  be   Investment  through  private  equity   small  in  scale  and  have  high   funds  and  development  of  scalable   transacFon  costs   and  replicable  projects   Low  carbon  regulatory/policy  risk  and   Policy  dialogue  and  access  to   lack  of  adequate  market  incenFves   concessionary  finance   Low  carbon  technology  &  execuFon   Technical  assistance  to  be  provided   risk   by  the  Climate  PPP’s  Advisory  Group   Country/poliFcal  risk   MIGA/ADB  insurances   Currency  risk   PotenFal  for  TCX  facility   Governance  risks   Due  Diligence  and  MDB  Networks   In  prac4ce,  the  risk  mi4ga4on  technique/public  finance  mechanism  applied  will  depend  on  what  is  appropriate  for  the  par4cular  project  because   the  risks  differ  between  Asian  countries  and  low  carbon  and  resource  efficient  infrastructure  sectors.     16  
  17. 17. Crea&ng  Public  Private  Partnerships   Bringing  together  investment  and  assistance   P8   P8   P8   P80   IFC   IFC   ADB   ADB   Climate     Sovereign   Sovereign   Climate  Public-­‐Private   Wealth   Wealth   Pension   DFID  /  UK     Investment     Partnership     Funds   Funds   Funds   Funds   Fund     Ins&tu&onal   Ins&tu&onal   Insurance   Governments   IFIs   Investors   Investors   Companies   Private   sector   Public  sector  can  provide:   Private  sector  can  provide:     Investment  capital     Investment  capital     Risk  miFgaFon  tools  (policy  risk,  technology  &  execuFon     Access  to  pipeline  of  commercial  projects   risk,  country  risk  and  currency  risk)     Commercial  investment  experFse     Policy  dialogue  with  host  country  governments     Ability  to  aTract  and  mobilise  leading  internaFonal     Access  to  sources  of  concessionary  finance  and  targeted   Fund  Managers/General  Partners   subsidy     Capacity  and  scale  through  exisFng  and  establishing     Environmental,  social,  technical  and  governance  advice   funds   17  
  18. 18. Disclaimer   Inves&ng  in  Efficiency   18  
  19. 19. Resource,  Carbon  and  Capital  Efficiency  Opportuni&es   Disclaimer   19  
  20. 20. ENERGY  INTENSITY  LEVELS:  2009   Countries & consumers – energy intensity levels in 2009 Mapping  global  energy  intensity:  opportuni&es  will  arise  from  the  development  of  energy  efficient   technologies   GDP  generated  per  tonne  of  energy  consumed  US$                     10,000  –  20,000                             1,000  –  9,999     0  –  999     Not  Included                                 Western  Europe  leads  the  way   Energy  intensive  Eastern  Europe   China  aims  to  improve   Denmark  leads  the  world  in   The  economies  of  Eastern  Europe   In  2009,  China  generated  US terms  of  energy  efficiency  as  it   are  generally  energy  intensive.   $2,261  of  GDP  per  toe  of  energy   generated  US$17,761  worth  of   Ukraine  generated  US$903  of   used,  an  improvement  of  4.6%  in   GDP  per  tonne  of  oil  equivalent   GDP  per  toe  consumed   energy  intensity  over  a  year   of  energy  (“toe”)  used  in  2009.     earlier.     Source:  2010  Euromonitor  InternaFonal:  Countries  &  Consumers  –  Energy  Intensity  Levels:  2009   20  
  21. 21. TRANSFORMATION   ECONOMICS OF GLOBAL BUILDING The economics of global building transformation Addi&onal  investment     Net-­‐present  value*       Emission  reduc&on     Average  abatement  cost     (Billion  USD  per  year  2005– (Billion  USD  per  year  2005– (Million  tons  in  2050  rela&ve   (USD  per  metric  ton,  2005– 2050 2050) to  BAU) 2050) OECD  North  America   244 -­‐45 1699 30 United  States   209 -­‐40 1555 28 OECD  Europe 170 -­‐26 915 30 EU 158 -­‐25 861 30 OECD  Pacific   67 -­‐17 353 48 Japan   37 -­‐9 168 52 TransiFon  Economies   78 -­‐12 548 24 Russia   51 -­‐10 345 33 Developing  Asia 188 -­‐26 2343 14 China   114 -­‐15 1427 14 India   19 -­‐2 221 12 LaFn  America   31 -­‐5 142 39 Brazil 10 -­‐2 28 61 Middle  East   80 -­‐17 663 32 Africa   29 -­‐3 298 10 BAU  =  Business  as  usual *  Net-­‐Present  Value  is  calculated  over  20  years  using  constant  energy  prices  and  a  6  percent  discount  rate. Source:  WBCSD  Energy  Efficiency  in  Buildings  Model,  InternaFonal  Energy  Agency,  United  NaFons  Development  Program,  Economist  Intelligence  Unit. 21 21  
  22. 22. INVESTMENT STRATEGY Investment Strategy - Energy Efficiency Investment Program APEEC invests in energy efficiency projects by installing energy savings equipment to reduce operating costs, while seeking investment returns via payments from the energy savings achieved. ‘Paid from Savings’ Energy Efficiency Equity Facility The  Manager  deploys   Manager  funds  the   capital  into  the  energy   implementa4on  of  the   efficiency  projects   energy  efficiency  Projects COMPANY MANAGER BUILDING  /     Receives    a   Energy  savings  achieve   INDUSTRIAL  SITE percentage  of  the   income  streams  from   income  streams  from   Buildings the  B uilding  owner’s   energy  savings Capital is deployed by the Manager into energy efficiency projects and is paid from the measured and verified energy efficiencies (i.e. savings) achieved. The Company provides the development capital, and where necessary, arranges third-party debt financing for energy efficiency projects implemented by energy savings companies (ESCOs) and facilities managers. The investment program provides investors with the opportunity to capitalise on the inefficiency. 22 22  
  23. 23. INVESTMENT STRATEGY Investment Strategy – Typical Cash Flow Profile Cumulative Cash Flow (Sample Project) 1,500,000 1,000,000 500,000 0 US$ 1 2 3 4 5 6 7 -500,000 -1,000,000 -1,500,000 Years -2,000,000 Annual Cash flow to fund Cumulative Cash Flows • Medium term cash flows once the energy saving solutions and equipment have been installed. Investment • Strong cash generative characteristics with relatively short pay-back periods. Characteristics • Private equity-type returns at infrastructure-type levels of risk, i.e. risks that can be identified and mitigated. 23 23  
  24. 24. Disclaimer   Important  informa&on   This  document  has  been  prepared  by  Sustainable  Development  Capital  LLP  (“SDCL”).    SDCL  is  authorised  and  regulated  in  the  UK  by  the  Financial  Services  Authority.     This  document  summarizes  current  discussions  (which  are  on-­‐going)  among  DFID,  ADB  and  IFC  with  the  support  and  assistance  of  SDCL  as  a  consultant,  and  nothing  herein   should  be  interpreted  as  a  commitment  by  any  of  DFID,  ADB  or  IFC  to  make  an  investment  in  the  Fund;  any  investment  in  the  Fund  would  be  subject,  in  respect  of  each   insFtuFon,  to  such  insFtuFon’s  management  and  board  approvals  (or  equivalent).   Confiden&ality:    This  document  contains  confidenFal  informaFon  regarding  the  Fund.    By  accepFng  this  document,  the  recipient  agrees  that  it  and  its  representaFves  will  use   the  document  and  such  confidenFal  informaFon  only  to  evaluate  the  Fund  and  for  no  other  purpose  and  will  not  divulge  any  such  informaFon  to  any  other  party.   Not  an  offer:    The  informaFon  herein  does  not  consFtute  an  offer  of  interests  in  the  Fund  to  the  public  and  no  acFon  has  been  or  will  be  taken  to  permit  a  public  offering  in   any  state  or  jurisdicFon  where  acFon  would  be  required  for  that  purpose.    Any  offering  will  only  be  made  pursuant  to  the  relevant  informaFon  within  a  private  placement   memorandum  and  subscripFon  documents,  all  of  which  must  be  read  in  their  enFrety  and  no  offer  to  make  an  investment  will  be  made  prior  to  receipt  by  a  potenFal  investor   of  such  documents  and  the  compleFon  of  all  the  appropriate  documents.    The  informaFon  herein  does  not  take  into  account  the  investment  objecFves,  financial  situaFon  or   needs  of  any  person  and  does  not  contain  all  of  the  informaFon  necessary  to  make  an  investment  decision,  including,  but  not  limited  to,  the  risks,  fees  and  investment   strategies.    Nothing  in  this  document  consFtutes  advice  relaFng  to  legal,  taxaFon  or  investment  maTers  and  potenFal  investors  are  advised  to  consult  their  own  professional   advisors  in  connecFon  with  making  an  investment  decision.    No  informaFon  contained  in  this  document,  nor  any  oral  or  wriTen  communicaFon  with  a  potenFal  investor   should  be  relied  upon  as  a  representaFon  or  warranty,  and  no  liability  shall  aTach  to  any  person  or  enFty  as  a  result  of  such  informaFon.   Distribu&on:    This  document  is  not  for  distribuFon  to  the  general  public  in  any  jurisdicFon.    Its  distribuFon  in  certain  jurisdicFons  may  be  restricted  by  law.    This  document  is   only  directed  at  persons  to  whom  it  may  lawfully  be  distributed  and  any  investment  acFvity  to  which  this  document  relates  will  only  be  available  to  such  persons.    Neither  this   document  nor  the  Fund  interests  referred  to  herein  have  been  approved  by  any  regulatory  or  supervisory  authority  of  any  jurisdicFon,  nor  has  any  such  authority  or  passed  on   the  accuracy  or  adequacy  of  this  document.    This  document  is  being  distributed  on  the  basis  that  each  person  in  the  United  Kingdom  to  whom  it  is  issued  is  reasonably   believed  to  be  such  a  person  as  is  described  in  ArFcle  14(5)  (Investment  professionals)  or  ArFcle  22(2)  (High  net  worth  companies,  unincorporated  associaFons  etc.)  of  the   Financial  Services  and  Markets  Act  2000  (PromoFon  of  CollecFve  Investment  Schemes)  Order  2001,  or  is  a  person  to  whom  this  informaFon  memorandum  may  otherwise   lawfully  be  distributed.    Persons  who  do  not  fall  within  such  descripFons  may  not  act  upon  the  informaFon  contained  in  it  or  rely  on  it  for  any  purpose  whatsoever.    Any   recipient  of  this  document  in  jurisdicFons  outside  the  UK  should  inform  themselves  about  and  observe  any  applicable  legal  requirements.    It  is  the  responsibility  of  any   potenFal  investor  to  saFsfy  itself  as  to  the  full  compliance  of  the  applicable  laws  and  regulaFons  of  any  relevant  jurisdicFon,  including  obtaining  any  governmental  or  other   consent  and  observing  any  other  formality  prescribed  in  such  jurisdicFon.   Poten&al  U.S.  Investors:    The  Fund  interests  referred  to  herein  will  not  be  registered  under  the  U.S.  SecuriFes  Act  of  1933,  as  amended  (the  “SecuriFes  Act”)  or  the  securiFes   laws  of  any  state  or  other  jurisdicFon.    The  interests  will  be  offered  and  sold  under  the  exempFon  provided  by  secFon  4(2)  of  the  SecuriFes  Act  and  rule  506  of  regulaFon  D   promulgated  thereunder  and  other  exempFons  of  similar  import  in  the  laws  of  the  states  and  jurisdicFons  where  the  offering  will  be  made.    As  such,  each  purchaser  of  the   interests  will  have  to  be  an  “accredited  investor”  within  the  meaning  of  regulaFon  D  promulgated  under  the  SecuriFes  Act.        The  Fund  will  not  be  registered  as  an  investment   company  under  the  U.S.  Investment  Company  Act  1940,  as  amended  (the  “Investment  Company  Act”)  so  investors  will  not  be  afforded  the  protecFons  of  the  Investment   Company  Act.   24  
  25. 25. For further information please contact: Jonathan Maxwell Founding Partner and CEO Sustainable Development Capital LLP Sustainable Development Capital LLP 32  Old  Burlington  Street   The  Centrium   880  Third  Avenue   London  W1S  3AT   60  Wyndham  Street   New  York  NY  10022   United  Kingdom   Central,  Hong  Kong   United  States  of  America   Tel:  +44  20  7287  7700   Tel:  +852  3622  5088   +1  917  254  4320  
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