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Measuring the impact of investments remains a main challenge for sustainable finance professionals and, together with Climate Change, an overarching theme at TBLI. Sixteen related workshops offer …

Measuring the impact of investments remains a main challenge for sustainable finance professionals and, together with Climate Change, an overarching theme at TBLI. Sixteen related workshops offer debate on ESG and Impact Investing trends, private equity, portfolio strategy, food production, emerging markets, sustainable energy or philanthropy investing.

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  • 1. TBLI Zurich 2013 Energy Efficiency Projects An Alternative to Fixed Income Investments 14th TBLI Zurich of November 2013 Josh Bourone SUSI_TBLI ZH 2013_JB-SK_20131112 Page 1
  • 2. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund Generate Stable Returns for Investors while Financing the Energy Turnaround ? Politicians pledged to reduce global warming and fight Climate Change, while Institutional Investors are facing a drought of suitable fixed income products. SUSI_TBLI ZH 2013_JB-SK_20131112 Page 2
  • 3. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund SUSI Partners AG SUSI Partners AG  Measurable impact in tons CO2 reduced for every investment Founders: Tobias Reichmuth, Otto von Troschke Board of Directors: Jürg Bucher (President), Kai-Uwe Ricke, Moritz Leuenberger, Prof. Dr. Uwe Krüger, Stephanie Schoss, Björn Bajan Verwaltungsrat: Jürg Bucher (Präsident), Kai-Uwe Ricke, Prof. Dr. Uwe Krüger, Stephanie Schoss, RA Björn Bajan Renewable Energy Energy Efficiency SUSI Sustainable Euro Fund I (Solar- and Windprojects in Western Europe; closed) SUSI Energy Efficiency Fund (Financing Energy Efficiency measures through a contracting model, presently fundraising) SUSI Sustainable Euro Fund II (Solar- and Windprojects in Western Europe, fundraising starts in Q1 2014) Energy Distribution and Storage SUSI Energy Storage Fund (Storage capacity for utilities, planned for end of 2014)  Two topics: Climate Change and Infrastructure  Minimal correlation to traditional asset classes while generating stable returns for institutional investors Minimum correlation and stable returns for institutional investors SUSI_TBLI ZH 2013_JB-SK_20131112 Page 3
  • 4. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund Portfolio Return Infrastructure as an Ideal Portfolio Diversifier Through allocation into infrastructure an identical estimated portfolio return (with a lower risk exposure) can be generated Incl. Infrastructure Excl. Infrastructure Portfolio Risk Portfolio Return Allocation Infrastructure Risk Reduction In the model, the integration of European infrastructure resulted in a considerable reduction of risk at growing target returns Source: Chair of Real Estate Economics, University Regensburg (2011); 633 Infrastructuretransactions were observed from 1993 to 2010 (transaction based index) as a diversifying component in a model portfolio (80% government bonds , 40% short-term government bonds , 40 % long-term government bonds , 10% listed stock, 10% real-estate). SUSI_TBLI ZH 2013_JB-SK_20131112 Page 4
  • 5. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund The Energy Turnaround – Investment Needs Switzerland (Goals Energy Strategy of the Government)  Renewable Energy: CHF 17 bn (Photovoltaic, Wind Power, Geothermy)  Energy Efficiency: CHF 40 bn (until 2035, savings goal of 40%)  Grids: CHF 4-5 bn (until 2020, maintenance only, without expansion)  Storage: ? Germany (EU 20-20-20 Goals)  Renewable Energy: EUR 300 bn  Energy Efficiency: EUR 150 bn (until 2020)  Grids: Valuations differ (from EUR 20 bn to 100 bn)  Storage: ? Europe (EU 20-20-20 Goals)  Renewable Energy: EUR 2,000 bn  Energy Efficiency: EUR 2,000 bn (until 2020)  Grids: Valuations differ (EUR 500-2,000 bn)  Storage: ? Governments and utilities can not provide the necessary funding for the implementation of the energy turnaround. Source: European Commission (2010); Reichmuth et al. «Financing the Energy Turnaround», NZZ 2013.; European Commission Directorate-General for Energy, 2012; SUSI Analytics 2013 SUSI_TBLI ZH 2013_JB-SK_20131112 Page 5
  • 6. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund Energy Efficiency: the biggest Lever to fight Climate Change Gt CO2 38 36 34 32 30 28 26 24 22 2005 2010 2015 2020 2025 2030 Energy Efficiency Fossil fuel switch Renewable energies Nuclear energy Carbon capture and storage Remaining CO2 emissions By investing in energy efficiency measures, more CO2 emissions can be reduced per million EUR invested than with any other measure. Source: Eco-efficiency. Chapter 6 – Environmental performance of constructions / McKinsey Abatement Curve; Communication from the European Commission: Action Plan for Energy Efficiency: Realising the Potential 2006 SUSI_TBLI ZH 2013_JB-SK_20131112 Page 6
  • 7. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund A Market Potential of EUR 2,000 Bn in Europe Energy Savings Potential in Europe by 2020 (in TWh) 5000 4500 4000 3500 3000 = 2500 2000 1500 2008 1000 500 Estimated savings potential of 4,117 TWh in Europe = Necessary investments in energy efficiency measures of EUR 2,000 bn to reach the 20-20-20 goals of the European Union 2020 forecast 0 Houshold (residential) Commercial buildings Transport Manufacturing industry The SUSI Energy Efficiency Fund is investing in one of the fastest growing markets over the next 20 years. Source: European Commission (2010): 2020 Vision: Saving our Energy, Directorate General for Energy and Transport; DENA Deutsche Energie Agentur (2012) SUSI_TBLI ZH 2013_JB-SK_20131112 Page 7
  • 8. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund A Market Potential of EUR 150 Bn until 2020 in Germany Energy savings potential in Germany by 2020 (in TWh) Freight Transportation Residential Heating 17 Passenger Transportation 61 Industrial Electricity Consumption 112 = Total 340 TWh 27 9 48 Industrial Fuel Consumption 15 52 Estimated annual savings potential of EUR 33,2 bn only in Germany = Necessary investments in energy efficiency measures of EUR 150 bn to reach the EU’s 20-2020 goals Residential Electricity Non-residential Non-residential Heating Electricity Energy efficiency is one of the fastest growing markets over the next 20 years in Germany; the largest savings potenial has been identified in the building sector. Source: European Comission (2010): 2020 Vision: Saving our Energy, Directorate General for Energy and Transport SUSI_TBLI ZH 2013_JB-SK_20131112 Page 8
  • 9. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund Increasing Energy Efficiency of Public Infrastructure, Industry and Buildings Buildings in Europe consume more than 40% of the total energy consumption. SUSI_TBLI ZH 2013_JB-SK_20131112 Page 9
  • 10. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund Savings Potential in the Building Sector Hospital -26% Hotel -41% Office -26% Shopping Mall -49% Restaurant -41% School -52% Energy savings result from technical measures that have a pay-back period between 3 to 7 years. Governmental subsidies are rebundant for energy efficiency retrofits to be profitable. Source: Siemens Building Technologies SUSI_TBLI ZH 2013_JB-SK_20131112 Page 10
  • 11. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund The Fund adds a new Source of Financing to a Proven Business Model (Energy Performance Contracting) Property Owner Technology Partner Retrofit of Building Yearly Energy Cost : EUR 20 M Reduced Energy Costs: EUR 15 M Yearly Savings: EUR 5 M 30% Energy Savings: EUR 1.5 M Initial Investment: EUR 20 M Guaranteed Minimum Savings SUSI Energy Efficiency Fund 70% Savings: EUR 3.5 M p.a. over 10 Years The Fund invests EUR 20 M and receives over a period of 10 years EUR 35 M (10 x EUR 3.5 M) Note: For illustration purposes only, linkeage to inflation not considered SUSI_TBLI ZH 2013_JB-SK_20131112 Page 11
  • 12. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund Stable Cash-Flows from the First Year after Investing in a Project Cash-Flows for the parties involved (illustration) Reduction in energy costs for the client €6 0.52 0.58 0.63 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 €5 €4 €3 3.50 3.54 3.57 3.61 3.64 3.68 3.72 3.75 3.79 3.83 5.0 5.0 5.0 Energy Costs Energy costs without implementation Millions Energy Saving Contracting (illustration) €2 €1 Energy costs after implementation Contract duration 1 2 3 4 5 6 7 8 9 10 11 12 13 14 -€ 2 -€ 3 Time Commencement of contract -€ 1 - 20 €0 End of contract -€ 20 -€ 4 Avoided Energy Price Increases Savings for Customer Investment/Return SUSI The Fund makes yearly distributions comprised of dividends and amortisation – no exit-risk. The resulting distributions are stable and at least partially inflation adjusted. SUSI_TBLI ZH 2013_JB-SK_20131112 Page 12
  • 13. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund Inflation Protection The Fund links project returns to price development whenever possible. Projects are individually indexed to:  Consumer Price Index (CPI)  Energy Price Index If a project is linked to an Energy Price Index, usually so-called «floors» are implemented to prevent a decline below the basis price. However, the goal is to index as many projects as possible to a Consumer Price Index. Increasing amount of indexed projects in the portfolio increase net IRR of the Fund given inflation SUSI_TBLI ZH 2013_JB-SK_20131112 Page 13
  • 14. TBLI Zurich 2013 Thank you for your attention! Josh Bourone Associate SUSI Partners AG Feldeggstrasse 12 CH-8008 Zürich Tel: +41 44 386 98 06 Fax: +41 44 386 98 09 j.bourone@susi-partners.ch SUSI_TBLI ZH 2013_JB-SK_20131112 Page 14
  • 15. TBLI Zurich 2013 01 SUSI Partners AG >> 02 Energy Efficiency >> 03 The SUSI Energy Efficiency Fund Reference Project: AAA-risk and 6.3% net return Key Information  Project: Building retrofit of 5 buildings (portfolio)  Technology Partner: Johnson Controls  Building owner: Principality of Monaco  Project duration: 12 years  Fund’s share of savings: 64%  Net Return: 6.3% (due to relatively high SPV cost for small project size)  Risk: Irrevocable guarantee of payment by the Principality of Monaco  Cost of retrofit: EUR 831,0001  Annual gross revenues: EUR 114,000 Energy Savings Johnson Controls guarantees savings of 23% of today’s energy consumption (equaling 27% of energy cost) equaling 1,624 MWh per year. This corresponds to a 35% reduction in carbon emissions and annual carbon savings of 243 tons. Project Summary The project shows very stable free cash flows. SUSI is working with a leading ESCO and a credit worthy governmental building owner. The Technology Partner guarantees the minimum savings and the Principality of Monaco guarantees the payments to the Fund over the project duration. SUSI achieves a very attractive credit-risk-adjusted IRR. The project will generate annual distributions of around 12% of investment, allowing the project a safe payback of just over eight years. SUSI has realized a reference project in order to demonstrate the validity of the business case. 1) While this project is not levered, generally projects with excellent solvency can use leverage. The maximum for the avg. leverage is 50% SUSI_TBLI ZH 2013_JB-SK_20131112 Page 15