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Electric & Renewables Industry Vision 201207


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A brief overview of Green Capital Advisors views on strategic trends and potential investment opportunities in the electric & renewable industries

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Electric & Renewables Industry Vision 201207

  1. 1. green capital advisors Renewable Energies: a key player in future energy solutionsStrategic analysis, trends and potential investment areas July 2012 1
  2. 2. green capital AVISO LEGAL advisorsNi Green Capital Advisors, S.L., ni ninguna otra persona, representante o sociedad de su Grupo, garantizan la exactitud, veracidad o carácter completo de la informacióncontenida en el presente documento ni no asumen ninguna obligación de actualizar, completar, interpretar o aclarar dicha información ni de entregar ninguna otrainformación.La Información tiene carácter estrictamente privado y confidencial. 2
  3. 3. green capitalAGENDA FOR TODAY advisors 1. Renewable Energies in Today’s Broader Energy Context: a Basket Case or Future Mainstream? 2. What’s in Electricity? An Introduction to the New Ecosystem 3. Back to Basics. Competing with the Establishment. Technology + Market size = Competitiveness 4. Value and Risk. Key Drivers along the Business Chain. 5. Investing in a New Energy World. Where and how to put Capital at Work (…and at What Risk)? 6. How Can We Help to Make Things Happen…? 3
  4. 4. 1. Renewable Energies in Today’s Broader green capital advisors Energy Context Renewable Energies are already an important part of electricity markets worldwide. Their weight is set to increase dramatically in the next decade However, in terms of renewable energies contribution to final primary energy consuption, the industry still accounts for less than 2% TACC = 26% TACC = 38% % of domestic electricity demand (2010/11e) Wind: 6.3% Solar: 2.0% Wind: 1.5% Solar: 0.1% Wind: 2.0% Solar: 0.1% Wind: 3.0% Solar: 0.1% 4 Wind: 15.6% Solar: 3.7%
  5. 5. green capital2. What’s in Electricity? Production vs Consumption advisors Electricity Electricity Demand Supply Balance (sic) of Power Is this an optimized sector structure ? For whom…? 5
  6. 6. green capital2. What’s in Electricity? An introduction to the New advisors Ecosystem Meet the “Bipolar Electricity Consumer”: sophisticated and technology hungry but “tied” to its electric distribution & supply companies… From a… Supply, a & regulation driven Demand, marketing & business competition driven business • Does not know which company is serving him… but on the other hand he knowsand cares modern kitchen • Does not know monthlyappliances, TV sets, laptops, consumption or contracted powertablets,etc… • Does not know the price of power or supply availability... And he knows perfectly what hehas, why he bought it (its value) atwhich price and to whom … although as we will see some things are starting to move: Customer Service to become the main driver of energy markets 6
  7. 7. 3. Back to Basics. Competing with the Establishment green capital advisors… to Tomorrow’s Vision Spanish Government Tomorrow’s Vision (as of 2011) on competitiveness of renewable energies … still a long-term goal? Source: IDAE/Ministry of Industry, Commerce and Tourism (2011). Study made with support from Boston Consulting Group ... let’s have a closer look to reality… 7
  8. 8. 3. Back to Basics. Competing with the Establishment. green capital advisors From Today’s Facts… Electricity prices going up despite sharp fall in … and together with tecnological evolution, consumption due to higher oil prices and nuclear enabling renewables to deliver their “value “risks”… proposition” EPIA estim. 250 Domestic consumer price (€/MWh) +5% CAGR €/MWh Annual system deficit 150 1422011-20e € 17,9 – 36,0/MWh Interest on total system +58% 125 IVA € 30,50/MWh deficit 130 (CAGR: +12%) 200 € 4,8 – 9,6/MWh Impuesto Especial 115 Electricidad 110 Potencia/alquiler cont. € 7,86/MWh 93 € 14,69/MWh 90 90 150 70 2.007 2.008 2.009 2.010 2.011 100 Average wholesale price (€/MWh) 70 64,4 TUR € 146,87/MWh 50 60 +27% 49,9 Spain’s final household consumer 50 (CAGR: +6%) electicity price (€/MWh) 0 39,4 40 37,0 37,0 PV systems cost evolution and Market size driven economies of scale 30 7,00 30 2.007 2.008 2.009 2.010 2.011 6,00 25 Volume (TWh) 5,00 250 20 222 -18% 4,00 225 201 (CAGR:-6%) 15 195 3,00 193 200 182 2,00 10 175 1,00 5 150 0,00 0 2.007 2.008 2.009 2.010 2.011 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011eSources: EPIA ,ASIF, Green Capital Advisors Price (€/Wp) Global Prod. (MW) 8
  9. 9. 3. Back to Basics. Competing with the Establishment green capital advisors … to Tomorrow’s Vision The official vision is already old (and biased): Market speed is surpassing initial predictions both for consumer electricity prices (up) and grid parity (earlier) PV systems competitiveness as an alternative to large centralized grid supply is already a reality in Germany… (and even more inSpain!!) €/MWh PV systems costs vs Consumer Electricity price TUR (1H2012) 14,2 c€/KWh Adjusted TUR IDAE/MITYC New German FiT <10kW 195 €/MWh (June 2012)Source: IDAE/Ministry of Industry, Commerce and Tourism (2011). Study made with support from Boston Consulting GroupNote: TUR concept does not include VAT or electricity tax, nor fixed grid connection cost or 9
  10. 10. 3. Back to Basics. Competing with the Establishment green capital advisors Renewables as Keystone in the Energy Puzzle Renewable Energies*, born under the prevailing B2B centralized supply-side model of the electricity industry (Utility World) are the main driver pushing in the transformation of electricity in a B2C / C2C decentralized, customer oriented business model Yesterday Today Tomorrow Electricity Electricity Sector Sector Renewable Renewable Energies* Energies* “Transformation of “A small world Renewable Energy Supply & Management by its own Energies* Customer Centered Service ” rules” “Growth and integration in the larger Utility playing field”* Includes all Efficiency & Energy management business areas 10
  11. 11. 4. Value and Risk. Key Drivers along the green capital advisors Business Chain. The traditional vision … (from actual 2009 analysis) MANUFACTURING DEVELOPMENT OPERATION AND CONSTRUCTION Need for financial LOW HIGH VERY HIGH (<€ 0.1 mil/MW) (€ 0.7-4.0 mil/MW) (€ 1.3-6.0 mil/MW) resources MEDIUM SHORT to MEDIUM LONG Investment (6-24 months WC (20-30 years) (3-5 years) period vs factories, R&D) MEDIUM / HIGH MEDIUM MEDIUM / LOW Risk profile (Regulatory / (Construction / manufacturer risk) (Technological / regulatory / development risk) market risk) • Identification of locations • Technology & industrial • Margin and income Success factors • Speed, flexibility organization management • Relations with the Public • Client relationship • O&M management Administrations • EPCs management LARGE NUMBER OF PLAYERS VERY SMALL NUMBER OF PLAYERS SMALL NUMBER OF PLAYERS Market / • Important Electricity companies • Important manufacturers • Important Electricity companies Competition (IBE, END, UNF, EDP, Acciona, …) (Gamesa, Vestas, GE, Alstom …) (IBE, END, UNF, EDP, Acciona, …) • Medium/small-sized developers • Important EPC contractors • Medium-sized operators 11
  12. 12. 4. Value and Risk. Key Drivers along the green capital advisors Business Chain. Traditional vision was of wind as the overwhelmingly competitive renewable energy source to serve (within its limitations) large centralized systems The traditional vision of different renewable energies technologies … (from actual 2009 analysis) Wind Offshore Solar CSP Solar PV Biofuel Farms Wind Farms Plants Plants Plants Need for financial MEDIUM HIGH VERY HIGH HIGH HIGH Resources (€/MW) 1.3-1.4 2.7-3.0 5.5-6.5 3.0-4.0* € 45-60 mil/plant Technological risk LOW MEDIUM HIGH MEDIUM LOW Regulatory risk LOW MEDIUM/HIGH VERY HIGH VERY HIGH HIGH (premium €/MWh**) 25-30 ~ 120 ~ 220 ~ 220-270 5.8% Quota (2010)Technology evolution / Low (plants) Limited / Slow / Slow / Low High / HighCompetition among High (fuels) / Low Unexisting MediumManufacturers * Expected to be at € 2.5-2.7 in 2010 and €1.5-2.0 in 2012 The Status Quo** Based on €50 / MWh market price Challenger 12
  13. 13. 4. Value and Risk. The forward vision (2012…) green capital advisors Moving from “a business” to “an environment”From the old days …to Smart Household/Business …to individual & collective of intensive Networks and Appliances Transportation Systems“light & power”… “negative use of power”… & Smart Cities Utilities rule (…2008): Utilities vs Renewables (2008-2018?): Consumers rule (2018…): Renewables as a nice Who will lead in addressing Consumer Adapting Renewables & “negative feature of the system needs (not just energy ones…)? energy” paradigm to manage both supply & demand• Centralized supply grid: • System’s progressive supply • System’s supply to become mostly renewables as a regulated decentralization: renewables as decentralized: renewables fully system investment competitive energy source integrated: generation seeks to• No customer (just users & • Technology brings competition and optimize consumption accounts to be supplied) lowers barriers (still high from • Retail & business market with strong• Artificial, limited competition regulatory standpoint) competition: few barriers to entry with high entry barriers • Customer approach generally limited • Customer is king (again, finally)• No externality costs to medium/large businesses • Majority of the externality costs are • Increased weight of externalities accounted for 13
  14. 14. 5. Investing in a New Energy World. Where and how green capital advisors to put Capital at Work (…and at What Risk)? Where can we sensibly put capital at work…?High DisruptiveRisk 0 Why A…? or B…? or C…? Technologies Developed Countries Developing C.High/Med New Energy Distributed &Risk 1 Markets “Negative Additional Consumer & Energy” Energy Needs Development Oriented R I S Financial Buy Large but Restructure & Sell (by K Diminishing Parts) to Specialized 2 Restructuring of Shares of Integrated Operators and New L E “OldWorld” co. Generation,T&D assets Entrants V E L Operational Buy Sell 3 Optimization of Optimize Inneficiency EfficiencyLow Existing Assetsrisk 14
  15. 15. green capital6. How Can We Help to Make Things Happen…? advisors Specialized Energy & Renewables know-how & “hands-on” execution MARKET TRENDS TRANSACTION BUSINESS STRATEGY & INTELLIGENCE SUPPORT DESIGN & EXECUTIONMarket views and analysis: Highly Specialized Strategic plans & reviews - Value chain & business Opportunity Identification Add-on opportunities models and pre-screening - Regulation - Technology Board & Executive team - Strategic positioning & support Competition - Financing & investors views Initial Conversations -… Analysis, Indicative Offers & Due Diligence Final Bids & Negotiation Operating plans & reviews Periodic reports on trends in key markets; ad hoc specific reports Portfolio companies Closing Investors & Fundraising optimization & restructuring presentations 15
  16. 16. green capital6. How Can We Help to Make Things Happen…? advisors Building Long-Term Value Focus Teamwork Commitment 16
  17. 17. green capital advisors José Espinosa Managing