Enron Sutton Bridge Power Project — Presentation Transcript1. Group 5 AnirudhVemula Jason Rager JoaquinHirschfeldJunyaTomo...
would initially own Sutton Bridge, but was likely to sell part of its holdings to investors overtime.14. Funding Structure...
23. Results/Projections24. Results/Projections (2) Revenue & EBITDA Profit25. Results/Projections (3) Cash Flow & NPV (15y...
36. Sensitivity Analysis (Equity IRR)37. Sensitivity Analysis (DSCR)38. Sensitivity Analysis (DSCR cont)39. Key Lessons As...
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Enron sutton bridge power projec 2


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Enron sutton bridge power projec 2

  1. 1. Enron Sutton Bridge Power Project — Presentation Transcript1. Group 5 AnirudhVemula Jason Rager JoaquinHirschfeldJunyaTomoiOlukayodeAfolabiShanyu Lao Pia Yasuko Rask Enron Sutton BridgePower Project2. Agenda Project Background Ownership & Equity Consortium Term sheet & FundingFinancial Model Risks & Mitigation Sensitivity Analysis Key Lessons What‟s Happened since?3. Power generation in UK Source: IEA/OECD Energy Prices & Taxes (2008)4. Traditional Electricity Market5. A deregulated electricity market6. Setting the Price 24 hours, broken into 48 ½-hours Demand forecasted by National GridGenerators asked how much at what price for each slot Marginal generator decides the price Rapidly changing and volatile market! Time 10-10.30AM Demand forecast: 10MWGenerator Price Amount Total A 0.7 2MW 2MW B 0.8 3MW 5MW C 0.8 5MW 10MW D 0.9 E 0.1 F 0.1 N N7. Virtual Power Plant Trade electricity as any other commodity. One party own the powerplant(s) while another party has the disposal of the capacity. No specific power plant, butelectricity is delivered into a specified grid. The party with disposal of capacity will pay anoption price.8. The Project9. The Project10. The Project (cont.)11. www.berr.gov.uk/files/file15116.pdf O&M Construction Equity Power Supply12. Major stakeholders Eastern Facing deregulation & regulation More options, Expand businessopportunity . Reach its generating capacity restriction by r egulat ion. –Cannot be in EquityConsortium! Enron High capability of managing risk (ex. derivatives), More profit, more risk!!GE Wants to sell new turbine s and O&M contractor.13. Ownership & Composition of Equity Consortium Equity £51M (£ 42M+ £ 9M), 15% of totalfund 50% of 42M - Enron Corp 50% of 42M- SB Investors Ltd. £9MM from Eastern Electricityas Up-front fee We assume SB investors Ltd. is composed of GE and other investors Enron
  2. 2. would initially own Sutton Bridge, but was likely to sell part of its holdings to investors overtime.14. Funding Structure15. Debt structure Sterling Bond Dollar Bond Rate BBB Tenor 25 years Total amount £28 6 MArranger Barclays Merrill Lynch Amount £ 195M £ 9 1 M ($150M) Coupon rate 8.625% 7.97%Issued At 99.523 At par Others Fully amortizing from 2002 until maturity in 2022 Rule 144A,issued May 199716. Term Sheet/Bond Structure Strengths of Contractual set up Strong Equity Partners: Enron(BBB+) assumes construction, market, gas supply risk GE (AAA) guarantees turbineperformance, O&M agreement. CTA covers all fixed and most variable payments until 2014CCGT replaces coal-fired generation technology17. Term Sheet/Bond Structure Strengths of Contractual set up contd: Only 30% debt left duringmerchant period, potentially unlimited profit for Enron Bond will rank paripassu in right ofpayment with all future additional senior debts Debt Service Reserve Account Healthy DSCR &Interest Coverage ratios Swap Agreement mitigate currency risk Results: Both bonds were welloversubscribed18. Capacity Tolling Agreements (CTA) Eastern/Enron CTA Enron / Sutton-Bridge CTA Term15 Years beginning May 1, 1999 Same Fixed Payments £9M Upfront One-Time £ 68.8M perAnnum, Payable on a Daily Basis Actual fixed costs Variable Payments £ 357.50 per Half-HourEach Start-up/Shutdown costs Two Half-Hour Periods Eastern will Pay for 15,000 Half-HourPeriods per Year Actual variable costs Maximum Contractual Volume 700MW April toSeptember 735MW October to March Eastern Provides Contractual Capacity for Each Half-Hour Period Eastern Provides an Estimate for Volume of Gas to be Delivered Same capacity19. Capacity Tolling Agreements (CTA) Eastern/Enron CTA Enron / Sutton-Bridge CTA ForceMajeure Relieves both parties of their obligations, but only to the extent that the affected party(s)is prevented from complying with their obligations Credit Terms Each company will providereasonable credit support including a parent company guarantee.20. So, What‟s in it for Eastern?21. What‟s in it for Enron? Strengthen its Reputation as an Innovator Further Develop itsEuropean Trading Operations Power Plant Enters the Merchant Phase after Expiration of theCTA Unbounded Returns Hedge Risk and Lower Costs through Trading Electricity & NaturalGas Contracts22. Assumptions Physical Plant capacity: 790 MW Permitted generating capacity: 700 MW(Apr-Sep) 735 MW (Oct-Mar) Average annual generating capacity (max): 717.5 MW Min.number of operating days: 312.5 days Sales price of electricity (1996) 0.02386 £/kWh Cost ofNatural Gas (1996) 1.28 £/MMBTU Escalation rate (assumed) 5% WACC (Calculated) 6.53%Financial model description
  3. 3. 23. Results/Projections24. Results/Projections (2) Revenue & EBITDA Profit25. Results/Projections (3) Cash Flow & NPV (15yr period) NPV: £ 252,466,324.80 300 250200 150 100 50 0 -50 -100 -150 -200 -250 -300 Terminal value26. Gas Purchase & Electricity Off-take Construction Contract Fluctuating Market Prices Long-term Project Bonds after CTA? CTA period of 15 years? Force Majeure Political Currency &Exchange Rate New Turbine Technology Enron-Sutton Project “ A House of Risk?” Notstructured as a traditional IPP, so Enron assumes more risks in expectation of better returns!Legal O & M Risks & Mitigation27. Why assume all these risks? Extensive risk mitigation in a traditional IPP leads to a low-risk/low-return investment Development fee (about 4% of total investment) and annuity spreadfrom on-going operations produced acceptable though not exceptional returns. Traditional IPPStructure did not capitalize on Enrons Strengths in trading & risk management In summary,Enron was willing to take MORE RISK in exchange for BIGGER RETURNS28. Actual Risks & Mitigation Project Level Risks Cost overrun – Fixed Equipment pricesCompletion Risks – GE „new product guarantee against completion delays and performanceproblems. Completion tests verified by an independent consultant Technology – GE to guaranteeplant performance for the duration of the life of the project Financial Risks Exchange rate –SWAPs arrangement, Options Merchant phase risk – Enron to ensure most of project debt isrepaid within the 15-year period of CTA. Enron also to issue long project bonds. (Supported byEnron Treasury Group) O&M Risks GE to operate the plant on a fixed-price management fee (allowed GE to expand its service operations )29. Actual Risks & Mitigation Economic Risks During CTA - Fixed payment by Enron coversall fixed and operating costs. No pool risk. Supply of Gas at fixed prices After CTA - Mostproject debt to be repaid during the CTA phase Market Conditions - Enron traders role indetermining operating or dispatch decisions (long & short positions) DSCR30. IRR EQ. IRR31. Risk Matrix32. Risks Classification & Ratings (Sutton Bridge Project) Step 5: Credit Enhancements (10%)Step 4: Force Majeure Risk (10%) Step 3: Institutional Risk (17%) Step 1: Project-Level Risk(20%) Step 2: Sovereign Risk (23%) 30% 15% 20% 10% 25% Total of 80%. We apply a ratingof „BBB‟33. Sensitivity Analysis (Project IRR)34.35. Sensitivity Analysis (Project IRR cont)
  4. 4. 36. Sensitivity Analysis (Equity IRR)37. Sensitivity Analysis (DSCR)38. Sensitivity Analysis (DSCR cont)39. Key Lessons As one of the earliest virtual power plants it was able to float with no PPA.Innovation in adapting to new opportunity in regards to the new regulations. Securinginvestment grade rating despite having no Power Purchase Agreement Extensive risk mitigationin a traditional IPP leads to a low-risk/low-return investment40. Project Financing was done with a great Debt-Equity Ratio. Project enable to unboundedreturns with limited loss. Key Lessons (Millions) Amount Percent Long Term Debt: TotalLong Term Debt £286.00 85.% Equity: Partners Equity £51.00 15% TotalCapitalization £337.0 100.0%41. What Happened Since Enron put Sutton Bridge up for sale in Sept 1999, just four monthsafter it went into operation. London Electricity, through its affiliate London Power, agreed tobuy Enrons equity interest in Sutton Bridge power station. The pant was purchased for£156million plus working capital balances of £ 22.8 million and assumed £286 million of debtEDF announced in 2008 that it would sell Sutton Bridge to overcome objections to its takeoverof British Energy.42. What Happened Since Enron reported earnings of $101 billion in 2000. Enron usedaccounting techniques to prevent significant losses from appearing on its financial statements.Enron Corporation filed for Bankruptcy on late 2001.43. What happened Since Eastern Group is to change its name to TXU Europe following itsrecent acquisition by Texas Utilities, although the Eastern name will be retained for its UKpower distribution and household electricity supply businesses. The Eastern Group, is well onthe way to generating 10% of its electricity from renewable sources by the year 2010.44. Thank you for your time Interested in doing business with us? Contact us at: 617-123-1234