Michael Dunn - Director, Iona Capital Michael is a Director with Iona Capital, a private equity company that manages retail and institutional funds targeting the energy from waste sector and specifically seeks to invest in anaerobic digestion projects that require external funding. Iona Capital has recently completed a £6m investment, with Biogen Ltd as the operating partner, in an SPV co-owned with Biogen Ltd. He has held senior level positions with Shanks Group , Veolia Group and Amey Group. He currently holds a variety of sector-related non executive director roles including sitting on London Waste Ltd's board. He has a Masters in Finance degree from the London Business School. This presentation was given on 27 September, 2012 at "Anaerobic Digestion: Accelerating the Rollout" event

1. Iona Capital Ltd
Addressing AD finance issues

2. Agenda
• About Iona Capital
• Market Overview
• Principal Sources of Income
• Project Specific Issues Structures
- a funder’s perspective
• Sources of Funding

3. About Iona Capital Ltd
• The UK’s Environmental
Renewables Investment Fund
• Asset Managers with
specialist funds targeting both
the Local Authority and
Merchant markets
• Particular focus on AD
infrastructure across UK
• £16m committed to three
Local Government AD
projects
• Financing target: non
correlated returns to investors
of 15-20% IRR’s

4. UK total waste volumes
350 Secondary, sewage and
other
300
Millions of tonnes
Households
250
200
Commercial and
150 industrial
100 Mining and quarrying
50
0 Construction
2004 2006 2008
DEFRA, waste data

5. Electricity generation from
Bioenergy (GWh)
14,000
Plant Biomass
12,000 Anaerobic digestion
10,000 Animal Biomass
8,000 Co-firing with fossil fuels
6,000 Biodegradable municipal solid
waste combustion
4,000 Sewage sludge digestion
2,000 Landfill gas
-
2007
2008
2009
2010
2011
Data source: DECC. Renewables Statistics

6. Principal sources of Income I
AD Gate Fees
100
80
AD Gate Fees, £
57
60 52
45 43 High
41
40 Low
Median
20
0
2008 2009 2010 2011 2012
WRAP Gate Fees Reports 2008-2012

7. Principal sources of Income II
Government incentives
25.0
20.0
Pence per kWh
15.0
10.0
5.0
0.0
2007 2008 2009 2010 2011
FITs (AD >5kWh) 9.9 9.9
LEC 0.4 0.5 0.5 0.5 0.5
ROC (Nominal)x1 4.9 5.3 5.4 5.2 5.1
Average consumer 5.4 6.8 7.3 6.5 6.9

8. Typical Project Assessment
• Plant objectives: process number of tonnes, produce methane and
electricity etc
• Technical specification: waste type, site specific (planning etc)
• Project considerations (timeframe, resources, skilled labour)
• Cost considerations (designs, controls required, documents and
safety training)
• Income generation: realistic pricing of supply and off take, strength
of counter party, contract durations and % secured of annual
feedstock assumptions
• Financial assumptions: capital, debt/equity split, (no) bank debt
• Project level return (IRR 15% with upside to 20%)

9. Deal structure
Waste
contractor Utility
Project Power Purchase
agreement Agreement
Investor Debt
Investor/Operator
SPV
Equity
Construction Operating
contract contract
Construction Operating
Contractor Contractor

10. Key Investment Risks
Engineering,
Procurement, Technology Supply Output Finance
Construction
• Site • Proven process • Waste Quality: • Electricity • Loan note:
• Planning • Scalability composition & contracts, FITs, repayment and
• Environmental • Due Diligence chemical content ROCs priority ranking
permits • PAS 110 • Contamination • Heat contracts, • Equity: early
• Performance levels RHI valuation
• Plant maintenance
Guarantees • Continuity • Digestate • Interest rate
• Fixed Prices • Contracts/Terms: Disposal protection
Local Authority vs • Biomethane • Security:
C&I injection to grid debenture, land,
• Rejects: % assets
tonnage and • Parental
hazardous waste Guarantees
• Emissions: odour, • Indexation of
noise, gases etc inflation rates

11. 1 MW AD plant
Annual Operational Costs breakdown Total Construction Costs breakdown
1%
11% 3%
18%
5% 61%
Facilities Management Civils 13%
14%
59% 28%
22%
4% 11%
16%
10%
11%
Waste Overheads
Planning & Permitting Costs
Life Cycle expenditure Management & Staff Utility Connections (incl. grid connections)
Tank Bases, Underground Tank & Bund Area
Rates & Utilities Equipment & Maintenance
Other Site related costs
AD related costs Site related costs Building
Plant & Machinery

12. Gate Fees depend on project costs
Life cycle, 5%
Tax,
7%
FM , 35% Assume £100 per tonne
processing costs.
Financing, 24% 25,000 tpa facility
Capex, 16%
Insurance, 6%
Overheads, 5%

13. Economics of a typical Local
Authority facility
Small AD

14. Economics of a typical Local
Authority facility
Mid Range AD

15. Investment Sensitivities
Value change Base Case Electricity 20% RPI - 1% Increase in
price increase in third party
decrease by FM waste gate
20% fee by £10 to
£40
Project 14.29% 13.48% 12.08% 13.97% 14.71%
post tax
IRR
Blended 13.90% 13.13% 13.90% 13.63% 14.32%
return
Investor 12.68% 12.19% 12.68% 12.51% 12.97%
blended
return

16. Pecking order Theory
Grants
Local Government European organisations Charities
Special Funds
WRAP (AD Loan fund, £10 m) GIB (£3 billion)
Internal Funding
Universities – R&D Established operator
Banks
Proved operational HSBC, Barclays,
Access the risk levels track record
Returns Investec, Triodos
Private Equity
Iona, Albion, Novus Modus, Investec,
Target IRRs! Debt/equity split Octopus, Foresight, Equitix

17. Summary – How to succeed with
VC’s
• Quality Business Plan addressing issues
contained in these slides
• Team – External and Internal
• Financial Model but don’t get hung up on
finance and tax – target your audience
• Limited funding options in current market