Corporate PPAs The Scandinavian Experience...2018/11/27 · • Corporate PPA with Alcoa for a...

STRICTLY PRIVATE & CONFIDENTIAL

New Power. New Markets. TM

V 01

CorporatePPAs

TheScandinavianExperience

STRICTLYPRIVATE&CONFIDENTIAL

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OverviewGEC

•  Reachingbackasfarasthe1990s,GECisoneoftheleadingfinancialadvisorstorenewableenergyassetdevelopers,ownersandinvestors

•  GECprovidesafullsetofadvisoryservices:ü  Capitalraisingandplacement(equityanddebt)ü  ProjectcontractstructuringandopHmisaHon(includingPPAs)ü  CapitalstructureopHmisaHonü  Financialrestructuring

•  Withateamof5professionals,GEChasahands-onapproachtotransacHons:ü  Strongprocesscompetence:buy-sideandsell-side;projectassessment;dataroom/processpreparaHon;

modelling;valuaHons;compeHHveaucHons,sourcingofPPAs,appraisalofPPAsü  AuniquecombinaHonofindustry,financialandmarketexperHse(windandsolar)ü  Well-establishedrelaHonshipswithabroadrangeofcapitalprovidersforrenewableenergyinEurope

•  GECprovidesconflict-freeadviceandexecuHonservicesindependentofanycapitalprovider

•  GECcreatestangiblevalueforitsclientsthroughitsuniqueunderstandingofboththeassetsandtheinvestoruniverse

•  GECisauthorisedandregulatedbytheFinancialConductAuthorityoftheUK(FRN:583634)


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•  StrongrelaDonshipswithdevelopers,serviceproviders,investorsandoFakers:

o  ClientsbenefitfromGEC’srelaHonshipswithrelevantmarketparHcipantsandserviceproviders

o  GEC’sunderstandingofinvestorappeHteandinvestmentcriteriaforrenewableenergyassetsallowsustotargetthecheapestsourceofcapitalforassetownersanddevelopersbasedonanasset’sriskprofile

o  UnmatchedknowledgeoftheconHnentalEuropeanandglobalinvestorbase

•  TransacDonexperience:

o  GECmanagestransacHonsbydeterminingapoolofthemostsuitablepotenHalbuyersallthewaythroughtofinancialclose

o  GECwillassistthroughthepreparaHonofinformaHonmemoranda,dealmodels,data-roomsetc.

o  ClientsbenefitfromGEC’sabilitytodesignandmanageanefficienttransacHonprocesswithmulHpleparHes:investors,theiradvisors,lawyers,banks,appraisers,o]akers,etc.

•  Sectorknowledge:

o  GEChasauniquefocusexclusivelyontherenewableenergyspace.WeknowthemajormarketparHcipantsandstakeholdersinthisfield,thetechnologies,thegovernmentsupportschemesandtheissuesinvestorsano]akerswillconcentrateon

HowGreenEvoluDonCapitalcanSupportaTransacDon


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ThefollowingprinciplesareessenHaltoeverythingwedo:

•  ClientFirst:GEConlyprovidesindependentandconflict-freeadvicewiththehigheststandardsofintegrity

•  Excellence:Themarketsandtheneedsofourclientsareconstantlyevolving,andwetherefore,customisesoluHonsineveryclientengagementandkeepthehigheststandardsofexcellenceineverythingwedo

•  LongTerm:GECaimstobuildsecureandlong-lasHngpartnershipswithclientsandinvestorgroupsbybecomingtheirtrustedadvisor

Principles


CorporatePPAs


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ThePPAMarket

0.1 0.61.5

3.32.5

3.1

00.2

0.5

0.81

1.1

0.20.2

0.2

0.40.6

1.2

0

1

2

3

4

5

6

2012 2013 2014 2015 2016 2017

Asia

Europe

NorthAmerica

Annualvolume(GW)CorporatePPAvolumes,byRegion

Source:Bloomberg,GEC,EurObserv’ER2018

•  Forcomparison,thenewinstalledcapacityinwindintheEuropeanUnionwas15GWin2017;andthetotalinstalledcapacityattheendof2017wasapproximately168GW.


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ThePPAMarket

MainCounterparDes:

•  Datacentre/ITcompaniesthatprocurelargeamountsofenergyallovertheworld

Ø  Google,Apple,Facebook,Microsof,etc.

•  Aluminiumsmelters/metalscompaniesforwhoenergyconsHtutesalargeporHonofthebogomline

Ø  Alcoa,NorskHydro,etc.

•  ConsumerproductscompaniestowhompublicrelaHonsrelatedaspectsareespeciallyimportant

Ø  Nestlé,Procter&Gamble,AnheuserBusch,KimberleyClarketc.


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RecentMajorTransacDonsintheEuropeanPPAMarket


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ThePerspecDveoftheCorporate

•  Corporateshaveanumberofwaysofachievinggreenelectricityprocurements.CorporatePPAsarejustoneofthem.

•  Everyrenewableenergyasset,everycorporatesituaHonandeveryjurisdicHonwillbedifferentandrequireadifferentsoluHon.

GreenEnergyProcurement

Strategy

PPAwithWindFarmorSolarPVOperator

OnsiteGeneraDonofEnergyfromRenewables

CerDficateProcurement

DirectinvestmentinRenewableEnergyAssets

Three-PartyPPAwithUDlitybackedbyRenewableEnergyAssets


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CaseStudy:NorskHydro

Source:NorskHydro,ThirdQuarterinvestorPresentaHon


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CommercialAspectsofaPPA

Key Comments

AddiHonality •  Corporateo]akersgenerallyprefertoenterintoPPAsinrelaHontoarenewableenergyassetthatcanbepresentedashavingbeenbuiltthankstothePPA

•  TheimplicaHonisthatPPAscanonlybeenteredintowithrespecttoconstrucHon-readywindorsolarPVfarms

•  HoweverthisisnotaprecisedefiniHonanddifferentapproachesdoexist

PurchasedProduct •  Allorpartoftheenergyproducedbyawindfarmwithorwithoutenvironmentalagributes,likeGuaranteesofOrigin,Elcerts,etc.

MainRisksthatneedtobeallocatedandtransferred

•  PriceRisk•  VolumeRisk(incl.balancingrisk):

-over-producHonaswellasunder-producHonvsP50-profilerisk

•  CorrelaHonbetweenPriceRiskandVolumeRisk(“CannibalizaHon”)•  NegaHvepricingrisk


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PricingofPPAs

•  PricestendtoreflectØ  Thelackoflong-termPPAcapacity,andØ  Theriskofoversupplyofwindinthelongrun,

nevermindthepricecurvesofmarketforecastersthatgenerallypointtoincreasingprices(oil/coalcycles)

•  “Baseload”PPAsareusuallypricedafewEuroshighercomparedto“Pay-as-produced”PPAs

•  Seasonalprofilewillaffectboththeprice(+)aswellastheriskprofile(-)ofaPPA

•  Priceswillvaryaccordingtothepriceregion

Ø  TheywillforexamplebehigherinFinlandcomparedtoSweden

•  Pricinggenerallyseenclosetoorbelowforwardwholesaleprices


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ThePerspecDveoftheInvestor–MainStructuralConsideraDonsinDesigningaPPA

KeyStructuringAspect TypicalValue Comments

TenorofaPPA 8–15years •  Drivesloantenor•  Longertenorpreferredbyinvestor/lenders;shortertenor

preferredbyo]aker

Profileofvolumesold Baseloador“Pay-as-Produced”

•  Pay-as-producedpreferableforinvestor/banks•  Baseloadpreferabletoo]aker

Hedgingstructure FixedpriceorCaps&Floors

•  FixedpriceisthenorminScandinavia•  StructureswithfloaHngpricesaboveafloorhavebeen

observedinSpain

Quantumofpowerhedged

60–80% •  UpperlimitdrivenbythefactthataprojectwillrequireanopenposiHonto(parHally)absorbvolumevariaHons

•  OpenposiHonprovidesupsideincaseofpowerpriceincreases

•  Lowerlimitdrivenbyprojectfinancerequirements

BalancingresponsibilitytowardsTSOandaddiHonalservices

ProducerorO]aker

•  Willgenerallybeallocatedtoo]akerwhowillreflectthecostintheo]akeprice

•  Willthengenerallybeoutsourcedbyo]akertoaspecializedthirdparty(e.g.uHlityorenergytrader)


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KeyDifferencesBetweenUDlityPPAsandCorporatePPAs

UDlityPPAs

•  Volumesweetspotofbetween30-70MW,withtenorsofupto10years•  Processdrivenbywindfarmowner/investorwhonegoHateswithuHlityon

abilateralbasis•  UHlitygenerallybundlesPPAo]akewithaddiHonalenergymarket-related

servicessuchasassumingthebalanceresponsibilitytowardsTSO,GoOhandling,ElCertmarkeHng,reporHng,regulatoryfilings

CorporatePPAs

•  Volumestendtobelarger(100MW+),withtenorsthatmayexceed15years

•  Corporatestendtohavehigherleverageagainstwindfarmowner/investorduetoshortageofsupplyofcorporatePPAs,especiallyforlongmaturiHes

•  AddiHonalservices,suchasthoseprovidedbyuHliHesneedtobeboughtseparately.Thismaycomplicatethelegalstructure


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KeytrendsinPPAsourcing

•  PPAaucHons

Ø  Google’sEuropeanPPAsourcedviaaucHonwithseveralstages,overseveralmonths,inseveralEuropeancountriesandusingadetailedquesHonnaire(on-goingprocess)

Ø  MostUSPPAsareawardedaferaucHon

•  GreenEnergypurchasingconsorHum

Ø  Example:AkzoNobelSpecialtyChemicals,DSM,GoogleandPhilipssignedPPAswiththeKrammer(102MW)andBouwdokkenwindfarms(29.4MW)intheNetherlandsinOctober2016andJanuary2017

•  NewentrantsasPPAo]akers.Examplesinclude:

Ø  KutxaBank(Spain)withIberdrolaSolarPVProjectfor391MW

Ø  NovoNordiskwithKriegersFlakOffshoreProjectfor600MW


CaseStudy:ProjectNordlicht(KviZjell/Raud\ell)

•  281.4MWwindfarmlocatednearTromsø,Norwaywith67SiemensGamesaSWT4.2MWturbines•  Grossenergyyield:971MWh(39.4%loadfactor)

•  TransacHonsponsoredandmanagedbyPrimeCapitalAGwithaconsorHumoftwoinvestorswhocameinatconstrucHon-readystatus:Germanpensionfund(66%),turbinemanufacturer(33%)andGECasfinancialadvisorstothedeal

•  FinancialCloseinSeptember2017

•  CorporatePPAwithAlcoaforaperiodof15yearsfromCODwhichis2yearsaferFinancialClose(i.e.approx.17yearsintotal)•  Pay-as-Producedstructure

•  100%ofproducHonsoldtoAlcoa,with70%soldforafixedpriceand30%forafloaHngpriceasperNordPool

•  ECA–guaranteefromGIEK(aNorwegianGovernmentenHty)toachieveabankableraHng

•  AllofthedebtprovidedbyDekaBankofGermany,combiningKfW-andcommercialtranches(sculpted)toopHmisedebtsizingandcostofdebt

•  17.75yearoveralltenor,slighlyabovethePPAtenor

•  DebtsizingusingdifferentDSCRraHosforhedged/unhedgedpowerandelcertvolumeandcombiningdifferentpricescenarios

•  Debtresizingmechanismbasedonactualachievedpricelevelthroughelcerthedging

•  FlexibledebtstructureaccommodaHngvariousearn-outanddeferredpayments

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Conclusions

•  CorporatePPAswillbecomemorewidespread,bothinexisHngPPAmarketsandinnewmarkets

Ø  DependingonrenewableenergyaucHons,thiswillalsoincludematuremarketssuchasGermanyinthemedium/long-term,andotherindustrysectors

•  TheoverallcorporatePPAmarketvolumeislimitedduetothelimitedscopeofindustrysectorsthathavetherightrequirements

Ø  UHliHesarethenaturalcompeHtortocorporatePPAs,andtheyareadapHngtheirproductofferingtorespondtothecorporatePPAchallenge

•  Corporate(anduHlity)PPAswillbeasignificantindustrydriverforrenewableenergygoingforward

•  ThemainlessonfromProjectKviwjell/RaudxellinNorwayisthattransacHonsofthisnaturerequirebiggerandmorespecializedteams.Thoseteamsandworkstreamsneedtoworkseamlesslytogether.Investorswillrequirelongerexclusivityperiods


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Conclusions

FormoreinformaHon:

YvesSchausPartnerTel:[email protected]

KimChrisHanKöhlerPartnerTel:[email protected]

LondonOffice:116PallMallLondonSW1Y5EAUnitedKingdom

www.greenevoluHoncapital.com


Disclaimer

ThispresentaHonandtheinformaHoncontainedinit(the“PresentaDon”)relatetoayettobeestablishedinvestmentvehicle(the“HoldCo”).ItisbeingissuedintheUnitedKingdombyGreenEvoluHonCapitalLLP(“GEC”).GECisauthorisedandregulatedbytheFinancialConductAuthorityoftheUnitedKingdom(“FCA”)underFRN583634.ThedistribuHonofthisPresentaHoninotherjurisdicHonsmayberestrictedbylawandpersonswhorequestoragreetoreceivethisPresentaHonarerequiredtoinformthemselvesof,andtocomplywith,anysuchrestricHons.ThePresentaHonisnottobemadeavailabletoanypersoninanyjurisdicHonwheredoingsowouldcontraveneanyapplicablelawsorregulaHons.ByrequesHngoragreeingtoreceivethisPresentaHon,therecipientconfirmsthatitisawareofthelawsinitsownjurisdicHonrelaHngtothereceiptofinformaHonrelaHngtoinvestments,andtherecipientwarrantsandrepresentsthatitwillnotpassonoruHlisetheinformaHoncontainedinthispresentaHoninamannerthatcouldconsHtuteabreachofsuchlawsbyGECoranyotherperson.RecipientsofthisPresentaHonwhointendtoapplyforaninvestmentininterestsinHoldCoareremindedthatanysuchapplicaHonmaybemadesolelyonthebasisoftheinformaHonandopinionscontainedintheHoldCoofferingandsubscripHondocumentaHon,whichmaybedifferentfromtheinformaHonandopinionscontainedinthisPresentaHon.ProspecHveinvestorsshouldseekappropriateadviceinrelaHontoanyapplicablelegalrequirementsandtaxregulaHonsinthecountryoftheirdomicileorresidencethatmightberelevanttothesubscripHon,purchase,holding,exchange,redempHon,disposalortaxaHonofanyinvestments.ThisPresentaHontogetherwiththeinformaHonandopinionscontainedhereinareforbackgroundpurposesonly,donotpurporttobefullorcompleteandarenotintendedtoconsHtute,andshouldnotbeconstruedas,investmentadvice,arrangingdealsininvestmentsormakingarrangementswithaviewtotransacHonsininvestments.PotenHalinvestorsinHoldCoshouldseektheirownindependentfinancialandtaxadvice.TherecipientisnotGEC’sclient,GECneitherprovidesinvestmentadviceto,norreceivesandtransmitsordersfrominvestorsinHoldCodescribedorreferredtointhisPresentaHonnordoesitcarryonanyotheracHviHeswithorforsuchinvestorsthatconsHtute“MiFID“orequivalentthirdcountrybusiness”forthepurposesoftheFCARules.ThisPresentaHondoesnotconsHtuteorformpartofanyoffertoissueorsell,oranysolicitaHonofanyoffertosubscribeorpurchase,anyinvestment,norshallitorthefactofitsdistribuHonorcommunicaHonformthebasisof,orbereliedoninconnecHonwith,anycontracttherefor.ApplicaHonsforaninvestmentinHoldCocanonlybemadeattherelevantHmeonthebasisoftheofferingdocumentaHonavailable.AnypersonsubscribingforaninvestmentinHoldComustbeabletobeartherisksinvolvedandmustmeetthesuitabilityrequirementsrelaHngtosuchaninvestment.SomeorallalternaHveinvestmentprogrammesmaynotbesuitableforcertaininvestors.InformaHonincludedinthisPresentaHonisprovidedfordiscussionpurposesonlyandmaybesubjecttoamendment.CertaininformaHonincludedinthisPresentaHonisbasedoninformaHonobtainedfromsourcesconsideredbyGECtobereliable.However,anyprojecHonsoranalysesprovidedtoassisttherecipientofthisPresentaHoninevaluaHngthemagersdescribedhereinmaybebasedonsubjecHveassessmentsandassumpHonsandmayuseoneamongalternaHvemethodologiesthatproducedifferentresults.Accordingly,anyprojecHonsoranalysesshouldnotbeviewedasfactualandshouldnotberelieduponasanaccuratepredicHonoffutureresults.NorepresentaHonisbeingmadethatanyinvestmentwillorislikelytoachieveprofitsorlossessimilartothoseshown.NoreliancemaybeplacedforanypurposeontheinformaHonandopinionscontainedinthisPresentaHonortheiraccuracyorcompleteness.NorepresentaHon,warrantyorundertaking,expressorimplied,isgivenastotheaccuracyorcompletenessoftheinformaHonoropinionscontainedinthisPresentaHonbyGEC,itsmembers,officersoremployees,ortheFund,andnoliabilityisacceptedbysuchpersonsfortheaccuracyorcompletenessofanysuchinformaHonoropinions.GECdoesnotdisclaimorexcludeorrestrictanydutyorliabilitythatithasundertheregulatorysystemintheUnitedKingdom.NorepresentaHonisbeingmadebytheinclusionofanyinvestmentexamplesandstrategiespresentedhereinthatHoldCowillachieveperformancesimilartosuchinvestmentexamplesandstrategiesoravoidlosses.TherecanbenoassurancethatanyinvestmentexamplesandspecificstrategiesdescribedhereinwillmeettheirobjecHvesgenerally,oravoidlosses.Pastperformanceisnotnecessarilyareliableindicatoroffutureresults.AninvestmentinHoldCoinvolvesasignificantdegreeofrisk.PotenHalinvestorsmustfamiliarisethemselveswithHoldCo’sofferingdocumentaHonandmustmeetcertaineligibilityrequirementsinordertomakesuchinvestmentandmustbeabletofullyabsorbtherisksassociatedwithsuchinvestment.ThematerialcontainedinthisPresentaHonisbaseduponproprietaryinformaHonandisprovidedpurelyforreferenceandassuchisconfidenHalandintendedforprivateuseonly.ThetextandstaHsHcaldataoranyporHonthereofcontainedinthisPresentaHonmaynotbestoredpublished,rewrigenforbroadcastorpublicaHonorredistributedinanyformexceptwiththeexpresswrigenpermissionofGEC.GECwillnotbeliableforanyinaccuracies,errorsoromissionsinthePresentaHonorinthetransmissionordeliveryofalloranypartthereoforforanydamagearisingfromanyrelianceonthePresentaHonbytherecipientoranythird-party.

Corporate PPAs The Scandinavian Experience...2018/11/27 · • Corporate PPA with Alcoa for a...

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