European Trends in Wind Energy Investment 2015 – a utilities’ perspective

European Trends in Wind Energy Investment 2015 – a utilities’ perspectiveDirk SimonsChief Financial Officer RWE Innogy GmbH

4th Annual Renewable Energy Financing Forum

08th of May 2015, 09.00 – 09.40h, Wien

2Page

RWE Innogy:Focus on core competences Wind and Hydro

Overview

Business Area

Focus and Strategy

> Established in February 2008> Bundling renewables activities and competencies across RWE Group

– Growth focus in onshore and offshore wind, hydro as strong operational backbone*– Research & Development and Venture Capital to drive the development of emerging technologies

> European focus> Asset portfolio of 3.1 GW in operation and 0.6 GW under construction mainly located in United Kingdom, Germany,

Spain, Netherlands, Poland and Italy (Accounting view + PPA as at Q4 2014)> Project pipeline of 3.5 GW consisting mainly of wind and some hydro (Accounting view + PPA as at Q4 2014)

RWE Innogy

Wind onshore

˃ Key technology for capacity growth

˃ Focus on organic growth

˃ Focus markets include UK, Germany, Spain, Netherlands, Italy and Central- and South-Eastern Europe

Wind offshore

˃ Key technology for capacity and service growth

˃ Organic growth strategy within partnerships

˃ Focus markets include UK and Germany

Hydro

˃ Operational Excellence in hydro run-of-river

˃ Selective development options

New technologies

˃ Driving innovative renewable technologies to commercial applications via

• Venture Capital

• Cross functional R&D and demo plants

15. April 2023

European Trends in Wind Energy Investment 2015 - a utilities' perspective

15. April 2023

3Page

Agenda: European Trends in Wind Energy Investment 2015 – a utilities’ perspective


1 Attractiveness of Wind Energy investments (with particular reference to regulation)

2 Investment criteria for different shareholders

3 Alternative investment structures

4 Organisational and structural implications

5 Investment outlook

15. April 2023

4Page

Profitability of conventional power plants is irreversibly changing – also coal is increasingly under pressure


Old hard coalNew lignite

2009 2010 2011 2012

Old lignite

New gas Old gas

40

45

50

55

60

65

70

2010 2011 2012

2014 base load forward (EEX)RWE avg. realised price

60

63

67

Average utilisation of typical German power plants

German power price development (€/MWh)

1. Attractiveness of Wind Energy investments (with particular reference to regulation)

15. April 2023

5Page

Especially highly flexible and low-emission gas-fired power plants have significantly less operations time


Production in June and July 2009

Megawatt

Production in June and July 2011

Megawatt

June 2009 July 2009

400

300

200

100

0June 2011 July 2011

400

300

200

100

0


15. April 2023

6Page

Wind energy business in Europe is on a growing path for years…


11.8 GW of new wind capacity installations across the EU in 2014 ( ∼44% of total new installation)

– + 5.3 GW in GER

– + 1.7 GW in the UK

– + 1.1 GW in Sweden

Today 129 GW installed wind power capacity in the EU

– app. 121 GW Onshore

– app. 8 GW Offshore

EU wide oil and coal fired power plants continue on decommissioning path

Annual wind power installations in the EU

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

2

4

6

8

10

12

14

5.86.5

7.2

98.5

10.39.9 9.7

12.1

11.211.8

in GW

Source: EWEA Annual Statistics 2014, Wind in power – 2014 European Statistics, Feb. 2015


15. April 2023

7Page

… with steady investment developments in important European renewable energy markets …


Europe (total)

UK

Germany

Netherlands

˃ Increase of 1% compared to 2013; only 45% of record in 2011

˃ Wind attracted ∼ 2/3 of total investment, esp. Offshore

˃ With $8 bn wind was most important technology˃ 86% was attracted by Offshore projects (e.g. 402 MW

Dudgeon, 389 MW West of Duddon Sands)

˃ $8.2 bn investment into wind ˃ 61% was spent on three offshore projects (e.g. 350 MW

Wikinger, 277 MW Borkum Riffgrund)˃ 2.5 times increase compared to 2013

˃ With 266% increase NL saw fastest growth in renewables compared to 2013

˃ $3.8 bn investment for the 600 MW Gemini project

$53.2 bn

$13.9 bn

$11.4 bn

$6.4 bn

Details:Investment 2014

Source: Frankfurt School of Finance & Management, Global Trends in Renewable Energy Investment 2015,


15. April 2023

8Page

… however, especially reforms in the national subsidy mechanisms will increase competition for new builts


Rationale behind competitive auctioning:˃ lower prices and correspondingly lower subsidy levels

˃ allow for budget and volume control to increase predictability of renewable energy supply

Country Subsidy mechanism Outlook

UK Change from RO to CfD valid from 2017 onwards

Clearing prices 10% lower in first CfD auction compared to RO

Germany Fixed feed in tariff; yearly regression (PV quarterly)

Switch to general auctioning from 2017Outcome of first PV auction below expectations

Netherlands Feed in premium including auctioning system

Staged bidding process (mechanism for Offshore currently in development)

Poland Green Certificates plus wholesale price

Auctioning system beginning of 2016


15. April 2023

9Page

An increasing number of investors discover the renewable energy market for future growth…


Incumbent Utilities

Core business

Many new players entering the market partnering with incumbent utilities to tap on their competencies creating a win-win situation

Funds Investments in public market equity

YieldCo Generating high cash-flow to pass on to investors as dividend

Crowd-funding Investments in modest-sized projects

Green Bonds Fixed-interest products

Development Banks Supporting expansion of renewables via financing or equity

Institutional investors Asset-related low-risk and predictable cash flow investment

2. Investment criteria for different shareholders

15. April 2023

10Page

… whereas the motivation and expectations of these investors are similar.


MOTIVATION:

The renewable energy business becomes more and more attractive for investors from various fields:

˃ renewable assets entered a new stage of technological maturity

˃ renewables provide relatively high and stable returns in times of generally very low interest rates

˃ renewables are characterized by a favorable risk return ratio

EXPECTATION:

The renewable energy business becomes more and more attractive for investors from various fields but requires:

˃ Long term stable investment climate

˃ No retroactive changes in legislation

˃ Necessity to earn back the invested capital to generate new investments

˃ Investors can manage project and market risks but regulatory risk only to a limited extent

˃ Avoid regulatory driven boom and bust cycles

2. Investment criteria for different shareholders

15. April 2023

11Page

It is clear that the traditional utility balance sheet financing approach will not suffice


Combined 2008 Market Cap : € 590 bn

Combined 2013 Market Cap : € 260 bn

-56%

Market capitalisation of listed top utilities1 [€ bn]

91

68

89

125

51 47

28

25

1817

27

Feb 2008

16

GDF Suez

38

Iberdrola

41

25

E.ON EDF

24

Centrica

23

SSE

17 13

FortumRWE CEZ

10

Enel

25

National Grid

33

Nov 2013

3,750

Euro Stoxx 50

3,069

-18%

3. Alternative investment structures

1 Source: Reuters

15. April 2023

12Page

Alternative investment structures:Example Nordsee One – project financing


Advantages Disadvantages

˃ Enable financing and therefore construction of the project even if the project’s partner have not the availability of the whole financing amount

˃ Mitigating risks for sponsors by non-recourse financing

˃ Better involvement of international business development banks, EIB and export credit agencies

˃ Lower cash requirements, only for the own equity share

˃ Off balance sheet structure possible

˃ Higher external costs, due to need of technical, legal, financial and insurance advisor

˃ Less flexibility in contracts, all contract parties of the project have to agree upon the changes

˃ Reduce fungibility of the project, selling parts of the equity share in the project requires the allowance of the banks

˃ Complexity of structure is much higher than for corporate financed projects

˃ High mass of documentation

RWEI15%

NPI85%

Nordsee One GmbH

.

Financing 30% Equity

10 Banks

Non-recoursedebt facilityagreement

REpower

Turbine supplyand warrantyagreements

Long-termO&M of turbines

Contractors


15. April 2023

13Page

Alternative investment structures: Example Baltic 2 – EIB directly financing the sponsor


Advantages Disadvantages

˃ More flexibility in the contract structure

˃ Less external costs by only having one bank financing the project via the sponsor, no market sounding or syndication cost necessary

˃ Less complexity in structuring the projects

˃ Less cost and time for negotiation needed, as there is only one financing partner

˃ Off balance sheet structure possible

˃ No non-recourse financing possible, no risk mitigation possible for sponsors

˃ On balance sheet structure, only possible for investors with a good financial standing


EnBW Macquarie

EnBW SPV(Limited Partner)

Macquarie SPV(Limited Partner)

General Partner OpCo(Debt free)

EnBW Baltic 2 wind farm

long termsenior debt

0.02%

100%

50.09%

100%

49.89%

15. April 2023

14Page

Clear structural setup as prerequisite for professional partnerships


Investment Management

Service Provision

Asset Management

> Responsibility: Accountable for full portfolio of investments and responsible for portfolio risk and result decisions

> Role: Commercially manage overall portfolio and risk profile by setting framework, guidelines, and targets for optimisation on asset level and (where applicable) procurement of enabling functions’ services via SLAs / KPIs

> Steering principle: Portfolio NPV> Value Differentiator: Quality

> Responsibility: Accountable for asset(s) operations and responsible for asset risk and result decisions

> Role: Commercially and technically manage asset(s) within framework set by investment management including management of service providers which are responsible for delivery on a day-2-day basis via SLAs / KPIs

> Steering principle: Asset(s) NPV> Value Differentiator: Quality

> Responsibility: Responsible for service delivery and continuous improvement> Role: Operationally responsible for delivery of services in quality and cost in line

with the defined SLAs / KPIs and in addition seeking to proactively support asset / investment management in improving risk / result.

> Steering principle: KPIs and SLAs> Value Differentiator: Cost, Quality or Flexibility

whereapplicable

Board > Overall accountability for results (EBIT)

4. Organisational and structural implications

15. April 2023

15Page

Partnering for the expansion of renewables – RWE Innogy demonstrates proven track record


Greater Gabbard > 504 MW > 50% shareholder > SSE lead operator in operation.

Rhyl Flats > 90MW > 50.1% shareholder> RWE lead operator

Gwynt y Môr > 576 MW > 60% shareholder> RWE lead operator

Dogger Bank Forewind

> Up to 9000 MW > 25% shareholder

Thornton BankC-Power

> 325 MW> RWE Innogy is largest

shareholder at 26.7%

North HoyleZephyr

> 60 MW > 33% shareholder> UKs first project financed

offshore wind farm

(+ other Belgian investment & industrial companies)

Jüchen > 7 MW > different stakeholders, e.g.employees

RWE Innogy, cooperative Bürger- Energie, interested municipal utilities

> RWE lead operator Green Gecco > 5 wind farms in Germany and the UK with

around 80 MW > 51% Shareholder

> RWE lead operator Zephyr > 331 MW

> 33% Shareholder > RWE lead operator

Little Cheyne Court > 60 MW > 59% Shareholder

> RWE lead operator

Middlemoor & Lindhurst> 54 and 9 MW> 51% Shareholder> RWE lead operator

Su

cce

ssfu

l Pa

rtn

ers

hip

s

Offshore wind Onshore wind


http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=wxy1JngHDpkBpM&tbnid=_700m1oTzG9cWM:&ved=0CAUQjRw&url=http://www.ciao.de/Stadtwerke_Munchen_Ausbildung__628529&ei=-h15UoS_IImQtAaE44HYCw&psig=AFQjCNEL4wV1dluCkAqC6IHUAyFvswVw6w&ust=1383755634845875

http://www.swkl.de/cms/?view=featured

15. April 2023

16Page

Case Study: Equity financial partnership – Greencoat UK Wind plc


Green Investment Bank Greencoat UK Wind plc

RWE Innogy

Novusmodus LLC (investment company)

Rhyl Flats Offshore Wind Farm

Little Cheyne Court Onshore Wind Farm

24.95%

24.95%

41%

£165.2m total investment

UK Government

59%50.01%

• 90 MW• Constructed 2009 • 60 MW

• Constructed 2009


15. April 2023

17Page

Case Study: Equity strategic partnership – Gwynt y Môr


Gwynt y Môr Offshore Wind Farm

10% 30% 60%

• £2.2 billion investment• 576 MW• Completion 2015


15. April 2023

18Page

Case Study: Equity municipal ownership – Green Gecco


Municipality A Municipality B Municipality C

RWE InnogyInvestment Holding Company

Green Gecco GmbH & Co. KG

Example 1 Example 2

49% 51%

• 20 MW Onshore wind farm• An Suidhe in Scotland

• 20 MW Onshore wind farm• Titz in Germany

> 120 m€ invested into 5 wind farms with total capacity more than 80 MW


15. April 2023

19Page

Investments especially into wind energy will be one of the major areas for future growth of utilities


CHALLENGES:

˃ 2015 and 2016 will be characterized by a transition phase …

˃ … from subsidy mechanisms that were ratherfocused on rapid expansion of wind energy

˃ … to more competitive subsidy mechanismsthat bring down subsides and allow for budgetand volume control to increase predictability of renewable energy supply

Opportunities:

˃ Renewables play an important role in limiting global emissions

˃ Renewables are more and more seen as a stable and low risk investment by various investors

˃ Levelised cost of energy are continuing to fall due to technological progress; e.g. onshore wind (2009 vs. 2015: drop of 11.5% from $96 to $85 per MWh)

5. Investment outlook

Admin Strike Price

Lowest Clearing Price

% saving

Offshore 140 £/MWh 114.39 £/MWh 18%

Onshore 95 £/MWh 79.23 £/MWh 17%

First UK CfD auction 2015:Saving on admin strike price for On- & Offshore

Thank you very much for your attention!

European Trends in Wind Energy Investment 2015 – a utilities’ perspective

Economy & Finance

Transcript of European Trends in Wind Energy Investment 2015 – a utilities’ perspective