Post on 06-May-2015
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Current and Future Trends in Wind Energy Financing
TBLI 2005
2 November 2005
Thomas MurleyDirector, Renewable Energy
HgCapitalLondon, UK
Page 2
HgCapital
• Private equity firm established in 1985.
• €1.3 billion in assets under management.
• Established dedicated renewable energy team February 2004.
• Tir Mostyn Wind Farm, 22MW, Denbighshire North Wales, operational.
• Sorne Wind Farm, 32MW, Donegal, Ireland, in construction.
• Investment focus – operating renewable energy assets.
• Ambition – to be the leading equity provider for European renewable power generation; investing €250 million in European renewables.
Page 3
Global wind – a €120 billion finance need through 2009
• 69,000 MW of new capacity 2005-2009
• 100,000MW+ through 2014
• €90 billion total capex at standard pricing through 2009.
• €25 billion of equity through 2009
Souce: HgCapital, BTM Consult
Annual Global Wind Power DevelopmentActual 1990-2004 Forecast 2005-2009 Prediction 2010-2014
0
5,000
10,000
15,000
20,000
25,000
30,000
1990 2004 2009 2014
MW
Prediction Offshore (Forecast) Forecast Existing capacitySource: BTM Consult ApS - March 2005
Page 4
Will it be built? Economically competitive.
Souce: Cambridge Energy Research Associates, Massachusetts Institute of Technology; Royal Academy of Engineering
COMPARATIVE POWER GENERATION COSTS 2004
$807
$274
Page 5
Will it be built? Regulatory consistency essential.
• Renewal / lapse of US Production Tax Credit.
• Planning/permitting rules can allow local objections to contradict national energy policies. Need for “joined up” thinking
• Nuclear lobby seeking preferential treatment or replacement/alternate for renewables
Page 6
Will it be built? Signals strong.
• Meets security of supply and carbon reduction needs
• Most economically competitive of renewable technologies.
• Substantial global resource (geothermal, marine comparatively limited).
Page 7
Financing yesterday
• Need.
• Single turbines, small wind farms.
• Modest capital requirements.
• Capital sources.
• Low cost government loans (Germany).
• Tax advantaged funds for individual investors.
• Utilities.
• Turbine maker support.
• Supported by feed-in tariffs or long-term contracts.
• Scale helpful, but not necessary
Page 8
Financing today
• Need.
• Small to large wind farms.
• Modest to medium capital requirements.
• Capital sources.
• Low cost government loans (Germany).
• Commercial banks.
• Tax-advantaged funds for individual investors.
• Turbine maker support.
• Utilities.
• Institutional and listed investment vehicles.
• Supported by feed-in tariffs or long-term contracts and guaranteed markets.
• Scale increasingly a factor.
Page 9
Financing tomorrow
• Need.
• Medium to very large wind farms, including offshore.
• Medium to very large capital requirements .
• Capital sources.
• Commercial banks.
• Listed bonds.
• Utilities.
• Institutional and listed investment vehicles.
• Decreasing feed-in tariffs and long-term contracts and increasing green certificate and market mechanisms.
• Scale a deciding factor.
Page 10
Increasing project size and developer concentration
Increasing average project size …… accompanied by concentration of developers
through emergence of big utilities
30 35 40
1012
14
6053
46
0
100
2002 2003 2004
Other
Top 11–20
Top 10
Source: Boston Consulting Group.
,0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
97 98 99 00 01 02
New installed capacity (MW)
> 5 MW
< 5 MW
Project size
65%
35%47%43%
53%57%
54%
40%
46%60%
66%
34%
Page 11
Increasing project size and developer concentration
• 10 Largest wind owners 2004
Name MW
• Iberdrola 2400
• FP&L 2400
• EHN 2400
• Scottish Power 1200
• Eurus 1140
• Shell 740
• Matrix Securities700+
• Nuon 550
• Alliant 490
• Enel 480
• 10 Largest wind owners 2000
Name MW
• FP&L 1000
• EHN 840
• Eurus 633
• Endesa 557
• IVPC 450
• AEP 410
• Nuon 400
• Scottish Power 310
• Shell 235
• Gamesa 223
Souce: HgCapital, BTM Consult
Page 12
Tax and listed markets constrained and regional . . .
• UK VCTs (2) €38 million in 2005.
• UK AIM Listings (4) €38 million in 2005.
• German Listing (1) €107 million (solar manufacturing + wind).
• German Wind Funds – Will they recover? Will they invest outside Germany?
Page 13
and have not delivered stellar performance.
• Approximately 77% of German wind funds fail to meet financial targets.– Overpricing.– Poor wind analysis.– Excessive management fees and overhead.– Poor maintenance. Relative Performance 2004 -2005
FTSE AIM All Share, ML New Energy Fund, FTSE Industrial Electric Index & AIM Renewables
0
50
100
150
200
250
1 2 3 4 5 6 7 8 91011121314151617181920212223242526272829303132333435363738394041
• AIM performance.– Limited experience.– But underperforming
AIM and conventional power indices.
Jan 04 Sep 05
0
50
100
150
200
250
Novera Energy
Renewable Energy Holdings
KP Renewables
Ocean Power Tech
MCC Energy
ML New Energy
FTSE Industrial Electric
FTSE AIM All Share
Source: LSE, FT; HgCapital Research
Page 14
Institutions increasingly playing an equity role.
• Institutional equity entrants:
Allianz Private Equity Arclight Capital Partners
Babcock & Brown Bridgepoint
Carlyle Riverstone Englefield Capital
GE Commercial HgCapital
Impax Capital Macquarie Bank
Trust Company of the West Viridis
• Some using listed vehicles.
Macquarie
Babcock & Brown
Viridis
Page 15
Lenders delivering scale
• €900 million Iberdrola “EEE” wind loan (2001)
• $370 million Florida Power & Light wind bond (2003).
• £300million + bank debt for RWE Innogy Zephyr transaction (2004).
• €200 million + bank debt for RES Austreas transaction (2005).
• €300 million “Breeze II” wind bond (pending).
Page 16
Sources of equity for European renewable energy
Investor Type Tax Based Funds Corporate Listing Venture Capital/LBO Strategic Institutional
Examples Keydata VCT Ventus VCT WPD Matrix
Novera Energy, KP Renewables, REH, Conergy
Apax, Bridgepoint, Enertech, Mercapital, Nth Power, Sustainable Asset Management, 3i
EdF, EdP, EHN, Electrabel, Elsam, Endesa, ENEL, E.On, Florida Power & Light, Gas Natural, General Electric, International Power, Scottish Power, Scottish & Southern, Shell, Statkraft, Total, Vattenfall
Allianz, Babcock & Brown, Englefield Capital, General Electric, HgCapital, Impax Capital, N mas 1, Trust Company of the West, Viridis
Investor Base Individual Investors Individuals, Fund Managers
Institutional Internal Corporate Institutional and Listing
Investment Objectives
Defer tax on other income, Modest dividend
Build diverse base of operating assets
High returns from development of new technologies, growing companies to scale or buying equipment or component manufacturers
Returns > traditional business, control over all aspects of generation business, secure green certificates or carbon credits, secure equipment sales
Current income with upside potential; higher than listed securities and bonds.
Geographic Spread Limited Limited by company resource
Unlimited Generally limited to markets where retail presence.
Western Europe
Funds available or targeted
€200-800 million Circa €150 million in last 18 months; potentially unlimited
€200-500 million VC €250-900 million LBO
€5-7 billion €1.6 - 2.4 billion
Consistency Inconsistent; reliant on tax policy and investor appetite. Much of capital limited to Germany
Inconsistent to Moderate; reliant on past performance and market forces
Consistent, but benchmarked against other opportunities
Consistent, but level fluctuates with need for capital in core businesses
Consistent, but benchmarked against other opportunities
Page 17
• Strong growth will continue
• Capital markets and tax driven investors inefficient and not sufficiently consistent to deliver large amounts of equity required to fill project finance gap.
• Utilities, strategic and institutional investors will dominate the market.
• Increasing role and need for institutional equity investors, but will be tempered by lack of familiarity, experience and qualified managers.
Conclusions