Decentralised Energy Canadadeassociation.ca/docs/members-summit/7-Clean-Energy-Developer... ·...

Decentralised Energy Canada

DEC Members Summit November 14, 2016

DECDecentralised Energy Canada


Clean Energy – Developer Perspec?ve

i.  Developers Ac?ve in Alberta, Buyers / Partners in Cdn Clean Energy •  Categories & sample lists

ii.  Framework to Incent Development •  Ingredients to promote development, compe??on, low cost of power

iii.  Development Hot Spots •  Why Alberta, other jurisdic?ons

iv.  Wind & Solar Developer Tac?cs in Alberta •  Significant compe??on, how best to compete

v.  Compe?tor Analysis •  Project aRributes, corporate research, bid price sweet spot

vi.  Hurdle Rates •  Development stage, nature of oTake, organiza?onal structure 2


Introduc?on

Presenter Jeff Vergouwen Qualifica6ons •  BComm Finance, MBA •  Financial valua?on / strategic analysis / deal structuring

for various electricity genera?on types and transmission for over 20 years, independent consultant for 11 years • Wind, solar, hydro genera?on in Canada and United States • Gas-‐fired genera?on for local and interna?onal clients •  Transmission modeling for TFO in Alberta, engineering consul?ng firm with projects worldwide

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Clean Energy Developers in Alberta

1.   Small – early stage, high risk, flip to larger en??es at various stages or partner for capital infusion

Ø  Sequoia Energy – wind, solar & small hydro developer across western Canada

Ø  Bowark Energy – natural gas-‐fired & wind genera?on developer across western Canada & Ontario

Ø  Just Freehold Energy – small scale natural gas-‐fired genera?on developer across Alberta

2.   Large – engage in development process from start to finish, long term ownership

Ø  Enmax – Alberta-‐based natural gas-‐fired, wind & solar energy developer & owner, project focus in Alberta

Ø  Capital Power – Alberta-‐based natural gas-‐fired, wind & solar energy developer & owner, opera?ng and development projects across Canada & parts of US

Ø  EDF – large mul?-‐na?onal clean energy developer, ac?ve in Alberta on wind & solar

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Buyers / Partners in Clean Energy

1.   Strategics – experienced developers & owners of clean energy across Canada

Ø  Suncor – wind, solar, gas-‐fired developer, large balance sheet, carbon exposure, generally use partner model in renewables

Ø  BluEarth Renewables – wind, solar, small hydro in Canada, backed by Ontario Teachers Pension Plan

Ø  NextEra Energy – largest renewables developer in North America, large footprint in wind & solar across US & Canada, ac?ve in Alberta

2.   Financial Investors – infrastructure funds

Ø  Axium Infrastructure – Canadian-‐based investment manager, invests in core infrastructure assets

Ø  Northleaf Capital – mid-‐sized, Canadian-‐based infrastructure investor

Ø  Power Corp of Canada – interna?onal management & holding company

3.   Insurance Companies / Pension Plans – long life obliga?ons to match to secure cash flows

Ø  Manulife – most ac?ve insurance company in Cdn clean energy, debt & equity provider

Ø  AIMCo – invest pension, endowments & gov’t funds of Alberta, ac?ve in clean energy 5


Framework to Incent Development

i.  Long term, fixed price oTake contract –  LiRle to no merchant price exposure on full term (20 to 25 years), maybe on tail

–  Indexed to infla?on

–  Lender friendly terms

ii.  Creditworthy oTaker –  Good credit drives down the cost of power through lower costs of debt and equity

iii.  Predictable regulatory regime, stakeholder support –  No surprises on permigng, licensing, land (environmental, stakeholder, land control)

iv.  Ability to procure low cost debt –  70-‐80% of project can be financed with long term debt secured against project assets

(no reachback to corporate en?ty)

–  Low interest rate environment drives down cost 6


Near Term Hot Spots

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1.   Alberta Renewable Energy Program •  First tranche will be 400 MW, bids awarded end of 2017, must be opera?onal in 2019 •  Must qualify in order to be able to bid – project eligibility, financial strength &

experience •  Fixed price contract – based on contract for differences methodology


Near Term Hot Spots

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2.   Alberta Gov’t Buildings – powered by solar •  Up to 100 MW / 135,000 MWh/yr •  Late 2017 / early 2017 procurement, current contract with wind expires in 2018

3.   SaskPower RFP •  100-‐200 MW wind •  20 MW solar •  Late 2016 / early 2017 procurement

4.   US Renewables – extension of tax incen6ves •  Produc?on Tax Credit (PTC) for wind •  Investment Tax Credit (ITC) for solar •  Federal programs, have resulted in ac?vity in many states across the country •  In addi?on to PTC & ITC, the US allows tax-‐related benefits flowing from

renewables projects to be u?lized by those en??es that can make the most efficient use of them – “tax equity investor” concept

•  Results in very low cost of power (~$20/MWh) to buyers– u?li?es, corporates •  PTC & ITC will be phased out, reduc?on in capital costs resul?ng in price parity


Development Tac?cs -‐ Alberta Wind

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1.   Geographic dispersion for new development •  New turbine technologies capture lower wind

speeds very efficiently, results in higher energy produc?on at no incremental cost (look at diversity in Planning Area on AESO queue)

•  Higher chance of finding material transmission capacity outside of historically hot development areas

•  Support of large scale wind from landowner base found in non-‐tradi?onal development areas, dry-‐land farming economics & municipal tax base large influence on support

2.   Aggressiveness on capital costs

•  Turbine capex most material economic driver, non-‐binding prior to bid, manufacturers incented to win given poten?al materiality of order

•  Balance of plant can make a difference – refine, re-‐design, nature of contract (EPC, EPCM), push hard on 3rd party margins

3.   Understand compe66on •  Compe?tor project aRributes & corporate abili?es /

thresholds / debt capabili?es


Development Tac?cs -‐ Alberta Solar

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1.   Degrada6on of produc6on poten6al focuses development in south / southeastern area of province

•  East and south of Calgary has seen tremendous development ac?vity

2.   Requirement to minimize capital costs drives focus on land near substa6ons

•  Premium on land near substa?ons – land purchase lower cost op?on than lease for lower value land in southern Alberta

•  AESO queue contains 17 projects at For?s substa?ons from 1-‐30 MW in size

•  Very large projects can absorb the cost of their own substa?on & t-‐tap into high voltage transmission lines

3.   Understand trade-‐off for tracking op6ons – fixed / single axis / dual axis

•  Increased produc?on vs tracker cost •  Land requirements & associated cost


Compe??veness in Upcoming Alberta RFP

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Project Name Planning Area Gen MW MW Type Stage Planned ISD ReceivedPteragen Peace Butte 116 MW Wind Farm 4 116.0 Wind 5 Dec 31, 2018 Oct 14, 2005Naturener Wild Rose Wind Farm 4 210.0 Wind 5 Aug 1, 2018 May 12, 2005Suncor Hand Hills Wind Energy Project 42 80.0 Wind 5 Dec 31, 2018 Oct 6, 2006BluEarth Hand Hills Wind Project 42 80.0 Wind 5 Dec 31, 2018 Jan 15, 2007Naturener Wild Rose Wind Farm Phase 2 4 189.0 Wind 5 Aug 1, 2018 Apr 3, 2007Enel Alberta Riverview Wind Farm 53 115.0 Wind 4 Sep 1, 2017 Jan 25, 2006Windy Point Wind Farm 53 63.0 Wind 4 Sep 1, 2018 May 12, 2006E.ON Grizzly Bear Wind Facility 13 120.0 Wind 4 Dec 29, 2017 Aug 2, 2011Renewable Energy Service WAGF 53 47.0 Wind 4 Nov 27, 2017 Nov 18, 2013Joss MPC WAGF 48 120.0 Wind 4 Oct 2, 2017 Mar 1, 2014Benign Energy Heritage Wind Farm 53 350.0 Wind 3 Nov 29, 2019 Sep 22, 2005Irma Wainwright Wind Project 32 90.0 Wind 3 Sep 30, 2018 Jun 11, 2009Old Elm + Pothole Creek Wind Farm 55 60.0 Wind 3 Dec 31, 2018 Apr 29, 2010Sharp Hills Wind Farm New Facility Generator Capacity 42 300.0 Wind 3 Jun 30, 2018 Jun 4, 2014Welsch Wind Farm 53 69.0 Wind 3 Jun 19, 2019 Mar 20, 2015Paintearth Wind Farm 42 150.0 Wind 3 Jun 30, 2018 Oct 8, 2015Capital Power Halkirk 2 Wind 36 150.0 Wind 3 Feb 1, 2018 Oct 22, 2015Suncor Forty Mile WAGF 4 200.0 Wind 3 Jun 1, 2019 Jan 6, 2016Joss Jenner WAGF - Phase 2 48 180.0 Wind 2 Aug 1, 2018 Sep 8, 2015Wheatland WAGF Project 43 120.0 Wind 2 Jun 30, 2018 Oct 30, 2015Stirling WAGF Project 54 150.0 Wind 2 Aug 15, 2018 Oct 30, 2015BowArk Energy Echo Wind Power New POS 42 300.0 Wind 2 Dec 1, 2019 Dec 8, 2015AltaGas Glenridge WAGF 48 150.0 Wind 2 Sep 6, 2018 Jan 4, 2016Suncor Schuler WAGF 4 80.0 Wind 2 Nov 1, 2019 Jan 6, 2016Suncor Hand Hills Wind Project Phase 2 New POS 43 80.0 Wind 2 Oct 31, 2019 Jan 6, 2016Suncor Braconnier Wind Project New POS 42 80.0 Wind 2 Oct 31, 2019 Feb 23, 2016Suncor Huxley Wind Project New POS 42 50.0 Wind 2 Oct 31, 2019 Feb 23, 2016EDF EN Berry Creek WAGF 42 200.0 Wind 2 Dec 31, 2018 Mar 7, 2016EDF EN Fort Saskatchewan WAGF 33 300.0 Wind 2 Aug 27, 2018 Mar 7, 2016EDF EN Hand Hills WAGF 42 200.0 Wind 2 Dec 31, 2018 Mar 7, 2016EDF EN Wetaskiwin WAGAF 31 100.0 Wind 2 Dec 31, 2018 Mar 7, 2016EDF EN Provost WAGAF 37 200.0 Wind 2 Dec 31, 2018 Mar 8, 2016RESC Forty Mile WAGF 4 400.0 Wind 2 Sep 2, 2019 Mar 9, 2016Invenergy Schuler Windfarm 4 100.0 Wind 2 Dec 1, 2018 Mar 29, 2016Sequoia Energy Oyen WAGF 42 100.0 Wind 2 Aug 29, 2018 Apr 6, 2016Sequoia Schuler WAGF (MPC) 4 100.0 Wind 2 Dec 31, 2019 Apr 13, 2016Oyen Wind Power Project 42 350.0 Wind 2 Jun 28, 2019 May 16, 2016Capital Power Whitla Wind Power Facility 4 300.0 Wind 2 Nov 1, 2019 May 25, 2016Suncor Forty Mile WAGF Phase 2 4 0.3 Wind 2 May 1, 2020 Jul 4, 2016Spirit Pine-Lone Pine WAGF 42 172.8 Wind 1 Dec 1, 2019 Jul 28, 2016Fortis Bullshead 523S DG P/V 53 14.7 Wind 1 Jun 1, 2018 Aug 22, 2016Fortis Buffalo Atlee Cluster 1 WAGF 48 0.0 Wind 1 Nov 20, 2017 Aug 30, 2016Fortis Buffalo Atlee Cluster 2 WAGF 48 15.8 Wind 1 Nov 23, 2017 Aug 30, 2016Buffalo Trail WAGF 4 100.0 Wind 1 Sep 13, 2019 Sep 1, 2016Ross Creek WAGF 4 100.0 Wind 1 Sep 13, 2019 Sep 1, 2016Enterprise Prosperity WAGF 45 175.0 Wind 1 Mar 1, 2019 Sep 7, 2016Enterprise Sundance WAGF 49 75.0 Wind 1 Mar 31, 2019 Sep 7, 2016Enterprise Vulcan WAGF 49 125.0 Wind 1 Mar 31, 2019 Sep 7, 2016Enterprise Bighorn WAGF 49 325.0 Wind 1 Mar 31, 2019 Sep 7, 2016Northland Buffalo Trail WAGF 28 100.0 Wind 1 Dec 31, 2019 Sep 16, 2016Renewable Energy Service BTF WAGF Phase 2 53 40.0 Solar 3 Sep 6, 2018 Jan 5, 2016Suncor Forty Mile PV 4 80.0 Solar 3 Jun 1, 2019 Jan 6, 2016BluEarth Burdett DG PV 52 15.0 Solar 2 Dec 1, 2017 Aug 27, 2015Fortis BluEarth Yellow Lake DG PV 52 16.8 Solar 2 Dec 1, 2017 Aug 27, 2015Suncor Hand Hills Solar Project New POS 43 80.0 Solar 2 Oct 31, 2019 Jan 6, 2016Suncor Schuler PV 4 80.0 Solar 2 Oct 31, 2019 Jan 6, 2016EDF EN Vulcan Solar PV 49 100.0 Solar 2 Oct 1, 2017 Mar 7, 2016Fortis GP Joule Canada Cluny DG 45 0.7 Solar 2 Jun 16, 2017 Jul 29, 2016HEP Capital Alderson PV 4 100.0 Solar 1 Apr 1, 2020 Jul 29, 2016Fortis 255S Vulcan Faribault Farms DG PV 49 13.0 Solar 1 Aug 8, 2018 Aug 5, 2016Fortis Tilley 498S DG Gas 47 9.0 Solar 1 Sep 13, 2018 Aug 5, 2016Fortis 83S Taber DG PV 52 0.0 Solar 1 Jun 3, 2019 Aug 5, 2016Fortis 121 Brooks DG PV 47 0.0 Solar 1 Jun 3, 2019 Aug 5, 2016Fortis 498S Tilley DG PV 52 17.0 Solar 1 Jul 18, 2019 Aug 5, 2016Fortis 895S Suffield DG PV 4 11.0 Solar 1 Jul 18, 2019 Aug 5, 2016Fortis 421S Hays DG PV 52 15.0 Solar 1 Oct 25, 2017 Aug 5, 2016Fortis 275S Jenner C&B PV D.E.R. 48 23.0 Solar 1 Dec 1, 2017 Aug 5, 2016Fortis 257S Hull DG PV 52 8.0 Solar 1 Oct 25, 2017 Aug 5, 2016Fortis 158S Vauxhall DG PV 52 11.0 Solar 1 Oct 25, 2017 Aug 5, 2016Fortis Coaldale 254S DG P/V 54 12.0 Solar 1 Jul 1, 2017 Aug 23, 2016Fortis Burdett 368S DG P/V 52 9.5 Solar 1 Dec 6, 2018 Aug 24, 2016Fortis Stirling 67S DG P/V 55 17.4 Solar 1 Nov 15, 2018 Aug 30, 2016Fortis Spring Coulee 385S Solar DG 55 28.5 Solar 1 Nov 1, 2018 Sep 28, 2016Fortis Warner 344S DER Solar 55 16.5 Solar 1 Dec 15, 2018 Oct 3, 2016Fortis Stavely 349S DER Solar 49 13.0 Solar 1 Jul 1, 2018 Oct 5, 2016Fortis Coaldale 254S DER Solar 2 54 20.0 Solar 1 Nov 16, 2017 Oct 12, 2016

Alberta Renewable Energy Program Announced Nov 3 – 400 MW of clean energy to be

procured and built by 2019

AESO Queue

•  Wind – 7,253 MW total Ø  2,500 MW in stages 3 to 5

Ø  developers of those projects very incented to win – high carrying costs to date

•  Solar – 736 MW

Ø  120 MW in stage 3, can be moved through AESO stage gates and built quite quickly

v  2,620 MW mid to late stage wind & solar

v  6.5x oversubscribed, poten6ally higher if earlier stage projects can advance quickly enough to meet 2017 bid


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12A

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13A

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13B 14

15

17

18

19

9

20

3

12B

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11A

11B

Compe?tor Analysis – Project ARributes


Compe?tor Analysis -‐ Project & Corporate

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Our Project

Tier 1 Competitors

Competitor A Competitor B Competitor C

Known Projects 3 projects 8 total, 4 very good sites

2 projects

S&P Credit Rating A+ A Private BBB

Access to Debt Financing Yes Yes, large enough to drive low rates

Yes Yes

Ability to Monetize Tax Pools Yes Not likely No Yes

Net Installed MW in Canada 500 MW 700 MW None 200 MW

Wind Net Capacity Factor 50% 48% 50% 48.5%

Capital Cost Estimate ($/kW) $2,000 $2,200 $1,900 before deal fee recovery

$2,000

Deal Fee Recovery n/a assume zero $100k/MW unknown

Transmission Cost Estimate $5 MM $10 MM $10 MM $10 MM

Loss Factor 3% 3% 3% 3%

Recent RFP experience Successful in ON LRP1

ON RESOP, FIT Manitoba RFP NB RFP, Manitoba RFP

Turbine position Siemens Has used Vestas & GE No public information Primarily GE & Siemens

IRR expectations 7.5% unlevered DSCR will govern, mid teens levered

DSCR will govern, mid teens

8% unlevered


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Our Project - 175MW Bid Price $65.00 Levelized Bid Cost $70.00 Unlevered IRR 7.0%

Competitor A – 100MW Bid Price $67.00 Levelized Bid Cost $72.00 Levered IRR 15%

Competitor B – 175MW Bid Price $68.00 Levelized Bid Cost $73.50 Levered IRR 15%

Competitor C – 200MW Bid Price $70.00 Levelized Bid Cost $76.00 Unlevered IRR 10.0%

$70.00

7.0%

Levelized Bid Cost / Our IRR

Probability of Success Significant Moderate Average to

Below Average Low

Recommended Price Zone

$72.00

7.4%

$73.50

7.6%

$76.00

8.1%

Compe?tor Analysis

Recommended Bid Price Strategy


Clean Energy Equity Hurdle Rates

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Fixed Price Ocake

Merchant Ocake

Early Stage Greenfield 10%+ 12%+

Bid Ready (construc?on risk) 8-‐10% 10%+

Achieved Commercial Opera?ons 6-‐8% 8-‐10%

1-‐2 Years of Opera?ons <7% 8-‐10%

Unlevered Ader Tax Hurdle Rate

•  Bid ready (e.g. 2017 AESO RFP)– developers generally hold to consistent hurdle rates, how they treat material inputs makes the difference (genera?ng equipment capex, energy produc?on, tail revenue, debt terms)

•  Fixed price ocake -‐ enables debt, which will drive down capex requirements and equity returns will be re-‐calibrated to a leveraged viewpoint

•  Organiza6onal structure – if buying in to a par?al interest at Bid Ready stage or beyond, lender terms will differ according to ownership structure (joint venture vs limited partnership)


3608-‐33 Street NW Calgary, AB T2L 2A6

info@deassocia?on.ca www.deassocia?on.ca

Thank You

3608-‐33 Street NW Calgary, AB T2L 2A6

info@deassocia?on.ca www.deassocia?on.ca

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