Solar PV: Lenders Engineer

Ben Lumby
Solar Team Leader
[email protected]
Presentation Outline

• Introduction to SgurrEnergy
• Resource & energy yield
• Technology
• Completion risk
• EPC and O&M contracts
• Financial modelling
• Key messages
SgurrEnergy

• Leading renewable energy consultancy

• Formed in 2002
• Joined Wood Group in 2010
• Global network of offices
• 100+ experienced consultants
• People and technology focused
• Company wide triple BSI accreditation & UKAS
ISO/IEC accreditation for wind farm power curve
analysis
Global track record
We have consulted on over 65,000 MW of renewable energy in over 40
countries covering both project development and due diligence
Europe Asia Africa
• Belgium • China • Angola
• Bulgaria • India • Kenya
• Estonia • Israel • South Africa
• France • Korea Oceania
• Germany • Mongolia
• Greece
• Australia
• Pakistan
• New Zealand
• Ireland • Philippines
• Italy • Sri Lanka
• Malta • Turkey
• Netherlands • United Arab Emirates
• Norway • Vietnam
• Poland
• Portugal
North America
• Russia • Canada
• Romania • Mexico
• Slovakia • USA
• Spain South America
• Sweden • Brazil
• UK • Chile
• Ukraine • Galapagos Islands (Ecuador)
Experience

Due Diligence – Owner, Lender & Acquisition

• Acquisition due diligence for solar PV plant, Italy, 25 MW, 2012, confidential client
• Lenders due diligence of Charanka solar PV plant, India, 15 MW, 2012, Standard Chartered
• Technical due diligence of Lorraine solar PV plant, France, 36 MW, 2012, Marguerite Advisor
• Acquisition due diligence for European solar PV portfolio, 120+ MW, 2011, confidential client
• Technical due diligence for solar PV project, France, 36 MW, 2011, confidential client
• Provisional Acceptance and witnessing commissioning, UK, 4.4 MW, 2011, Low Carbon Solar
• Owner’s Engineer/ Solar Resource Assessment for proposed PV Plant, Pakistan, 2011, Sapphire
• Owners Engineer/ Design verification and handover acceptance support, Belgium, 6.5 MW, 2011
• Acquisition due diligence of Rete Rinnovabile Solar PV Portfolio, Italy, 150 MW, 2010, Terra Firma
Capital Partners
• Acquisition due diligence for solar PV project, Spain, 6.7 MW, 2011, confidential client
• Lender’s Engineer/ Construction monitoring on three PV plants, UK, 15 MW, 2011, Low Carbon
• Solar Rooftop PV Portfolio Technical Due Diligence, France, 2.4 MW, 2010, confidential client
• Solar Rooftop and Ground mounted PV Portfolio technical due diligence, France, 170 MW+, 2010,
confidential client
Due Diligence- Introduction
The due diligence phase of evaluating a project takes three
main forms:
1. Legal due diligence – assessing the permits and contracts
(EPC and O&M).
2. Insurance due diligence – assessing the adequacy of the
insurance policies and gaps in cover.
3. Technical due diligence – assessing the technology,
integration and technical aspects of the permits and
contracts.
Project Stages
• Feasibility
– Solar Resource & Energy Yield
• Planning & Permitting
• Technical development
– Grid connection
– Design and Technology
• Contracts
– EPC
– O&M
– Power Purchase Agreement (PPA)
• Financial Close
• Construction
– Provisional Acceptance Test
• Operation - Revenue
– Final Acceptance Test
Energy Yield Prediction Accuracy

• Losses
• Shading
• Soiling
• AC/DC cable
• Temperature
• Inverter
• Transformer
• Downtime
• Mismatch

• Module degradation
• Total prediction uncertainty
Effect of Solar Resource on Energy Yield

• Power is approximately proportional to the plane of

array irradiance
• Uncertainty in the yield prediction is dominated by
uncertainty in the solar irradiation
Solar Resource Assessment

• Require historical data close to site and over a long period

of time

• Data sources typically provide global horizontal irradiation

(GHI) in hourly intervals

• Use transposition algorithms to convert from the horizontal

plane to the tilted plane
Solar Resource Assessment

WMO supervised base Satellite derived data

stations
Which Data are Most Representative?

There is disparity between

different information sources
• 20 km from a WMO MET
station (France) good
agreement
Key Messages – Resource and Yield
• Key to yield prediction is
quantification of resource
• Use a variety of resource datasets
- Understand the uncertainty
- Obtain probability of exceedance
energy yield prediction values (e.g.
P90)
• Understanding the yield prediction uncertainty can help
lenders give more favourable terms
• Uncertainty is site dependent (distance from ground
measurements, accuracy of satellite data)
• On-site measurements may be used to calibrate satellite
derived estimates for site location
Resource and Yield– Common Mistakes
• Only using one resource dataset
• No assessment of inter-annual variability in resource
• No assessment of the yield uncertainty (P90)
• No assessment of inter-row shading or horizon shading losses
• Ignoring shading from nearby obstructions including poles,
control rooms and switch yard equipment
• AC losses and plant self consumption ignored
• Plant downtime and grid unavailability ignored
• Degradation of the modules and plant components over the
lifetime of the plant ignored
Technology
Module Type:
• Crystalline Silicon (mono or
multi)
• Thin film (CdTe, a-si)

Inverter Type:
• Central Inverter
• String inverter

System Design:
• Row spacing
• Electrical design
• Orientation and tilt
• Shading
Bankability of Modules
Quality & Management Standards
Cell Performance Warranty
Manufacturer

Track Record Total Installed Capacity

/ Production Capacity
Length of time in
production End of life recycling

Module Technology
(c-Si or TF)

Product Warranty Third Party

Warranty
Insurance
Recommend factory
inspection
IEC Certification
Technology risk- modules

• Reliability Issues
– Quick connector reliability
– Corrosion
– Improper insulation
– Delamination
– Discolouration
– Moisture ingress
– Bypass diode failure
IEC Certification

• Is IEC 61215 or 61646 proof that a

product is durable and reliable? No!

• Not intended, or capable of

showing long term performance

• Some Accelerated Life Testing, but

not representative of real field
conditions

• IEC Proves that the module meets

certain standards.
Third Party Insurance
• Module manufacturing industry currently in period of consolidation.
• Ther is uncertain whether suppliers will be around for lifetime of warranty.
• Third-party warranty insurance provides security even if company becomes
insolvent.
• Several mainly tier 2 manufacturers now offer this, although not industry
standard.
• Expect more manufacturers to offer in the next year due to highly
competitive nature of the market.
Not Backed by third party insurance Backed by third party insurance
Suntech Jinko
First Solar Chint (Astronergy)
Yingli LDK
Trina Canadian Solar
Sharp Solar Frontier
Sunpower Solairedirect SA
Hanwha Solar One NexPower Technology Corp
Kyocera Signet Solar Inc
SolFocus Inc.
China Sunergy

Insurance Providers: PowerGuard, Zurich, SPIB, Chartis, Solarif

Inverters

• Temperature factors
– Derating
– Shutdown

• Enclosure ratings
– Indoor / outdoor

• Cooling
– Forced or natural
• Fans – dusty environments

• Matched to the modules and strings

• Efficiency (Eu η%)
• Lifetime
– Mid term replacements
Bankability of Inverters
Voltage Range Product Warranty and
Euro Efficiency
extensions

IP Rating Track Record

Number of MPP
IEC Certification Trackers

Compatibility with site

climatic conditions Harmonic current
Conformity with conformity with grid
national grid
(G59/2 for UK)
Technology (2)
Inverter Risks Module Risks
• Temperature factors • IEC certification
– De-rating
– Shutdown • Power tolerance
• Enclosure IP ratings • Track record
– Indoor / outdoor
• Cooling • Financial standing
– Forced or natural
– Fans – dusty environments
• De-rate with temperature
• Matched to the modules and • Degradation rate
strings • Guarantees for power
Mounting systems

• Security of foundations • Security of modules

Team Capability – Completion Risk
• Contract strategy (EPC or Multi-contract)
– Both have benefits & drawbacks
• Interfaces
• Design
• Construction
• Who handles them?
• Programme
• Realistic
• Lead times
• Critical path
• Weather delays
• Adequate liquidated damages
• Supply contracts
• EPC contract
 Completion
• Trial Operation (10 days - 4 weeks) • Acceptance
– Reliability of: – Provisional Acceptance
• Inverters – Final Acceptance
• Tracking (12-24 months later?)
• Whole System
– Performance Ratio Tests
Typical Acceptance Procedure
Mechanical Completion

Commissioning/start-up

Test Operation Period

(couple of days)

Performance Testing for Provisional Acceptance

(around 10 days)

Performance Testing for Final Acceptance

(over 1 or 2 years)
Provisional Acceptance
• Provisional Acceptance Testing starts after a short test
operation.
• Successful completion of the tests marks the Provisional
Acceptance of the plant.
• Failure of Provisional Acceptance Testing may require
remedial measures and repeat testing.
• If the Plant again fails the test then liquidated damages will
be payable.
Provisional Acceptance Tests (1)
Performance Ratio Test:
• Checks if the power plant is performing at or above the PR
agreed or warranted within the EPC contract.
• Standard testing period would be continuous testing for
around 10 consecutive days.
• If there are significant differences between the contracted
and actual PR, the EPC contractor should identify and rectify
the problem before repeating the PR test.
Performance Ratio
• The quality of a PV power plant may be described by its Performance
Ratio (PR). The PR, usually expressed as a percentage, can be used to
compare PV systems independent of size and solar resource. It
quantifies loss associated with electrical elements of the plant.
• PR is a measure of actual generation versus the maximum based on DC
capacity and irradiation received over a given time period.

• Installed DC capacity is defined at:

– 1,000W/m2 irradiance
– 25 degrees C
– A defined solar spectrum
Final Acceptance
• Final Acceptance takes place after a successful repeated PR test.
• The period of operation between Provisional Acceptance and Final
Acceptance is dependent on the EPC contract and the level of risk
that may be accepted.
• A two year PR Warranty provided by the EPC Contractor followed
by Final Acceptance provides good comfort to Investors since it
covers risk degradation of the modules.
Acceptance Testing: Lessons Learned
• Use good quality calibrated measuring devices- this is often
not observed
• A two year PR Warranty followed by Final Acceptance is often
not observed
• PR tests should be carried out using clean pyranometers- often
soiled pyranometers are used
• Availability formulas should take into account the scenario
when only a proportion of the plant is operational- this is often
overlooked
Sensor Devices
Pyranometer
• Measures solar irradiation
• Typical manufacturers: Kipp & Zonen, Eppley.
• Calibrated at least every 2 years.
• Measures full solar spectrum compared to reference cell which
only measures part of spectrum.
• Should be cleaned regularly.
• Within 3% inaccuracy.
Monitoring Requirements
Measurement Description
Plane of Array Irradiance (Pyranometer) W/m2
Ambient Temperature °C
Module Temperature °C
Array DC Voltage V
Array DC Current I
Inverter AC Power VA
Exported Power VA
Imported Power VA
Wind Speed & direction if detailed modelling of system required
Horizontal Irradiance for comparisons with resource data sources
Inverter Output Current & Voltage I, V
Inverter Temperature Additional ventilation/cooling required?
Humidity Can effect lifetime of low quality modules
Monitoring: Common Mistakes
• Monitoring systems not installed in representative locations.
• Pyranometers not kept clean.
• Pyranometers not installed at module tilt.
• Only one pyranometer used. For a 5 MWp plant would expect two
plane of array pyranometers (3 for >20MW) and one pyranometer on
the horizontal plane.
• Reference cells should not be used in place of pyranometers as they
may under-estimate the irradiation
Financial Model: What are The Risks?
• Sensitivity Analysis:
– Annual module degradation 0.3% - 0.5% - 0.8%
– O&M costs ±10%
– Inverter replacement- once over project life?
– Module soiling losses: 2% , 3%, 4% (O&M dependent)
– Unavailability: 99%, 98% and 97% (dependent on grid strength)

• Reduce the likelihood or impact of the risk

– Module cleaning linked to performance monitoring
– Include a maintenance reserve account

• Yield is often skewed seasonally

– Include additional financial reserves to ease financial strain
Key Messages
• The process of technical due diligence can require
considerable effort from the developer to satisfy the
requirements of the lender.
• When well performed the lenders will fully understand the
technical risks associated with the project and can decide if
these are acceptable.
• A robust technical due diligence prior to designs being
implemented can also pick up errors the developers have
missed, and save them money.
• With experienced project partners, effective due diligence and
good technical advisors, solar PV can be a low risk investment.
Any questions?

www.sgurrenergy.com

[email protected]
 Risk Management

Lee Moscovitch, Infrastructure Principal

Introduction to Zouk Capital

Private equity investor focused on renewable energy

infrastructure and cleantech growth companies

Over €400m under management in 4 funds

Largest cleantech growth capital fund in Europe

2
 Zouk’s dual track approach to the cleantech market

Clean Technology Clean Infrastructure

Alternative & Resource Efficiency Renewable Energy Resource Efficiency

Renewable Energy Technologies Generation Infrastructure

Solar Energy efficiency Solar PV Smart grid

Wind Transportation
Biomass Energy storage Market intelligence
Biomass Transmission
Wind Deal flow Hydro Building
Smart grid efficiency
Fuel cells Commercial insight Geothermal
Energy storage
Transport
Waste-to-Energy
Marine Sector knowledge

Cleantech networks
Recycling Water Biogas
Water treatment
Emissions solutions Advanced materials Waste management

Waste management Recycling

Environmental Services & Technologies Environmental Infrastructure

3
Zouk’s cleantech growth capital strategy

Focus on European expansion-stage cleantech companies

Targeting high growth companies with established revenues (>€10m)

Cleantech Europe II raised €230m and is the largest fund of its type in EU

12 cleantech investments made over 2 funds

4
 Select cleantech company investments

Energy efficiency services Advanced thermal insulation

Solar / Recycling

Electrical contractor Waste to Energy Water Solutions

Smart Grid
Rural / Semi-urban Solar Building-integrated Solar

5
Zouk Infrastructure Fund I

10 projects 39 MW
Portfolio: 5 in Italy, 5 in UK Capacity built from late-stage development

Italy: large scale UK: distributed solar

6
Zouk Infrastructure Fund II

Financing renewable energy and environmental assets

Focusing on late-stage development and operational (distressed)

Investing primarily in Europe

Diversified range of sectors: geothermal, wind, solar, waste, hydro, biomass

7
 Projects with Predictable Cash Flows
Long term feed-in tariff framework with no or limited price and volume risk
Long-term take-or-pay offtake agreements
Revenues Limited merchant risk, if any, in liquid, transparent markets
Operation in countries with stable track-record in relation to regulatory regimes
Creditworthy / diversified counterparties
Insurance for operation disruptions due to unpredictable events

Predictable cost structure over the life of the project

Costs Fixed-price, fixed date, turn-key construction contracts

Long-term fixed price operating and maintenance contracts
Cost hedging over the life of the Project (to the extent possible)
Insurance for unpredictable events

Non- or limited-recourse financing with adequate contingencies built into project budget
Long-term financing with no or very limited refinancing risk
Financing
Reputable, experienced lenders ideally with relationship with Zouk
Debt / revenues / costs currency matching
Hedging (interest rates, inflation, etc)

8
 Typical Project Structure

SH
Lenders Sponsor Agreement
Sponsor Project SPA Project Seller

Financing Capitalisation
Contracts Contract
Development
Offtaker(s) Agreements Developer
Offtake
Contracts
Centralised Offtake Land Rights
Contracts Project SPV Agreements Land Owners
MKTs

FITs,
Govt. Subsidies
Project
Authorities
Authorisations

Fuel Supply Insurance Asset Mngmt Service

EPC Contract O&M Contract
Contract Contract Contract Contracts

EPC O&M Fuel Insurance Asset Service

Contractor Contractor Supplier Providers Manager Providers

9
 Risk Allocation
Comments
Risks should be allocated
Lenders Sponsors to the parties best able to
manage them

Centralised Project contracts are the

Financing
MKTs Risks
Some means to transfer risks
residual risk,
(if limited-
Offtaker(s) recourse) Tender processes for the
assignment of Project
Price / Project SPV contracts should ensure
Volume Risk maximum risk transfer at
(Residual Risks)
lowest possible costs
Govt. The Project company is left
with the residual risks
which were not transferred
Construction Operation Fuel Supply Authorisation
Risk Risk Risk
FM Risk
Risk
to other parties

Recourse to the Sponsors,

EPC O&M Fuel Insurance Developer / if any, is always limited in
Contractor Contractor Supplier Providers Project Seller
amount, scope and time

10
 Legal notices

The information contained in this document (the "Information") is issued by Zouk Capital LLP (the "Issuer") on a confidential basis to a limited number of prospective investors ("Prospective
Investors") and their respective legal counsel and/or other advisers ("Advisers") for the sole purpose of providing information in relation to the potential investment by Prospective Investors
in interests ("Interests") in the fund to be known as Renewable Energy and Environmental Infrastructure Fund II (the "Fund"). Neither Prospective Investors nor their Advisers should
construe the Information as legal, tax, financial, investment, accounting or other advice, or as a recommendation by the Issuer, any of its affiliates, advisers, directors, employees or agents,
that any Prospective Investor should acquire any Interest. Prior to making any investment, potential investors should arrive at an independent evaluation of such investment opportunity.
The Information is qualified in its entirety by reference to the subscription agreements, limited partnership agreement(s) and any other legal documents constituting the Fund (the "Fund
Documents"). Each investor who acquires an Interest will be bound by the terms and conditions of the Fund Documents. In the event that the descriptions in, or terms of, the Information
are inconsistent with, or contrary to, the descriptions in, or terms of, the Fund Documents, the Fund Documents shall prevail. The Information is subject to withdrawal, cancellation,
modification or updating without notice, and is subject to the approval of certain legal matters by counsel and certain other conditions. This document is strictly private, proprietary and
confidential. This document may not be distributed, published, reproduced or transmitted in whole or in part, and the information contained herein (including the potential investment
opportunity) may not be disclosed by a recipient to any third party. By accepting delivery of this document, the recipient agrees to keep the information it contains strictly private and
confidential, and to return this document to the Issuer at any time upon the Issuer's request. No representation or warranty, express or implied, is or will be given by the Issuer or its
affiliates, advisers, directors, employees or agents, and, without prejudice to any liability for, or remedy in respect of, fraudulent misrepresentation, no responsibility or liability or duty of care
is or will be accepted by the Issuer or its affiliates, advisers, directors, employees or agents, as to the fairness, accuracy, completeness, currency, reliability or reasonableness of the
information or opinions contained in the Information or any other written or oral information made available to any Prospective Investor or its Advisers in connection with any application to
subscribe for interests in the Fund (a "Proposed Subscription") or otherwise in connection with the Information. In particular, but without prejudice to the generality of the foregoing, no
representation or warranty is given as to the achievement or reasonableness of any future projections, forecasts, targeted or illustrative returns (“Forward-Looking Information”). Actual
events and circumstances are difficult or impossible to predict and will differ from assumptions. A number of factors could cause actual results to differ materially from those in any Forward-
Looking Information. There can be no assurance that the Fund’s investment strategy or objective will be achieved or that investors will receive a return of the amount invested. To the fullest
extent possible by receipt of, and using, the Information, you release the Issuer and each of its affiliates, advisers, directors, employees and agents, in all circumstances (other than fraud)
from any liability whatsoever and howsoever arising from your use of the Information or any information or communications provided in connection with any Proposed Subscription. In
addition, no responsibility or liability or duty of care is or will be accepted by the Issuer or its respective affiliates, advisers, directors, employees or agents, for updating the Information (or
any additional information), correcting any inaccuracies in it or providing any additional information to any Prospective Investor or its Advisers. Accordingly, none of the Issuer or its affiliates,
advisers, directors, employees or agents shall be liable (save in the case of fraud) for any loss (whether direct, indirect or consequential) or damage suffered by any person as a result of
relying on any statement in, or omission from, the Information or in, or omitted from, any other information or communications provided in connection with any Proposed Subscription.
Investment in the Interests will involve significant risks. An investment in the Fund is only suitable for sophisticated investors and requires the financial ability and willingness to accept the
high risks and lack of liquidity inherent in an investment in the Fund. The Fund's investments may be difficult to value and involve an above-average level of risk. No assurance can be
given, and no representation is made herein, that the Fund's investment strategy will be achieved or that investors will receive a return of their capital. Any offer or sale of securities (or
Interests such as those described in this Information) may in certain jurisdictions be restricted by law. Any Prospective Investors who are considering making an investment in the Fund are
required to inform themselves about, and to observe, any such restrictions. It is the responsibility of each Prospective Investor to satisfy themselves as to full compliance with the applicable
laws and regulations of any relevant territory, including obtaining any requisite governmental or other consent and observing any other formality presented in such territory. No action has
been taken to permit a public offering of the Interests in any jurisdiction where action for that purpose would be required. This Information does not constitute an offer to sell or a solicitation
of an offer to buy Interests in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

11
Contact details

Zouk Capital LLP

100 Brompton Road Lead contacts

London
SW3 1ER Lee Moscovitch [email protected] +44 (0)20 7947 3414
United Kingdom
+44 (0)20 7947 3400
www.zouk.com

12
The UK solar PV investment opportunity
Eversheds conference

02 July 2012

Ref: 1126192
Agenda
The Ernst & Young Environmental Finance team
The solar PV investment opportunity
Navigating incentives
The funding backdrop
Summary

Ref: 1126192 Eversheds conference June 2012 2

Ernst & Young Energy Infrastructure Advisory team
This announcement appears as a matter of record only.
This announcement appears as a mat t er of record only. March 2011 This announcement appears as a matter of record only.

We are a market leading renewable energy Eaga plc SeaEnergy Plc

corporate finance team, with over 60 UK Solar PV project financing has disposed its offshore wind development subsidiary,

dedicated professionals advising on has provided accounting, tax

and modelling services on
energy and environmental finance Eaga's £300m project financing
Ongoing SeaEnergy Renewables
of a portfolio of social housing Ltd
to
rooftop solar PV installations Structuring and financing advice on £1.5bn major
infrastructure roll out
We are currently advising on: Repsol
Financial Advisor
► Over 5GW of renewable M&A for £50 million
transactions in Europe Ernst & Young provided accounting, tax Ernst & Young acted as lead financial advisor to SeaEnergy Plc.
and modelling services to Eaga plc.
► Over £300m of project financing for
renewable projects in Europe
In the last 15 months, we have:
► Disposed of four consented onshore This announcement appears as a mat t er of record only. August 2011 This announcement appears as a matter of record only.
This announcement appears as a matter of record only.

wind farms in the UK RES UK & Ireland Lt d Eco2 Lincs Limited

► Secured c.£115m senior debt and a has raised £115 million of senior debt funding to
construct and operate the Lincolnshire based 38 MW
PPA for Sleaford biomass plant has disposed of a majority straw fired
stake of
► Advised on PPAs for over 130MW of Ongoing
renewable energy capacity. Wadlow Energy Lt d Sleaford Renewable
£1.5bn Smart meter funding and commercial Energy Plant
to
► Provided complex financial modelling strategy The lending club consisted of NIBC Bank NV, The Royal
Bank of Scotland, Siemens Bank GmbH and Unicredit
and structuring services to the largest Barclays Infrast ruct ure Financial Advisor Bank AG
solar project finance facility in the UK Funds
(Eaga - £225m) Ernst & Young acted as financial advisor to
RES UK & Ireland Ltd.
Ernst & Young acted as financial advisor to the shareholders of
Eco2 Lincs Limited.
Since 2005, we have:
► Raised project finance for over 785MW
of renewable energy assets
► Advised on PPAs for over 1.1GW of
renewable assets Our EEIA team sits within the wider EMEIA Infrastructure Advisory team
currently advising on £10 billion of infrastructure project financings, allowing
us to understand financing trends across a broad range of asset classes.

Ref: 1126192 Eversheds conference June 2012 3

Sector thought leadership
Our market leading thought leadership and research addresses a broad spectrum of challenges, from industry-
wide issues to specific technical, business, regulatory and compliance concerns
Country attractiveness indices
Our quarterly Country Attractiveness Indices have become a benchmark for all our clients. It provides scores for national renewable energy
markets, renewable energy infrastructures and their suitability for individual technologies (wind, solar and biomass).

The CAI has been reported in 107 different publications worldwide, spanning most forms of media including TV, global and national
mainstream press and trade press and is one of the leading publications in the global renewable energy market.

Utilities unbundled
Utilities Unbundled, Ernst & Young’s semi-annual global power and utilities magazine, features insight from leading industry figures,
comment on key industry issues and analysis of the latest trends. Read about what your peers around the world are thinking and doing
about common industry concerns.

Cleantech matters
The cleantech-enabled transformation to a resource-efficient and low carbon economy is characterised by many observers as the next
industrial revolution. Our quarterly “Cleantech Matters” publication includes material covering the sector’s key drivers, trends and issues.

Growing beyond
The EY Global Cleantech Centre produces its “Growing beyond: the cleantech growth journey” publication on an annual basis. It includes
the findings from our annual Cleantech CEO Growth Journey retreat. Developed with Bloomberg New Energy Finance, the event brings
together nearly 50 CEOs to address the industry's capital, partnership and expansion challenges.

.
Ref: 1126192 Eversheds conference June 2012 44
Infrastructure Advisory– our awards

2011 Middle East Power Ernst & Young

Deal of the Year
2011 No.1 by Global
Sur IPP Mandates Won No.1 by Global PFI/PPP Deals
closed
2005, 2007 & 2009
2009 & 2011 2009 Renewable Energy
PPP Financial Advisor Advisor of Choice
of the Year
Ernst & Young
2011 Best Infrastructure Deal in CEE - Polish
Airports State Enterprise’s PLN700mn fund 2010 No.1 by Global
raising Mandates Won

No.1 by Global and

EMEA Mandates Won
2005 - 2009
2011 Best Project Finance Adviser in
2008 EMEA and CEE Best Advisory Firm –
2011 PPP Deal of the Year Financial Advisor of the Year – 2009 Best Project Finance House – Renewable Energy Europe
Suffolk Waste PFI Renewables Financial Advisor

European Transmission Deal of the Year - Robin Rigg

OFTO

Financial Adviser of the Year - Renewable Energy

Financial Adviser of the Year - Power

2011 Best PPP Deal in the Middle East Financial Adviser of the Year - Social Infrastructure Overall Project Finance Firm of the Year:
– Bahrain Housing UK

Partnerships Awards 2012 Partnerships Awards 2012 Partnerships Awards 2012 Partnerships Awards 2012
2011 Asia-Pacific PPP Deal Best Local Government Project Team Best Waste/Energy/Water Project Project Grand Prix
of the Year
Adelaide Hospital South West Devon Energy from Waste PFI South West Devon Energy from Waste PFI
Devon Waste Partnership Best Financial Adviser

Eversheds conference June 2012

5
Section 2

The PV investment opportunity

Ref: 1126192
A snapshot of UK Solar PV
Greg Barker – 24 May 2012
► “We can now look with confidence to a future for solar which will see it go from a small cottage
industry, anticipated under the previous scheme, to playing a significant part in Britain's clean
energy economy”

DECC recognise solar in RE roadmap

► DECC 2020 solar power pathway central scenario delivers 22GW of solar PV

Buyers market
► Continued over supply with ever decreasing panel and EPC prices
► Falling tariff regimes across Europe
► Grid parity around the corner?

Consultation, consultation, consultation

► DECC RO Banding consultation (ongoing) 2.0 ROCs falling to1.8 ROC
► FIT consultations known for now, awaiting response on Phase 2B

Other policy Renewable Heat Incentive / Green deal

► First of its kind support for renewable heat generation including solar thermal
► Energy efficiency loan scheme, domestic market minimum EPC requirements
Ref: XX00000 Eversheds conference June 2012 7
 Investment through the transaction lifecycle
c.1-6 months c.1-6 months

Planning fully consented Financial close Commercial operational date

Land/feasibility study Leases signed and surveys complete

Planning/EIA

Grid Informal offer agreed Offer signed including indicative grid live date

Solar irradiation Preliminary data Pyranometer 12 months wind data

Project Finance Bank terms agreed at close

Principal contract suite PPA and construction contracts agreed at close Estimated
construction
Construction period and
grid live date
100% coincides

Indicative value 80%

realisation1

(% of total 60%
realisable site
value assuming
sale at given point 40%
in time)
20%

Note: 0%
1. Based on a limited number of UK transactions and Ernst & Young experience working with leading developers in the field who tend to apply
these percentages to estimate value once set milestones are achieved

Ref: XX00000 Eversheds conference June 2012 8

Section 3

Navigating incentives

Ref: XX00000
FiTs indexed linked revenues give stability, but in unstable regime
1,400
1,200
1,000
Deployment (MW)

800
600
400
200
0
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12

Domestic Commercial Industrial Community

April 2010 March 2011 June 2011 October 2011 December 2011 Feb2012 May 2012
FiT launched DECC publish fast Response to fast DECC publish DECC issue publish DECC issue publish Confirmed cut in FiT
track review on FiTs track review comprehensive response to Phase 1 response to Phase 1 in August 2012
confirming cut to PV consultation to consultation and consultation and
tariffs >50kWp reduce tariffs on 10 issue Phase 2 issue Phase 2
December consult consult

August 2011 December 2012 August 2012

New rates for Judicial review 20yr tariff
installations <50kW rejected, high court Quarterly degression
take effect appeal granted to be Deployment
heard dependant
90% multi installation
January 2012 March 2012 tariff (>25 systems)
DECC looses court Supreme court Increased export
of appeal decision rejects DECC appeal E EPC rating or get
Ref: XX00000 standalone tariff
So projects under ROC regime gaining traction
The ROC market
How the ROC market works

1. Ofgem issues ROCs to generators

End user according to renewable MWh
generated.
2. Suppliers obtain ROCs by:
Utilities
Suppliers ► Owning qualifying assets.
(e.g., E.ON, Scottish Power, Centrica, SSE, RWE)
► Buying ROCs through a PPA with
a generator.
2
3 4 ► Buying ROCs from another
Trade ROCs supplier (with surplus ROCs), or
through the commodity market.

Surrender ROCs

ROC recycle
Independent Infrastructure Utilities 3. To comply with their obligation,
RE generators developers funds (e.g., Scottish suppliers must surrender ROCs.
(e.g., RES, Falck) (e.g., HG Capital) Power)
4. Where there is a ROC market
shortfall, under-compliance is fined
and the proceeds distributed to
Issue ROCs 1
compliers as a ‘recycle’.
Regulator Ofgem

Ref: XX00000
And the future for the proposed FiT CfD
The key to achieving these objectives will be to bring forward the level of investment needed in
new low-carbon generation capacity and infrastructure at the required pace and through a
combination of measures.

Source: DECC

► Will investors be turned off by lack of power price exposure? ► Overlap of RO provides some continuity, but without
► Will 15 year tenor attract investors seeking long term, low absolute certainty on revenue
risk returns? ► Gross margin indexation linkeage RO and FiT CFD –
► Strike price mechanism? loss of natural hedge?
► Guarantor between generator and supplier ► Competition against transport fuels (revenues linked to
oil price)
Ref: XX00000
Section 4

The funding

Ref: XX00000
 Renewable equity investors - typical risk-return profile
Stage of development Fully consented Financial close Commercial operational date

Existing ► Appetite for development risk – increased risk for

developers higher returns
► Exit after construction to fund pipeline

► Strategic objective
Equity cost of capital

UK/ International
► Project development chain
utilities
► Low WACC

Infrastructure ► May take on construction risk

funds ► Desire to place funds drives return

► Long-term predictable cash

Secondary funds flows
(e.g., pension) ► Limited appetite for
construction risk
► Varying comfort with power
price risk

Deal size £5 – 10mn £10 – 50mn £100 – 500mn

Ref: XX00000 03 July 2012

Debt finance
► Increasing trend towards: Global project f inance volume by f unding source
1. Club lending
350
2. Credit committee decision making driven by
300
relationships and geography
3. Mini-perm structures 250

Aggressive cash sweeps and restrictions on

US$ bn
4. 200
payments to equity
150
5. Rise in margins (although offset by recent fall in the
100
long-term swap rate
► Attitude towards long term strategy in the project 50 Source: Infrastructure Journal
finance market will vary by bank, however major deals 0
continue to be done (see graphic) 2005 2006 2007 2008 2009 2010 2011
► Role of ECAs and Multilaterals key for overall funding Equity Bonds Loans IFI Suppor t
strategy and market approach
► Limited appetite for rooftop UK solar PV beyond solar
► Future for Ground mounted under ROCs?

Ref: XX00000 Eversheds conference June 2012 15

Solar PV funding – the capital journey
Time period (X months) Exit arranged whereby value of assets transferred to long-term owner

Equity capital at 15%

(business model inertia risk)
Ownership capital at 6 – 7% cost of funds

Installation
Spend
Investment (X £m)

Capital increase realised through cost of funds arbitrage,

releasing capital for further installation programme
Installation spend funded unencumbered
with external capital, i.e. equity or corporate debt
Constraints: Ideal world:
► Pension funds/insurance funds/life funds do not have significant ► Long-term ownership resides
capital allocations specifically for renewables investments with low cost, long-term cash
► Conduits do not exist that enable PV market to effectively yield investors
access this capital – these funds do not invest directly (pension/insurance/life funds)

► Inertia risk, technology performance risk, and resource risk ► Cost of funds: c 6 – 7%
needs to be properly understood to access low-cost funds
► Deal size: £100mn plus
► Large equity capital sources needed to build installation capex
to levels to attract such investors

Ref: XX00000 Eversheds conference June 2012 16

The road to the PV financing future

► Aggregation and consolidation

► Flight to quality
► How do you deliver long term institutional capital?
► Right conduit
► Right portfolio
► Right structure
► Right management
► Right advisors

Ref: XX00000 Eversheds conference June 2012 17

Section 5

Summary

Ref: 1126192
Summary
Solar investment opportunity
► 22GW of deployment in UK
► Cost reductions look set to continue – 50% -70% cost reduction in few years
► Grid parity
► Low(er) risk renewable technology

Revenues – which TLA will you invest in?

► FiTs

► ROCs

► CfD

The funding backdrop

► Conventional financing solutions are not a perfect fit for highly aggregated portfolios
► Optimising finance is a major value lever of UK PV – how long will it take
► Aggregation and flight to quality likely

Ref: 1126192 Eversheds conference June 2012 19

 Thank you
Louise Shaw, Senior Executive,
Environmental Finance
Tel: +44 (0)20 7951 4806
Email: [email protected]
www.ey.com/renewables

Ref: 1126192 Eversheds conference June 2012 20

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Ref: 1126192