Competitive Solar Energy & Finance Solutions Seminar for the GCC

Solar Finance

Alberto Pisanti
Managing Partner & CEO Dubai - April 14, 2014
Agenda

Background for Investing / Financing Solar PV Project

The Solar Business Model in Europe – Lessons learned

The Solar Business Model in the GCC – Expected evolution

Structuring a PV Project

Skills needed to succeed in this market

2
Investment Merits of Solar PV
 Solar PV is a mature technology today with almost 100 GW installed and operational worldwide
Proven
technology  Sector has achieved critical mass and is well along the experience curve
 Operational risks are limited while operational improvements are still underway
 Solar Irradiation has very low volatility especially in the long term

Comfortable  Solar PV plants can count on:

risk profile  very limited development and construction risks
 no price risk, as feed-in-tariff / PPA are stable for 20+ years
Stable and
predictable  limited volume risk thanks to (i) priority of dispatch of 100% of electricity produced, (ii) low volatility of
cash flows irradiation in the long term and (iii) operational simplicity and stability

Weak  Sector has extremely low operational risk with leading EPC and O&M operators guaranteeing performance/
correlation yields and insurance companies covering all other risks
with Equities
 Low / No correlation with the Equity markets
Upside
potential  Important upside potential from operational improvements, revamping, concession renewal (>20yrs)
Return

Private Solar PV represent

Equity a very attractive and flexible solution
Equities for different investment styles…
Infra
…and is now becoming a New Asset
assets
Class tailored on the Institutional
Fixed Investor needs
income
Cash

Source: Lazard AM Risk

3
Positioning Solar PV Investments in the Risk/Rewards Pyramid

Capital
Availability

$
SPECULATIVE

Development, E&P,
? Venture Capital, Derivatives
Gem stones, Art, Metals $$
GROWTH

? Equity (Direct Investments), Growth Stocks,

Real Estate (construction), Non Regulated Businesses,
Sub-Investment Grade Bonds / Debt

SECURE / INCOME INSTRUMENTS $$$

Conservative Equities (Regulated Businesses),
? Preferred Stocks, Investment Grade Corporate Bonds/Debt ,
Municipal Bonds, Convertible Securities

CASH AND CASH EQUIVALENTS

Cash, Government Bonds (Investment Grade), Money Markets Funds, Life insurance,
Pension Plans, Term Deposits, Saving Accounts

4
PV Risk / Attractiveness Drivers: Mature vs Developing Markets

M = Mature markets D = Developing economies - Degree of Attractiveness for PV Investments +

 Economic and demographic outlook M D

 Growth in electricity demand M D

 Existing electric generation capacity M D

 Transmission grid infrastructure M D

 Energy mix M D

 Level of renewable resources M/D

 Availability of fossil fuel resources D M

 Presence of renewable energy targets D M

 Status of REn legal and regulatory framework D M

 Availability of land M D

 Financial sector, market depth and thickness D M

 PV development to date in Europe

 Climate change
Main drivers  Energy security
 Political support (carbon reduction targets, occupational goals…)

Countries  Developed countries, mainly Europe

Mainly policy driven
with little economic
 Bottom-up sense
Model  Disorderly development
 Evolving support schemes ie changing FiTs to track cost evolution

 Disorder = Risk = Equity (vs. Debt)

Finance
 Financial crisis further crunched Debt

DEVELOPMENT CONSTRUCTION OPERATIONS EXIT

Debt often unavailable
or took too long to
structure
generating FiT risk FULL EQUITY MAINLY EQUITY BANK FINANCING
 Industrial players  Project Finance
 EPCs with  Leasing
guaranteed off- PORTFOLIO REFINANCING
takes  Project Finance
 EPCs on-balance  Bonds
sheet
ASSET CLASS FOR INSTITUTIONAL
INVESTORS
IPO/ YIELD COs 6
 The Solar PV Project Life Cycle in Europe
There is a significant change in risk and resulting yield compression progressing along the life cycle of renewable energy
projects from development to operation

Solar PV investment cycle

Portfolio of
Fully Permitted Under
Pre- consent Operational Operating Exit
Ready to build construction
Assets

Capital € € € €€€
Availability

Value Creation* 25%+ 15-20% 8-15% 10% 7-10% 2x

(IRR unlevered)

* Values are ball park figures based on investments carried out in Italy 2009-12

 Relatively new technology Very high arbitrage opportunities

 Smaller scale projects – many developers resulting in very interesting investment
 Scarcity of debt available multiples

7
Entry and Exits of Main Solar PV Actors in Europe

Portfolio of
Fully Permitted Under
Pre- consent Operational Operating Exit
Ready to build construction
Assets

Developers

Bridge Capital Providers:

 EPC
 Tech Suppliers/ Manufacturers
 Industrial players
 Financial players

Consolidators:
• Industrial players
• PE Funds
• Infra Funds

Final Off takers:

• Pension Funds
• Insurance Co
• Capital mkts

8
PV Risk / Attractiveness Drivers in the GCC

= GCC - Degree of Attractiveness for PV Investments +

 Economic and demographic outlook

 Growth in electricity demand

 Existing electric generation capacity

 Transmission grid infrastructure

Sunbelt region
 Energy mix with high
opportunity cost
 Level of renewable resources of fossil fuels

 Availability of fossil fuel resources

 Presence of renewable energy targets

 Status of REn legal and regulatory framework

 Availability of land

 Financial sector, market depth and thickness

 PV development envisageable in the GCC
 Technology driven cost reductions
 Abundant resource availability
Main drivers
 Economic development and occupational targets
 Peak oil

Countries  GCC region

Large strategic and
 Top-down economic sense
Model  Structured and rapid development (tender processes...)
 PPA based (no incentives, greater sustainability)

 Order = Risk = Debt (vs. Equity)

Finance
 Plenty of capital available also from Gov. and Multilateral agencies

Plenty of Debt
DEVELOPMENT CONSTRUCTION OPERATIONS EXIT
available in the form
of highly leveraged
structures where
equity control remains
firmly in the hands of EQUITY MAINLY DEBT MAINLY TO INSTITUTIONAL,
strategic local Favored by: LOCAL OR INTERNATIONAL,
investors  clear timing FINANCIAL INVESTORS
 PPAs Through debt-like instruments
 Experience and (vs. equity):
resulting lower  Pension funds
construction risk  Insurance Co’s

10
 The Solar PV Project Life Cycle in the GCC

Solar PV investment cycle

Portfolio of
Fully Permitted Under
Pre- consent Operational Operating Exit
Ready to build construction
Assets

Capital € € € €€€
Availability

???
Value Creation* 25%+ 15-20% 8-15% 10% 7-10%
(IRR unlevered)

* Values are ball park figures based on investments carried out in Italy 2009-12

 Market evolution – no longer an “experiment”

 Larger Tender processes vs small developments
 Consolidation along the value chain
 Larger scale play from the outset – developers and
construction players may coincide
 Value creation in the development will be lower and
higher in the LT holding to be aligned to the Region’s IRR
targets
Exit multiples will be dependent on the
ability to attract Local and International
Institutional Investors / Debt providers
with reduced IRR targets and appetite for
cheaper debt/quasi-equity instruments

11
Entry and Exits of Main Solar PV Actors in the GCC

Portfolio of
Fully Permitted Under
Pre- consent Operational Operating Exit
Ready to build construction
Assets

Developers / Construction companies

Bridge Capital Providers:

 EPC
 Tech Suppliers/ Manufacturers
 Industrial players
 Financial players

Consolidators:
• Industrial players
• PE Funds
• Infra Funds

Final Off takers:

• Pension Funds
• Insurance Co
• Capital mkts

12
 Multiple Investment Exit Options

 SINGLE ASSET SALE

 TRADE SALE

 CONTRIBUTION TO MUTUAL FUND

 PLAIN VANILLA IPO

 YIELD CO’s

 SUKUK

13
Structuring a PV Project

Local
Developer/Investor

EPC contract
EPC contractor

O&M contract Electricity sale PPA with State

O&M operator Solar SPV owned entity or
Private

Insurance
Insurance contract Senior loan
company

Project Finance
Lenders

14
Structuring a PV Project – Development/Construction/Consolidation

Local
Developer/Investor

Solar Operating
Company or
Consolidated
Operating Portfolio

PPA with State

owned entity or
Private

15
Structuring a PV Project – Capital Restructuring

2
Local
Local
Developer/Inve
Developer/Investor
stor

Solar Operating Solar Operating

Company or Company or
Consolidated Consolidated
Operating Portfolio Operating Portfolio

PPA with State PPA with State

owned entity or owned entity or
Private Private

16
Structuring a PV Project – final ownership structure

3
LocalLocal
Local Diffused ownership on
Developer/Inve
Developer/Inve
Developer/Investor Capital Markets
stor stor

Solar Operating Solar Operating Solar Operating

Company or Company or Company or
Consolidated Consolidated Consolidated
Operating Portfolio Operating Portfolio Operating Portfolio

PPA with State PPA with State PPA with State

owned entity or owned entity or owned entity or
Private Private Private

17
Structuring a PV Project – final ownership structure

3 bis
LocalLocal
Local Diffused ownership on
Developer/Inve
Developer/Inve
Developer/Investor Capital Markets
stor stor

Bond/ bond-like debt

with diffused
underwriting

Solar Operating Solar Operating Solar Operating

Company or Company or Company or
Consolidated Consolidated Consolidated
Operating Portfolio Operating Portfolio Operating Portfolio

PPA with State PPA with State PPA with State

owned entity or owned entity or owned entity or
Private Private Private

18
Skills needed to Succeed in this Arena

 Skills along the entire investment value chain

 Experience and flexibility to ensure rapid time-to-market in development phases once market rules have
been set and capital is available to be employed
 Know how - to be transferred locally - to ensure sustainability and growth (organic and through
acquisitions) of operating portfolio
 M&A capabilities to consolidate portfolio
 Practice in professional plant management in order to realize upsides
 Competence in financial structuring
 Familiarity with international investment community
 Awareness of strategic value of energy investments as best basis for dialogue with local authorities and
guarantee of long-term success of investments in solar power production

19
Successful partnership model with Local Partners

Local
Partner
Strong origination and
structuring capability Site screening

Centralised relationships with Pipeline early development /

– Construction companies Government access
– Lenders
– Technology Suppliers Combining a
(solar panels, etc) global Relationships with
– Best-in-class legal and – local authorities
technical advisors approach with a
– civil contractors
local reach – local environment
Know how transfer
of expertise to local developer with
continuous interaction for best Local employees and on-
results the-ground experience

Ability to optimise the capital

structure reducing the average
cost

20
 A Unique Platform to Invest in Renewable Energy
«Bridging the Gap between Projects and Capital»

Alberto Pisanti Helen Mainardi Rosenthal

Managing partner & CEO Capital Raising & Investor Relations
Direct line: +44-207-036 9601 Direct line: +39-06-8967-1586
Absolute Energy Capital LLP Absolute Energy Servizi S.R.L.
100 Pall Mall Via Bertoloni 41

London SW1Y 5NQ 00197 - Rome