Financing UK Microhydro

Transcription

1 Financing UK Microhydro What are the options available?

2 raising the finance on hydro projects is slow, tedious, and uncertain unlike on wind and AD etc, where they can see brand names, quick installation and security from the project assets the mainstream banks still ask for security from other sources of income or guarantees from other assets. AMC, HSBC Barclays, all the same JH, owner of 2 hydro schemes, June 2014

3 Funding is available for Hydro but it isn't easy to find Financing Source Notes Bank debt (secured) Project financing (unsecured) High Street Banks Agriculturalloans using land as collateral Not useful if 3 rd party equity is required Cooperative Bank Triados HighStreet Banks Non-traditional lenders Equity Funded developers EIS Funds EIS Fundraisers Team moved to Santander > 1.0 million > 5.0 million > 250k Hawkins Hydro Environmental Energies Funds / GHR

4 Impact of EIS Significantly boosts post tax IRRs for investments Has been given continued status by HMRC for hydro FiTs despite Budget scare Provides quick "bridge" equity for owners who do not have the capacity to raise funds e.g. charities For scheme owners with a high tax base it enables them to: receive rental income through a scheme lease AND manage their tax liability from other sources spread their investment risk from one scheme to an EIS portfolio of other schemes

5 How do banks and investors value schemes? Discounted Cash Flow Analysis 20 year + cash flow projections Financing Haircut on revenue Ratios LTV or LTC, Debt / EBITDA, Minimum cash (to cover debt & interest repayments) Equity Development 20% -25% return on equity Yielding 10%+ return on equity, 7%+ dividend yield (1) SEIS / EIS (1) Current FTSE 100 dividend yields Scottish & Southern Energy 5.55%, National Grid 4.79% (as at 4 June 2014)

6 Cash flow forecasts of a hypothetical 350 MWh/a hydroelectric scheme 85,000 revenue per year 10% lease payment 5,000 operating costs 20 year lease 2.0% inflation

7 10 x revenue or 10% gross yield should not be attractive to rational investors The unlevered dividend yield (6.4%) is marginally higher than Scottish & Southern (5.55%) Equity IRR Gross Yield on Acquisition 8.0% 10.0% 12.0% 14.0% 16.0% % Debt 0.0% 4.1% 6.3% 8.3% 10.1% 11.8% in Acquisiton 20.0% 3.8% 6.3% 8.5% 10.6% 12.5% 40.0% 3.5% 6.2% 8.8% 11.2% 13.5% 60.0% 3.4% 6.3% 9.2% 12.1% 15.0% 80.0% 4.1% 8.1% 11.2% 13.9% 17.7% Acquisition Price 1,061, , , , ,906.3 Project IRR 4.2% 6.4% 8.4% 10.3% 12.1% Year 1 Dividend Yield 4.1% 6.3% 8.3% 10.1% 11.8%

8 Hawkins Hydro Developer/investor hybrid Not limited to financing from cashflow Provides tax efficient funding on 3-25 year basis Has access to debt financing in smaller amounts to add leverage 15m of schemes in development -many of them for heritage charities Can bridge owners through risk development stages of a scheme to full or partial ownership (such as community hydro and charities)

9 CONTACTS James Cole, Director Hugo Elliott, Director By accepting delivery of this document or by reviewing any part of this document beyond this disclaimer, you agree (i) that you will not distribute, disclose or provide any information contained herein, or information provided or material discussed at any presentation in connection herewith, to any other person and (ii) to be bound by the following limitations: This document, the information contained herein and any information provided at any presentation in connection herewith(the Materials ) are being made available on a strictly confidential basis and all material contained herein and information presented is in summary draft form for discussion purposes only and must not be relied upon foranypurpose.thematerialsmustnotbe(i)distributedorotherwisedisclosed(inwholeorinpart)toanyotherpersonor(ii)reproduced,publishedorusedinwholeorin part for any other purpose. In particular, the Materials must not be used in making any investment decision. The content of this promotion has not been approved by an authorised person within the meaning of the Financial Services and Markets Act Reliance on this promotion for the purpose of engaging in any investment activity may expose an individual to a significant risk of losing all of the property or other assets invested. This presentation contains confidential information. By receipt of the same you are acknowledging that the information herein is confidential and that you agree to be bound by restrictions on its dissemination, in any format or medium, to third parties. 24/06/2014 CONFIDENTIAL - 9