DEG We finance opportunities in energy markets

Transcription

1 DEG We finance opportunities in energy markets Solar energy perspectives in India DEG Deutsche Investitions- und Entwicklungsgesellschaft mbh November, 2015

2 Part of a strong group DEG, a subsidiary of KfW Domestic Promotion International Financing Business area Mittelstandsbank Promotion of SMEs, business founder, start-ups, We promote Germany Business area Privatkundenbank Promotion construction of new housing and modernisation as well as education Business area Kommunalbank Financing of municipal infrastructure projects and global loans Germany/Europe Agency Business for the Federal Government We ensure internationalisation KfW IPEX-Bank International project and export finance We promote development Business area KfW Development Bank Developing and emerging-market countries: Financial cooperation DEG Developing and emerging-market countries: Private sector promotion Promotion of environmental and climate protection 2

3 DEG at a glance Facts and figures Founded 1962 Employees 503 Headquarters Shareholder New business Portfolio Equity Balance sheet total Cologne KfW, Frankfurt EUR 1.5 billion EUR 7.8 billion EUR 2.1 billion EUR 5.3 billion 3

4 Financial instruments Long-term loans Currency: Term: Grace period: Amount: Interest rate: EUR, USD and some local currencies (PHP, ZAR, IDR, HKD, JPY) usually 4-18years, depending on cash-flow depending on cash flow USD10-40mn (up to USD100mn under the Friendship Facility Agreement); max. amount not to exceed one third of total assets post investment fixed or variable, market-oriented depending on project and country risk Mezzanine finance Equity mezzanine: Debt mezzanine: significant equity kickers (e.g. conversion rights, warrants, other performance-linked returns etc.) i.e. long tenor, no-, partial-, subordinated collateral, subordinated debt service, partially performance linked returns Equity capital Long-term equity participation i.e. 5-7 year exit horizon Clear exit strategy Significant minority stake up to 25% with protection rights Active role e.g. board representation 4

5 Finance Plus - Promotional and support programmes Co-financings for entrepreneurial measures and pilot projects Special programme Co-financed measures Partner developpp.de Projects that have an impact on development and are viable in economic terms Feasibility studies External feasibility and market studies in preparation of a specific investment measure in a DEG partner country Technical assistance Measures with specific structural effects Example: resource conservation, increased energy efficiency or optimised production processes (minimisation of production waste, controlling etc.) Climate partnerships with the private sector Measures in the field of climate protection Example: pilot plants, qualification measures, introduction of innovative climate protection technologies etc. Up-Scaling Pioneering investments of SMEs planning to further develop innovative business models 5

6 Solar Technologies DEG invests in every proven technology Solar Power Solar Thermal Photovoltaic linear-focusing point-focusing Concentrating Non Concentrating solar tower CSP parabolic trough CSP CPV PV utility scale non-utility scale 6

7 Deal Flow - Solar Projects transactions with 383MW (Volume: 1.2bn USD; DEG: 134m USD) Africa 4 transactions >108 MW (754mUSD / DEG: 28m USD) Asia 3 transactions 145 MW (139m USD / DEG: 35m USD) Latin Amerika 4 transactions 130 MW (318m USD / DEG: 71m USD) 7

8 DEG s Renewable Energy Portfolio in India and outlook Portfolio Renewables projects constitute an important part of the overall portfolio (around 20%) Total commitments of around USD 100m 8 companies Focus on equity/mezz investments in developers that concentrate on wind and solar projects Outlook For DEG: Stronger role of debt funding on project level of IPPs (due to portfolio diversification reasons) Importance of turn-around times will increase High liquidity levels from the local market and deterioration of credit standards (leverage, security/collateral, covenants) expected to continue Very low tariffs in the last PV solar round => DEG will focus on quality sponsors Distributed solar will play huge role in future. Exploring opportunities in this segment Exploring funding of the value chain (eg. equipment manufacturers) and distributed solar solutions 8

9 Global trends regarding implementation of solar energy Solar PV energy generation started taking off in 2008 CSP capacity addition is starting to gain momentum Global annual solar energy generation will surpass TWh in the next 25 years Solar energy will win a market share of more than 25% of total energy production Source: IEA 9

10 2030 Market Outlook Asia-Pacific Solar will play a very important role in the energy mix; reaching grid parity 10

11 IPP Funding: Risk Return Consideration (1) Risk (expressed through Discount Rate) Mitigation (effecting the Discount Rate) Political risk (currency inconvertibility and transfer restriction, expropriation, war, terrorism, civil disturbance, breach of contract, non-honoring of financial obligations) Regulatory risk (enforcement of regulation, institutional incapacity) Implementation risk (tender process delays, support of government etc.) Completion risk (cost overruns, time delays) Environmental / Social Risk (impact on environment and population) Off-taker- Risk Operational risk (market risk, operating risk) Financial risk (interest rate changes, exit) Sovereign investment grade rating, track record of government to support the energy sector, PRI Independent regulator, experienced staff, well-drafted concession agreements, standard PPP and IA, Implementation Agreement (IA) with government, established tender process, hiring of top tier transaction advisor EPC contract (fixed price), project preparation funds/support, all licence and permits in place, completion guarantee International standards for impact assessments and mitigation measures; special funds for community work etc form DFIs Credit / corporate Rating; cost reflective tariff, Government support, PRI Use of proven technology with respective guarantees, conservative capacity forecast, DSRA Fixed rate long-term funding; no currency mismatch 11

12 IPP Funding: Risk Return Consideration (2) Return(based on future net cashflows) Cash-Flows: Transaction costs: Time delays: Specifics (that influence the net cash flows) Attractive guaranteed cash-flows through PPA; deemed energy clause (subsidized top-up, if required); (min. DSCR calculation based on P90 case of e.g 1.2 for PV solar Projects) Small projects have relatively high transaction costs ( fixed costs for advisors legal, engineering, E&S) => clustering of smaller projects; subsidies for small projects; minimum size of projects required to compensate for complex structure Time kills IRR ; preparation and implementation often very long => standardization of process and documentation (eg. standardized PPA and IA; feed-in policy, standardized tender process; fast-track conflict resolution) Financing costs: Operating costs: Linked to perceived risk; => DFI funding; infrastructure PE- Funds Depending on technology; forecast on operating costs is quite reliable in PV solar energy projects (low risk) 12

13 Indian PV Solar Market; the Role of DEG Opportunities Very large market; strong growth supported by the Government Well established players / developers with track-record in (renewable) power Market is reasonably well regulated PV Solar Projects have comparably low implementation and operational risks Challenges Local currency PPAs vs. USD funding Latest bidding round with very low tariffs (financially sustainable?) Execution challenges; completion delays linked to land issues and regulatory challenges (eg. security perfection) Credit and payment risk of discoms, new government initiative is seen positive Interest rate ceiling for foreign currency loans; early repayment restrictions Role of DEG Supporting developers with equity (compulsory convertible debentures; CCD) Limited role in long-term USD debt funding of IPPs due to well developed banking market. Senior debt and subordinated debt (unhedged for a limited amount or hedged by the Project Company / Sponsor) Exploring Mini-Perm Structures(3-5 years) for IPPs For foreign investors: providing country knowledge and umbrella function Finance Plus: Supporting CSR Projects of the borrowers 13