01/10/2012. Securing Funding for Anaerobic Digestion. Russell Smyth Corporate Finance, KPMG. Agenda. Macro Funding Environment.

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1 Agenda Securing Funding for Anaerobic Digestion Russell Smyth Corporate Finance, KPMG Current funding environment Anaerobic digestion funding options What makes a fundable AD project? Conclusion 2 Introduction Up to date experience in fundraising across a number of renewable technologies: While fundraising is challenging, renewable energy remains an attractive investment / funding proposition 2 Global Renewable Funding $b Fossil Vs Renewable Energy Funding Gap Anaerobic Digestion Wind Solar Biomass Marine Global Renewable Investment $b Focused on fundraising for smaller, non-utility scale projects ( 2m - m) Independent developers seeking construction-phase finance Source: New Energy Finance

2 Bank Funding Environment Funds however are heavily focused on where is perceived to be the most attractive regions Traditionally a key funding stream for renewable energy projects Renewable Investment $b European Investment Renewable Investment $b Asian Investment Banking / Project Finance markets have changed dramatically: Banks retrenching to home markets Fees Vs Margin Relationship lending Banks are still lending, however: Keen to support key relationships Focused on established technology Margins & fees have risen Renewable Lending $b Bank Renewable Energy Project Finance ($b) Green Investment Bank may prove helpful Source: New Energy Finance 211 Source: New Energy Finance Funding Anaerobic Digestion Country Attractiveness Rating 212 All Wind Solar Rank Country Biomass Renewables Index PV 1 (1) China (2) USA (3) Germany () India (6) UK () Italy (7) France (8) Canada () Sweden 2 6 () Brazil (12) Australia (9) Spain (13) Romania (13) Poland (1) South Korea 16 (1) Japan (1) Belgium (23) South Africa 19 (1) Ireland (19) Denmark 8 Source: 212 European Attractiveness Survey KPMG 211 Renewable Survey Investor Target Countries USA China India Germany UK Canada France Italy Russia Spain % % 2% 3% % % 6% Source: KPMG Green Power 211 Challenging funding proposition Despite four ROCs, few plants funded in Northern Ireland to date Scale, perceived technology risk and funding environment are factors Promoter funding expectations are also challenging to meet However, good projects can, and are, being funded Long-term returns from ROCs are attractive for investors Northern Ireland has the necessary natural resources AD technology providers keen to establish foothold in NI 7 2

3 Funding Options Secured Bank Lending % promoter cash Cheapest form of lending available Secured bank lending Significant flexibility in project design & technology selection Bank project finance (unsecured) % equity ownership Infrastructure fund (PE/VCT/EIS/Other) Supplier finance Farm is at risk if venture fails Requires asset cover and cash repayment capacity Few banks willing to lend even on this basis 8 % Promoter Cash Bank Project Finance (unsecured) Maximum flexibility in project design & technology selection Ideal form of funding, maximising the quantum of cheap debt without risking the farm Fastest development route Professional due diligence and structuring support Inefficient use of equity? Whole investment at risk if venture fails Requires significant equity contribution No project development support or third party due diligence Not available for kw projects (sub-scale) Expensive funding process for Promoter

4 Supplier Finance What makes a fundable AD project? Supplier provides loan to farmer on commercial terms Backable Promoter Credibility, commitment Fast development route Relatively cheap form of debt Resources Sufficient land, stable farm Essential Technology Provider Track record, fundable contract Only a few technology providers offer this (and are selective) Requires a sizeable equity investment Permits Unrestricted planning, economic grid connection Lack of third party due diligence Synergy Scale, common contracts, aggregation Desirable 12 1 Infrastructure Fund (PE / VCT / EIS / Other) Structuring a Project Strongest market appetite Debt / Equity Funder Up to % of finance requirement Funder takes technology / development risk Majority of funding Farmer maintains majority ownership Maintenance Contract Maintenance & Biological Assistance Anaerobic Digestion SPV Feedstock Operations Lease Farmer Expensive compared to bank debt, though cheap compared to equity Loss of project flexibility and technology selection Due diligence is time consuming and invasive Technology Provider EPC Contract Leading Energy Supplier Power Purchase Agreement Farmer retains feedstock risk Farmer likely to have to give up some equity ownership 13 1

5 Contract List Contract Investment Agreement Articles of Association Financial Model EPC Contract Grid Connection Civil s Contract Employer s Engineer Financial Covenants Covers financing of the SPV Covers legal operation of the SPV Agreed financial base case Contract with technology provider NIE grid connection agreement Balance of plant / landscaping Review build-out Farmer obligations Thank You Presentation by Russell Smyth Associate Director- Corporate Finance russell.smyth@kpmg.ie Lease Feedstock Agreement Secondary Feedstock Agreement Operations Agreement PPA Maintenance Agreement Specifies lease terms Covers feedstock supply arrangements Necessary if sub-contracting some feedstock Farmer s operation contract Power off-take contract Maintenance Agreements Professional advisor Contract Legal / financial 16 Conclusion Renewable energy remains an attractive, and active, investment proposition Funding is available for well structured projects Developers must be realistic in their funding expectations & accept appropriate risk (e.g. feedstock risk) Consider JVs with local farmers if unable to meet requirements (land availability etc) Fundraising is time consuming and will take a minimum of three months + nine months build four ROCs won t last forever 17