Overcoming Financing Hurdles for Solar PV. Gerhard Wernecke June 2014

Transcription

1 Overcoming Financing Hurdles for Solar PV Gerhard Wernecke June 2014

2 Our Business One of the world s largest PGM producers World s third largest Platinum producer Primary listing on LSE (LMI) secondary listing on JSE (LON) Operations constitute: 11 Operational Shafts 2 Shafts on Care and Maintenance 7 Concentrators 5 Furnaces Industry leading safety record 2013 Metrics: PGM Sales: oz Platinum Sales: oz 2

3 Where is Lonmin located South Africa key facts: Population: 52.9 million Geographic area: 1.22 m sq km Languages: 11, including English, Afrikaans, Zulu, Xhosa Currency: 10.7 ZAR = 1 USD Main exports: metals & minerals, cars, diamonds AIDS/HIV: 10.9% of the population 3

4 The PV Rationale Energy Efficiency Energy Efficiency (EE): Compressed Air - Leak Repairs - Optimised user control - Optimised compressor control Water Heating - Industrial (Heat Pumps) Ventilation Lighting - Smaller applications (Solar) - More EE in line ventilation fans - Inlet Guide Vanes on Surface Vent Fans - UG LED Lighting - EE Lighting introduced in office spaces Scope exists for further improvement in Process Division Milling and Flotation Load shifting and shedding Conveyor Belt Optimisation 4

5 The PV Rationale Load and Cost Megaflex Effective Tariff increase = % Typical Summer Monthly Costs = $ 7.2 million Typical Winter Monthly Costs = $ 11 mill Load requirement due to sudden ramp up in PGM profile may exceed NMD ESKOM declared three National Emergencies since November 2013 Peak solar irradiance levels coincide with peak load requirements 5

6 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 c/kwh Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 c/kwh The PV Rationale Load and Cost R 1.00 Lonmin Marikana Effective Tariff Price Path - Actual (ZAR) R 0.90 R 0.80 R 0.70 R 0.60 R 0.50 R 0.40 R 0.30 R 0.20 Currency Volatility R 0.10 R 0.00 Actual Budget FY14/15 $ Lonmin Marikana Effective Tariff Price Path - Actual (USD) $ $ $ $ $ $ Actual 6

7 Anticipated Energy Tariff Increases Anticipated Energy Tariff Decreases Anticipated Energy Tariff Increases Anticipated Energy Tariff Decreases Energy Tariff Increases Combatting Structural Tariff Changes 7

8 Combatting Structural Tariff Changes 8

9 FUNDS Finance Models Mine / Industry / Commercial (Need) Outright Purchase Finance Lease/Operating Lease Power Purchase Agreement Interested Parties: Interested Parties: Interested Parties: Developer or EPCM or OEM or Funding: Debt - (Project Finance or Corporate Loan) Equity (Cash) Incentives Green Funds Developer / EPCM / OEM / Banks / Finance Houses Funding: Developer / EPCM / OEM / Banks / Finance Houses ) Debt - Project Finance or Corporate Loan Interested Parties/SPV Equity Cash Interested Parties Incentives Green Funds BENEFITS RESULT POWERING INDUSTRY!! 9

10 The Risk to Reward Ratio Outright Purchase Finance Lease Operating Lease/PPA Mine takes on all risks - Construction - Maintenance - Operation Mine reaps all benefits Mine includes plant on balance sheet Nature of contract determines risk share - Mine/Dev. Equity risk - Mine/Dev. Operational Risk Shared benefits Mine includes plant on balance sheet Developer/Investors take on all risks - Equity risk - Operational Risk Mutually beneficial agreement Mine does not include plant on balance sheet Mine realizes greater financial rewards Mine reduces business risks 10

11 A mine s decision checklist Energy Cost/Source Diesel Based Operations Municipal Based Tariff Reduced Industrial Tariff Considerations Is sufficient equity available? Is sufficient debt facilities available? Is sufficient equity available? Is sufficient debt facilities available? Is business case sufficiently robust? No equity or debt available Is now the right time? Availability of debt and Equity Exchange rate Technology Cost Envisaged price path (Utility/Government) Finance Model Outright Purchase Outright Purchase Finance / Operating Lease/PPA Finance / Operating Lease / PPA Other key considerations: Life of Mine, Environmental and Grid Connection Approvals 11

12 Leases What are International Financial Reporting Standards (IFRS)? IFRS are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements What are IFRIC interpretations? Interpretations of matters, released by the IFRS Interpretation Committee, after approval to do so has been granted by the International Accounting Standards Board What are IFRS and IFRIC really? Essentially standards and interpretations developed to perplex and confuse Engineers Is your PPA essentially a lease agreement? Governed by IFRIC 4 Which IFRS governs leases? Currently governed by International Accounting Standard (IAS) 17 Who is the Lessor? In simplistic terms the entity or person which owns the asset i.e. buyer of power Who is the Lessee? In simplistic terms the entity or person which has the right to use something of value i.e. Developer or Special Purpose Vehicle (SPV) 12

13 PPAs and Leases (IFRIC 4) Which factors determine whether an agreement is or contains a lease? Depends on the use of a specific asset PV Plant Right of control of the asset: (i) Purchaser has the ability or right to operate the asset or direct others to do so (ii) Purchaser has the right to control access to the asset (iii) Only a remote possibility that other parties may off take a significant amount of the assets output (iv) Price is not fixed per unit of output or NOT related to current market price Realities of a PPA SPV/Developer has sole right to operate plant Mine does not have the ability to operate plant Third party off takes are possible (wheeling) SPV/Developer allows Mine access to plant Price is fixed at inception of contract (Fixed creates confusion) Mine purchasing output of plant and not right of use of asset 13

14 PPAs Operating or Finance Leases? (IAS 17) PPAs may not be classified as leases where energy is supplied to multiple Purchasers PPAs will generally be deemed a lease if one Purchaser takes all plant output BUT.. Finance Lease Lonmin PPA Transfer of ownership Lessee option to purchase asset Asset leased for major part of economic life Never takes over ownership No such option in PPA Highly debatable 25 year contract thus exceeding planned life of inverters and panels PV of minimum lease payments = Asset fair value Highly dependant on ESKOM price path Leased assets of specialised nature Transfers all risks and rewards incidental to ownership Other parties may partake in output Developer/SPV takes on construction, production and finance risk SUBSTANCE, rather than the form of an agreement determines whether it should be accounted as a finance or operating lease 14

15 Financial Statements for Operating vs Finance Leases Finance Lease Operating Lease Lessee Record asset at fair value of asset on balance sheet Lessee Record as an expense in income statement (Straight-line) Record liability of minimum lease payments due Depreciation of asset consistent with depreciation of assets owned Lessor Records finance lease as receivable on income statement (Straight-line) Lessor Records operating lease as receivable on income statement (Straight-line) Record asset at fair value on balance sheet 15

16 In closing. Two shocking facts: More than 65% of Sub-Saharan Africans do not have access to electricity ¹ (In Africa) 6% of total sales and 20% of informal sector sales are lost due to power outages ² Every little bit we do, whether it is renewable energy generation or driving energy efficiency, helps! ¹Confederation of Danish Industry in collaboration with the Eastern and Southern African Business Membership Organisation Network (The ESA BMO Network): A Better Future for Africa Recommendations from the Private Sector ²IEA: World Energy Outlook,

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