C1 FINANCING PERSPECTIVE European Forum for Science and Industry Olivier Musset Energy Finance Société Générale
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HISTORICAL ACHIEVEMENTS EMEA Project Finance Loan Volumes ($m) : 2013 figures for EMEA as of today sources: Dealogic s Projectware 140,000 120,000 100,000 80,000 60,000 40,000 20,000 450 400 350 300 250 200 150 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013ytd Commercial / industrial Energy / power Infrastructure Natural resources # Deals 0 By 2020-2025, the European Commission expect power generation and the transmission and distribution sectors to require over 1 trillion investment Expected growth in Europe in electricity generation from renewable sources until 2020 sources: IEA, BCG Solar PV Offshore wind Onshore wind +30 GW +45 GW (~ +6 GW/year) (~ + 4 GW/year) +75 GW (~ + 10-12 GW/year) 3
WHAT DOES THE UTILITIES INDUSTRY NEED? Liquidity for Investments Legally non-recourse to project sponsors High Leverage Reduction of corporate financing burden Long Tenor Country risk mitigation Fair Risk Allocation Balance Sheet & Rating constraints 4 4
FUNDAMENTAL CREDIT ANALYSIS Two different natures of risk from a Lender s perspective: Merchant (PRICE NOT VOLUME) Applies to commodities : Oil & Gas, Metals, some infrastructures such as toll roads, some power generations in US and Australia Based on reliable long term price forecasts Regulated / Contracted Applies to most infrastructures, most power generations, and renewable energy generations Based on PPAs and/or subsidies such as feed-in tariffs, up-front grant More market related support mechanism such as capacity remuneration mechanism (CRM), Contract for Difference (CfD), Evolution of the instruments of support of renewable energy sources in the EU: 2000 2013 2025 Feed-in tariffs or premiums currently still the main instrument of support in EU More convergence towards marketrelated support mechanisms? 5
MERCHANT CREDIT ANALYSIS Electricity price Renewable energy sources have by nature the privilege of priority dispatch But renewable are also facing challenges: Integration in the energy market Dispatching / balancing Production predictability Consumption Feedstock prices and subsidies are key Interference of non market related element (CO2 cost) PPA to bridge the gap 6
WHAT DO LENDERS NEED TO LEND LONG TERM IN A REGULATED MARKET? REGULATORY FRAMEWORK WHICH: IS WELL INTEGRATED TO A LONG TERM STRATEGY IS UNDERSTANABLE AND WELL DEFINED CAN GIVE PREDICTABLE CASH-FLOWS IS STABLE AND NOT SUBJECT TO RETROACTIVE CHANGES SUSTAINABLE AND AFFORDABLE IN THE LONG RUN EUROPEAN FINANCING INSTITUTIONS TO PARTICIPATE IN FINANCINGS TO CREATE A MOMENTUM 7
THE WAY FORWARD POWER MERCHANT RISK TO CONTINUE TO BE A CHALLENGE FOR LENDERS SUBSIDY MECHANISMS MUST BE SUSTAINABLE AND CONVERGE TOWARDS MORE MARKET ORIENTED MECHANISMS PROVIDED AN ADEQUATE REGULATED FRAMEWORK IS IN PLACE, LIQUIDITY AVAILABLE FOR SOUND PROJECTS FROM: COMMERCIAL BANKS STILL NASCENT (BUT PROMISING) PROJECT BONDS EUROPEAN FINANCING INSTITUTIONS TO CREATE A MOMENTUM IN OFFSHORE WIND IN PARTICULAR 8