Paul Corrigan, Mainstream's Head of Corporate Finance presented at the 'Renewable Energy Project Finance' conference. Paul's presentation focused on:
"Funding Project Equity – The Developer’s perspective on how to maximise value:
• Use of Hold Co. Equity vs 3rd party options
• A Build and Hold / IPP Model vs asset disposals
• Emerging markets vs mature
• Changing dynamics / the impact of Yield Cos."
2. Developer’s Perspective: Funding Project Equity
● Introduction
● Mainstream Overview
● Active Markets
● Funding Options to Maximise Value
● Build or Sell ?
● Hold Co vs Project Level Fundraising
● Vendor or Mezzanine Finance
● Market Themes
● Auctions vs Feed In Tariff
● South Africa Case Study
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3. Mainstream Overview
● Mainstream is a developer, constructer and operator of large
scale, wind and solar projects
● Sole growth focus on emerging markets
● Withdrawal from offshore / North America
● Founded in 2008 by Eddie O’Connor, previously the founder
and CEO of Airtricity (sold to Scottish & Southern Energy and
E.On in 2008 for c.€1.8 billion at an IRR of 54%)
● Business model based on “Build & Sell” approach with regional
partners allowing for recycling of capital through disposals of
regional platforms or commissioned assets
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5. Active Markets: Pipeline of 7.7GW
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1 Projects MW description refer to gross nameplate capacity. For projects in construction / operation Mainstream net ownership
of assets is c.100MWs
6. • Pan-african renewable energy generation company.
• Established in 2015
• Targets to deliver over 1,000MWs by 2020
• Projects in Construction: 360MWs
• Projects pre-Construction with PPA*: 750MWs
• Local management team in place
• Projects developed by Mainstream (or acquired from 3rd Parties)
transferred to the JV at or before Financial Close
Mainstream’s Joint Ventures
60:40 with leading emerging markets investor Actis
• Chilean renewable energy generation company
• Established in 2013
• Projects in Operation: 33MWs Cuel wind farm
• Projects pre-Construction with PPAs: 265MWs
• Local management team in place
• Projects developed by Mainstream transferred to the JV at or
before Financial CloseCuel wind farm, Chile
(33MW) in operation
Noupoort wind farm,
South Africa (80MW) in
construction
*Includes Ghana, Egypt where PPA commercial terms agreed
8. Greenfield
Developer vs IPP Business Model
Corporate Equity & Debt
Greenfield or
Acquisition
Development Construction
MAINSTREAM GROUP
Sale to Utilities &
Infrastructure
Asset Investors
Cash recycled
Construction
PPA in place or
pre-sale confirmed
“Ready to Build”
● Sale of projects / platforms is primary means of funding
the business
● Holding operating projects would generate recurring
income but requires large pools of capital
Construction /
Operating Services
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9. 70% -
60% -
50% -
40% -
30% -
20% -
10% -
Consents
received
Grid
secured Commissioning
Financial
close
Turbine
deposits
DEVELOPMENT OPERATION
Target IRR Range
for Operational
Phase
Target IIR Range for Development Phase
Value Creation
Greenfield
Required
Return
Value Creation
CONSTRUCTION
● All routes leading to lowest cost capital driven by competition?
● Returns for development phase significantly higher than
operating 9
10. 15% -
14% -
13% -
12% -
11% -
10% -
9% -
8% -
Consents
received Commissioning
Financial
close
DEVELOPMENT OPERATION
Greenfield
Project Rate of Return
Yield Compression
CONSTRUCTION
Commissioning +1 Year
“Yield Compression” Creates Development Profit
• Required rate
of return
drops as risk
drops –
• Difference is
developer
profit
IRR – Build and Hold From Greenfield
IRR – Build and Hold From Consent
IRR – Build and Hold From FC
IRR – Build and Hold From COD
IRR – Build and Hold From COD +1
11. Funding Options
“Revolver” or Mezz/ Project Finance
HoldCo
Development
Corporate Equity & Debt
Joint Venture Co-
Investors
Construction Operational
Infrastructure Asset Investors / Owners
Letters of
Credit
12. Developer Sources of Funding:
Cost, Control, Availability
Corporate Level Project Level
Cost, Control, Availability Cost, Control, Availability
Stage
Hold Co
Equity
Corp.
Debt
Trade
Finance
JVs / 3rd
Party
Project
Finance
Mezz /
Vendor
Finance
Development
Construction
Operation
Sources Sources
Development PE, Funds,
Family O./
HNW,
Sovereign
Banks,
Funds ,
Family O./
HWM
Banks
(Retail)
PE, Funds,
OEM,
Developer
Multilateral
Banks /
Multilateral
OEM
PE
Funds
Construction
Operation
● Key Considerations of Cost, Control and Availability
14. Market Themes
● Yield Co
● Welcome liquidity or unwanted volatility
● Feed in Tariffs vs Competitive Auctions
● Chile, South Africa, Mexico , Scotland (Offshore)
● Cheaper than Fossil Competition
● Auctions vs Feed In Tariff
● How to build a “sustainable” development business ?
● South Africa Case Study
● Impact of Competition
● Funding Options to Maximise Value
● Build or Sell ?
● Hold Co vs Project Level Fundraising
● Vendor or Mezzanine Finance
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15. Emerging Markets: Competition with Fossil
● In many markets solar PV and wind are now cheaper sources of power generation
than fossil fuels
● South Africa REIPPP
● Wind / Solar PV cheaper than projected cost of new coal power (R0.97KWh)**
● Chile CNE Tender Oct’ 2015
● 1,200GWh/year of electricity (c. 500MW capacity). Price based for “blocks”, open to all
types (incl. coal and gas)
● All five winning bidders were wind or solar projects.
● Tariffs for solar ranged from $64-$68/MWh and $79/ MWh for wind
● Coal bid: $85/MWh , CSP plus storage bid $97/MWh.
● Weighted average was 26% lower than the last auction of $107.6/MWh.
● Mainstream JV (Aela Energia) won c.265MW, (65% of the tender)
Solar
Solar*
Wind
Wind*
Gas
Gas
Coal
Coal
Oil
Oil
Nuclear
Nuclear
*Resource dependent
** Project Cost of Medupi and Kusile coal plants Mergence Investment Managers
16. Development: A sustainable business ?
Case Study: South Africa REIPPP Average Wind & Solar PV Tariffs
3.44
2.05
1.1
0.82
1.42
1.12 0.82 0.65
627MWs
417MWs
435MWs 415MWs
649MWs 559MWs 787MWs 676MWs
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Round 1
Nov 2011
Round 2
Mar 2012
Round 3
Aug 2013
Round 4
Aug 2014
R/KWh
Solar PV
Wind
● Total of 4.5GW Wind and Solar PV awarded to date
● Tariffs have reduced by 54% / 76% since Round 1, c.20% reduction from
Round 3 to Round 4
● Mainstream awarded c.850MWs (18.5% of total)
● Impact of Competition:
● Route to Market, Returns, Scale, Profit Sources
17. Impact of Competition
● Few Feed-in Tariffs remaining
● Notable: Egypt, Uganda, Kenya, Malawi – only for sub-10MW projects,
Algeria, Ghana (small scale), Nigeria
● FiT may be superior means of “kick-starting” the industry
● Auctions becoming the norm for established and growth markets:
● Notable: South Africa ,Chile, Mexico
● Others: Morocco, Zambia, Senegal, Botswana, Egypt
● Ability for Developer’s to take large premiums at Financial Close under
pressure
● Reaction:
● Ensure management of costs
● Stay in longer: beyond FC
● Seek value by other services: Construction, Operation
● Seek value on future sell down
19. Notice:
This Presentation does not constitute, or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase, any Securities, nor
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UNITED STATES
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