10 filip audenaert - dg infra

The Solar Future in Belgium Infrastructure Investor: DG Infra+ / DG Infra Yield

March 23, 2011

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Infrastructure activities launched end 2007 through a joint-venture of GIMV and Dexia

2 dedicated and complimentary infrastructure investment funds with EUR 250m of capital committed and available for investment

DG Infra+

DG Infra Yield

Team of 8 professionals, located in Antwerp and The Hague (at the premises of Gimv)

Capital raised from 3th party investors including insurance companies and pension funds

Investments across different target sectors:

Public Private Partnerships

(Renewable) energy

Transport / Logistics

Selective real estate

DG Infra+ and DG Infra Yield sponsored and managed by GIMV and Dexia

Waste

Water

Social infrastructure

Telecom / ICT

DG Infra+ DG Infra Yield

Investment Focus Infrastructure and selective real estate

Infrastructure and selective real estate

Geographical Focus

Predominantly Benelux Predominantly Benelux

Risk Profile Development and/or construction risk allowed

Limited exposure to development and construction risk (only when subordinated or senior debt investments)

Return Profile Focus on value creation and capital gains

Focus on periodic cash distributions

Financing solution Equity, Equity-linked debt Secondary equity, Subordinated debt, Senior debt

Fund Size 135 million 116 million (first Closing)

Incorporation 2007 2011

Term 12 years 30 years

DG Infra+ and DG Infra Yield Key terms and features

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Not interesting for industrial companies

Capital intensive - often burden on financial structure

Not a core asset for industrial companies

Value destructive: return on asset often lower than capital cost of an industrial company

Project developers mostly prefer to set up a separate dedicated structure for the financing of PV installations:

Focus on developing – prefer to free-up capital for the next project(s)

Often not capital intensive companies

Investment funds / Institutional (direct) investors

Subject to correct risk / return profile

Perception of the sector often important (e.g. renewable energy is hot)

PV Installations : who will invest ?

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Different project phases:

Development phase

Operational phase

End phase - dismantling

Each project phase has its specific risks:

Who is bearing a specific risk ?

How is the risk managed ?

Allocate the risk to the participant who can best manage that risk

Investors are not prepared to take some of the risks

PV Installations : an easy investment ?

Main participants:

Client

Project developer (PD)

EPC contractor (EPC)

O&M contractor (O&M)

Manufacturers of parts

Bank (or leasing company)

Investor

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Main risks in the development phase

Stability of the roof

Grid capacity

Building permit in place (land based)

Find appropriate financing

Construction delays

Quality and performance of installation

Quality of parts (PV module, inverter, …)

Quality of monitoring and reporting

Damage (building or PV installation)


… to be allocated to …

Client

Client

Client

PD / Client

PD / EPC

PD / EPC

Manufacturer

PD / EPC

Insurance comp.

… and managed through …

Building right agreement

Insurance contract





EPC guarantee*

Techn. DD / EPC guarantee

Techn. DD / suppl. guarantee

Techn. DD / EPC Agreement

Insurance contracts

* remark: the value of a guarantee also depends on the strength of the guarantor

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Main risks in the operational phase

Performance of the PV Installation

Availability of the PV Installation

Interruption of parts (module, inverter, …)

Roof renovation

Damages (building or PV installation)

Retroactive changes to regulation

Radiation

Client bankruptcy

% of local use of electricity

Evolution of market electricity prices

Evolution of market interest rates

Delayed cash flows

Event of default in financing agreement



EPC / O&M

EPC / O&M

Manufacturer

Client

Insurance comp.

Client / Investor

Investor / Bank

Investor / Bank

Investor / Bank

Investor / Bank

Investor / Bank

Investor / Bank

Investor / Bank


Guarantee EPC / O&M

Guarantee EPC / O&M

Supplier agreement


Insurance contracts


building right agreement

Local PPA

Local / Excess PPA

Hedging agreement

Financing Agreement

Financing Agreement

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Main risks in the dismantling phase

Ownership of the PV Installation

Dismantling cost



PD / EPC / Client

PD / EPC / Client




Conclusion

Investing in PV installations is not an easy and straight-forward exercise

Varying deal structures, risk allocations and definitions of risk management can have a large impact on the returns for investors

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The return requirement of the investor is not just a fixed rate, but will depend on:

Deal structure

Risk allocation and management

The strength of the guarantor related to a guarantee

Some projects can possibly not be financed

Extensive due diligence:

Technical due diligence (installation + PV modules)


Insurance contracts

Local / excess PPA

EPC Agreement + EPC Contractor itself

Supplier agreement + Supplier itself

O&M Agreement

Financing and hedging agreement

Return Requirements ?

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2011 and 2012 ?

The Solar Future in Belgium will definitely depend on the evolution of the following items:

Minimum guarantees on the green certificates

Market electricity prices

Price of the PV modules

Market interest rates

However, the Solar Future will also depend on how risks have been and will be allocated and managed. If not, this could have detrimental consequences:

For the client:

Development phase: delayed PV installation at less favorable conditions

Operational phase: less local electricity and / or less rental fees

For the investors / banks: lower returns or even write-offs

And in the end also for the solar sector itself as it would become more difficult to get new clients and investors.

Hence, the solar sector itself is to a certain extent also responsible for its own future.

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Questions ?

10 filip audenaert - dg infra

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