ahc group corporate affiliates workshop...the combined size of global equity capital markets is...

AHC Group Corporate Affiliates WorkshopSaratoga Springs, NY

June 7-8, 2017

Michael EckhartManaging Director and Global Head of Environmental Finance

Citigroup, Inc.New York

Citi Capital Markets Origination I Corporate & Investment Banking

Topics

• What is the problem we face?

• What have we done about it so far?

• Where is this headed?

• Can we overcome the problem?

The Fragility of Our Atmosphere and Oceans

CO2: +40%

CH4: +150%

N2O: +20%

IPCC 5th Report: “Atmospheric concentrations of carbondioxide, methane, and nitrous oxide have all increasedsince 1750, and especially since mid-1900s.”

Source: IPCC AR5 Working Group 1: Climate Change 2013: The Physical Science Basis

“Each of the last three decades has been successivelywarmer at the Earth’s surface than any precedingdecade since 1850” (IPCC)

Anomaly (°C) relative to 1961 - 1990

(°C)

1850 1900 1950 2000

In the Northern Hemisphere, 1983–2012 was likely the warmest30-year period of the last 1400 years (medium confidence).

-0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1.0 1.25 1.5 1.75

(°C)

“Warming of the global climate is now unequivocal,and, to a level of 90% certainty, it is due to humanactivity.” (IPCC)

Source: IPCC AR5 Working Group 1: Climate Change 2013: The Physical Science Basis

The World is Trying to Respond…

IEA’s Global Energy-Related CO2 Emissions by Scenario:

Source: International Energy Agency World Energy Outlook 2012.(1) Other includes concentrated solar power, geothermal, marine energy, small hydro and wind offshore.

20

25

30

35

40

45

1990 2000 2010 2020 2030

Gt

Current Policies Scenario

New Policies Scenario

Efficient World Scenario

450 Scenario (2°C)

4

Plus, now, the Paris Climate Agreement

Topics





A Wide Array of New Technologies

0

1

10

$100

1 10 100 1,000 10,000 100,000 1,000,000

Cumulative Capacity (MW)

1976

1985

2003

2008

2012

2016

1985

19992009

2016

16

32

64

128

256

512

$1,024

100 250,100 500,100 750,100 1,000,100


1000,000100,00010,0001,000

Wind and Solar Learning CurvesSolar PV Module Price($/W)

On-shore Wind Levelized Cost($/MWh)

Learning Rateof 24%

Solar Costs have fallen>99% since 1976 and

90% since 2008

Learning Rateof 19%

Wind Costs have fallen50% since 2009

Source: Bloomberg New Energy Finance, Maycock.Note: Wind price data is for Northern Europe and has been inflation corrected to 2014. Assume debt ratio of 70% cost of debt (bps to LIBOR) of 175, cost of equity 8%. For solar data, prices are in real (2015)USD, ‘Current price’ is $0.4/W.1

Global New Energy Investment 2004 – 2016 ($ Billion/Year)

$300 Bn / Year

50 Years of Innovation in Renewable Energy

1970 1980 1990 2000 2010 2020

Technology Innovation

RE / EE Policy Innovation

Financial Innovation

FEO / FEA / ERDA / USDOE / EC Corporate VC/PE ARRA RD&D

PURPA EPAct 92 EU FIT Net Metering

PTC, RPS, ITC, loan guarantees, Green Banks

SRI / ESG …ACORE...Yieldcos, ABS, Green Bonds

Market Structure Innovation

Environmental and Climate Policy Innovation

Clean Air/Water Acts Kyoto …….EU ETS COP 21 Paris

Topics





NEO 2016

WEO 2016

WEO 2015

WEO 2010

WEO 2006

WEO 20020

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2000 2005 2010 2015 2020 2025 2030 2035 2040

NEO 2016

WEO 2016

WEO 2015

WEO 2010

WEO 2006

WEO 2002

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2000 2005 2010 2015 2020 2025 2030 2035 2040

Outlook: Transition is Underway -- Wind and Solar Forecasts

Wind Capacity Scenario Forecasts(GW)

Solar Capacity Scenario Forecasts(GW)

Source: Bloomberg New Energy Finance, IEA.Note: WEO 2002 and 2006 is Reference Scenario; WEO 2010–2016 is New Policies Scenario; wind includes on-shore and off-shore wind while solar includes PV and solar thermal.

Both wind and solar have met or exceeded the most optimistic deployment scenarios.

Wind: Convergenceof forecasts

Solar: Advocates stilllead

2

0

1

10

$100

1 10 100 1,000 10,000 100,000 1,000,000


1976

1985

2003

2008

2012

2016

1985

19992009

2016

16

32

64

128

256

512

$1,024

100 250,100 500,100 750,100 1,000,100


1000,000100,00010,0001,000

Outlook - Wind and Solar Experience CurvesSolar PV Module Price($/W)

On-shore Wind Levelized Cost($/MWh)

Learning Rateof 24%

Solar Costs have fallen>99% since 1976 and

90% since 2008

Learning Rateof 19%

Wind Costs have fallen50% since 2009

Source: Bloomberg New Energy Finance, Maycock.Note: Wind price data is for Northern Europe and has been inflation corrected to 2014. Assume debt ratio of 70% cost of debt (bps to LIBOR) of 175, cost of equity 8%. For solar data, prices are in real (2015)USD, ‘Current price’ is $0.4/W.1

0

2000

4000

6000

8000

10000

2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

Solar Wind Gas Coal Flexible Capacity Hydro Nuclear Other

Outlook - Cumulative Global Generation Additions to 2040

Source: Bloomberg New Energy Finance.

Note: Flexible capacity includes power storage, demand response, and other potential resources.

Global Installed Capacity Additions, by TechnologyCumulative Capacity Additions, 2016–2040 (GW)

~10,000 GW to be added with solar, wind and gas dominating.

2015 Capacity: ~6,400 GW

Wind, solarand gas

represent~70% ofcapacityadditions

through2040

4

0.4 0.40.7 0.9

1.21.6

2.2

3.2

0.3

0.6

0.8

1.2

2.0

0.3 0.3

0.3

0.4

0.5

0.7

1.1

1.9

0.3 0.3

0.4

0.5

0.6

0.8

1.1

1.6

0.2

0.4

0.3

0.4

0.5

0.9

0.2

0.8

1.21.5

2.0

2.6

3.6

4.8

7.1

11.3

2013 2014 2015 2016 2017 2018 2019 2020

US Korea Germany Japan UK China Italy Canada RoW

Outlook - Energy Storage to 2020


By 2020, ~11 GW of energy storage will be installed globally, a 10x growth in 7 years.

Global Cumulative Installed Energy Storage Capacity(GW)

5

0

100

200

300

400

500

600

700

800

2015 2020 2025 2030 2035 2040

APAC AMER EMEA

Outlook - Energy Storage to 2040

Tremendous growth starting in 2030

Cumulative Battery Capacity by Region(GWh)

11

60

121

498

759


6

2020

Driving down the BatteryLearning Curve results in70x Growth in 20 years• Like Computers• Like Internet• Like Solar

Outlook - Electric Vehicle Sales to 2020

Global EV Sales Forecast(Million Vehicles per Year)

Electric vehicles sales are expected to steadily increase through 2020.


0.00

0.50

1.00

1.50

2.00

2.50

3.00

2015 2016 2017 2018 2019 2020

Today

7

EVs on the road to 2040 - Crude Oil Displacement mmBPD

Crude Oil Displacement from EV Sales, 2015–2040(Million Barrels per Day)

Crude oil displacement from electric vehicles is forecasted to grow rapidly after 2030increasing to ~14 Million Barrels per Day by 2040 – or 15% of the world market


Note: Calculate number of barrels displaced by multiplying the cumulative number of EVs on the road in a given year by the average vehicle miles travelled by the EV, divided by the average miles per gallon of aninternal combustion engine vehicle on the road, divided by 365, divided by 42 (number of gallons in one barrel).

0

2

4

6

8

10

12

14

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

202

3

202

4

202

5

202

6

202

7

202

8

202

9

203

0

203

1

203

2

203

3

203

4

203

5

203

6

203

7

203

8

203

9

204

0

Rest ofthe World

Japan

Europe

USA

China

8

Today

EVs take away14 MMBPD by 2040

Topics





Capital Needed to Fund / Finance Climate Challenge

Source: International Energy Agency (IEA); Coalition for Environmentally Responsible Economics (CERES), Bloomberg New Energy Finance (BNEF).1. Annual investments required to limit the increase in global temperature to 2 degrees Celsius above pre-industrial levels.

(USD in billions)

$329 B / Year

~$1,000 B / Year

2015 Investment in Clean Energy Required Annual Investment in Clean Energy1

5

3x

~25X

~2X

$329 B / Year

$1,000 B / Year

2015 Investment in Clean Energy Required Annual Investment in Clean Energy

Capital Needed - Greater Insight

Source: International Energy Agency (IEA); Coalition for Environmentally Responsible Economics (CERES), Bloomberg New Energy Finance (BNEF).1. Annual investments required to limit the increase in global temperature to 2 degrees Celsius above pre-industrial levels.

(USD in billions)

1

OECD+

BRICS

DevelopingCountries

$500 B

$500 B

Developing Countries Need a ~25x Increase!

$307 B

$22 B

6

Global Capital Markets

GlobalDebt Market

69%

GlobalEquity Market

31%

Source: Bank for International Settlements (BIS), World Bank.Note: As of December 31, 2016.

Global Capital Markets

$212T

With a size of over $200T, the global capital markets are significant sources of capital for many types of issuers.The equity markets make up ~30% while the debt markets make up ~70%.

1

~$1 T / Year

~$11 T / Year

~$12 T / Year

~$1 T / Year

Debt Capital Markets Equity Capital Markets

New Issuances in Capital Markets (2006 – 2016 Average)

(USD in trillions / year)

Source: Dealogic.

Investment Grade Bond

Public Equity

Other Fixed Income

Legend

10

North America45%

East Asia & Pacific33%

Europe10%

Other12%

Global Equity Capital Markets – SRI/ESG Investing

Source: World Bank.Note: As of December 31, 2016.

Global Equity Capital Markets

$65T

The combined size of global equity capital markets is ~$65T. The largest and most active markets are in NorthAmerica, East Asia & Pacific and Europe.

2

MSCI’s Key Trends in SRI / ESG in 2017

1. Owning the Long Game

2. The Shift from Regulatory to Physical Risk

3. Choosing Stewardship in Asian Capital Markets

4. ESG Investing as a Precision Tool

5. Adoption of a New Performance Language

Debt Capital MarketsThe global debt markets are primarily comprised of government and financial corporation borrowing. There aremany types of issuers in the US market.

Municipal10%

Treasury35%

Mortgage-Related23%

CorporateDebt22%

Federal AgencySecurities

5%

Money Markets2%

Asset-Backed3%

GeneralGovernment

45%

FinancialCorporations

41%

Non-FinancialCorporations

14%

Source: Bank for International Settlements (“BIS”), Securities Industry and Financial Markets Association(“SIFMA”).Note: As of December 31, 2016.

1. Includes sovereign, state and local debt.

$147T $39T

Global Debt Markets US Debt Market

1

5

Green Bond Market - Rapid Growth Since GBPThe green bonds market continues to demonstrate strong growth with approximately $95bn ofissuances in 2016, almost doubling 2015 totals.

Source: Bloomberg and Citi.1. Corporate includes: Real Estate, Waste & Environment Services & Equipment, Financial Services, Food & Beverage, Consumer Products, Consumer Finance, Educational Services,

Consumer Services, Semiconductors and Industrial Other

$2 $1 $1

$7$3 $5

$15

$38

$48

$95

0

20

40

60

80

$100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Supranationals Sovereigns Gov. Agencies Financials

Corporations Project Municipal ABS / MBS

$ in billions

4

Green Bond Principles (GBP):• Pillars:

• Use of Funds• Investment Process• Tracking of Funds• Reporting

• Additional Considerations:• 3rd Party Assurances• Auditing

• Remaining:• Definition (language) of Green• DCM parameters

Investor Total AUM

€187bn

€186bn

$2.4Trn

$639bn

€2.2bn

$200bn

Growing Investor Base for Green Bonds

Investor Total AUM

$51bn

€1Trn

€442bn

€450bn

$4.6Trn

€1.3bn

Along with the emergence of boutique SRI investors, there has been an increase in mainstream investors whohave set up dedicated green bond funds or have integrated green / SRI in their overall portfolio.

3

“Thank You”Michael Eckhart

[email protected]

Citi Capital Markets Origination I Corporate & Investment Banking

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