electric & renewables industry vision 201207

July 2012

Renewable Energies: a key player

in future energy solutions

Strategic analysis, trends and potential investment areas

green capital advisors

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AVISO LEGAL green capital advisors

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AGENDA FOR TODAY green capital advisors

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1. Renewable Energies in Today’s Broader Energy Context: a

Basket Case or Future Mainstream?

2. What’s in Electricity? An Introduction to the New Ecosystem

3. Back to Basics. Competing with the Establishment.

Technology + Market size = Competitiveness

4. Value and Risk. Key Drivers along the Business Chain.

5. Investing in a New Energy World. Where and how to put

Capital at Work (…and at What Risk)?

6. How Can We Help to Make Things Happen…?


1. Renewable Energies in Today’s Broader

Energy Context

4

However, in terms of renewable energies contribution to final primary energy

consuption, the industry still accounts for less than 2%

TACC = 26% TACC = 38%

Renewable Energies are already an important part of electricity markets

worldwide. Their weight is set to increase dramatically in the next decade

% of domestic electricity demand (2010/11e)

Wind: 15.6% Solar: 3.7%

Wind: 3.0% Solar: 0.1% Wind: 2.0% Solar: 0.1%

Wind: 6.3% Solar: 2.0% Wind: 1.5% Solar: 0.1%


2. What’s in Electricity? Production vs Consumption

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Electricity

Demand

Balance (sic)

of Power

Is this an optimized sector structure ? For whom…?

Electricity

Supply


2. What’s in Electricity? An introduction to the New

Ecosystem

• Does not know which company is

serving him

• Does not know monthly

consumption or contracted power

• Does not know the price of power

or supply availability

… but on the other hand he knows

and cares modern kitchen

appliances, TV sets, laptops,

tablets,etc…

... And he knows perfectly what he

has, why he bought it (its value) at

which price and to whom

Meet the “Bipolar Electricity Consumer”: sophisticated and technology

hungry but “tied” to its electric distribution & supply companies…

… although as we will see some things are starting to move:

Customer Service to become the main driver of energy markets 6

Demand, marketing &

competition driven

business

...to a Supply, engineering

& regulation driven

business

From a…


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3. Back to Basics. Competing with the Establishment

… to Tomorrow’s Vision

... let’s have a closer look to reality…

Source: IDAE/Ministry of Industry, Commerce and Tourism (2011). Study

made with support from Boston Consulting Group

Spanish Government Tomorrow’s Vision (as of 2011) on competitiveness of

renewable energies … still a long-term goal?


3. Back to Basics. Competing with the Establishment.

From Today’s Facts…

8

195

222201

193182

150

175

200

225

250

2.007 2.008 2.009 2.010 2.011

Volume (TWh)

… and together with tecnological evolution,

enabling renewables to deliver their “value

proposition”

9093

115

125

142

70

90

110

130

150

2.007 2.008 2.009 2.010 2.011

Domestic consumer price (€/MWh)

39,4

64,4

37,0 37,0

49,9

30

40

50

60

70

2.007 2.008 2.009 2.010 2.011

Average wholesale price (€/MWh)

-18% (CAGR:-6%)

+58% (CAGR: +12%)

+27% (CAGR: +6%)

Electricity prices going up despite sharp fall in

consumption due to higher oil prices and nuclear

“risks”…

0

5

10

15

20

25

30

0,00

1,00

2,00

3,00

4,00

5,00

6,00

7,00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e

PV systems cost evolution and Market size driven economies of scale

Price (€/Wp) Global Prod. (MW)Sources: EPIA ,ASIF, Green Capital Advisors

TUR € 146,87/MWh

Potencia/alquiler cont.€ 14,69/MWh

Impuesto Especial Electricidad€ 7,86/MWh

IVA € 30,50/MWh

Annual system deficit

€ 17,9 – 36,0/MWh

Interest on total system deficit

€ 4,8 – 9,6/MWh

0

50

100

150

200

250€/MWh

EPIA estim. +5% CAGR 2011-20e

Spain’s final household consumer

electicity price (€/MWh)


9


… to Tomorrow’s Vision

The official vision is already old (and biased): Market speed is surpassing initial

predictions both for consumer electricity prices (up) and grid parity (earlier)

PV systems competitiveness as an alternative to large centralized grid supply is

already a reality in Germany… (and even more inSpain!!)

Note: TUR concept does not include VAT or electricity tax, nor fixed grid connection cost or

future tariff deficit and its interests

Adjusted TUR

IDAE/MITYC

PV systems costs vs Consumer Electricity price €/MWh

TUR (1H2012)

14,2 c€/KWh

Source: IDAE/Ministry of Industry, Commerce and Tourism (2011). Study

made with support from Boston Consulting Group

New German FiT <10kW

195 €/MWh (June 2012)

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Renewables as Keystone in the Energy Puzzle

Tomorrow

Electricity

Sector

Yesterday

Renewable Energies*

“A small world

by its own

rules”

Electricity

Sector

Today

Renewable Energies*

“Growth and integration in the

larger Utility playing field”

Renewable Energies*

“Transformation of

Energy Supply & Management

Customer Centered Service ”

Renewable Energies*, born under the prevailing B2B centralized supply-side model of

the electricity industry (Utility World) are the main driver pushing in the transformation

of electricity in a B2C / C2C decentralized, customer oriented business model

* Includes all Efficiency & Energy management business areas


4. Value and Risk. Key Drivers along the

Business Chain.

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The traditional vision … (from actual 2009 analysis)

OPERATION

Market / Competition

MANUFACTURING AND CONSTRUCTION

DEVELOPMENT

MEDIUM / LOW (Technological / regulatory /

market risk)

Investment period

Risk profile

Success factors

Need for financial resources

• Margin and income management

• O&M management

MEDIUM (Construction / manufacturer risk)

VERY HIGH (€ 1.3-6.0 mil/MW)

LOW (<€ 0.1 mil/MW)

HIGH (€ 0.7-4.0 mil/MW)

LONG (20-30 years)

MEDIUM (3-5 years)

SHORT to MEDIUM (6-24 months WC vs factories, R&D)

SMALL NUMBER OF PLAYERS • Important manufacturers

(Gamesa, Vestas, GE, Alstom …) • Important EPC contractors

• Technology & industrial organization

• Client relationship • EPCs management

• Identification of locations • Speed, flexibility • Relations with the Public

Administrations

MEDIUM / HIGH (Regulatory /

development risk)

LARGE NUMBER OF PLAYERS VERY SMALL NUMBER OF PLAYERS • Important Electricity companies

(IBE, END, UNF, EDP, Acciona, …) • Medium-sized operators

• Important Electricity companies (IBE, END, UNF, EDP, Acciona, …)

• Medium/small-sized developers


4. Value and Risk. Key Drivers along the

Business Chain.

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The traditional vision of different renewable energies

technologies … (from actual 2009 analysis)

Low (plants) High (fuels) / Medium

Need for financial Resources (€/MW)

Wind

Farms

Solar CSP

Plants

Solar PV

Plants

Offshore

Wind Farms

Technological risk

Regulatory risk (premium €/MWh**)

LOW MEDIUM HIGH MEDIUM

LOW

25-30

MEDIUM/HIGH

~ 120 VERY HIGH

~ 220

VERY HIGH

~ 220-270

MEDIUM

1.3-1.4

HIGH

2.7-3.0 VERY HIGH

5.5-6.5

HIGH

3.0-4.0*

LOW

Biofuel

Plants

HIGH

5.8% Quota (2010)

HIGH

€ 45-60 mil/plant

* Expected to be at € 2.5-2.7 in 2010 and €1.5-2.0 in 2012

** Based on €50 / MWh market price

Technology evolution / Competition among Manufacturers

Limited / Low

Slow / Unexisting

Slow / Low High / High

Traditional vision was of wind as the overwhelmingly competitive renewable

energy source to serve (within its limitations) large centralized systems

The Status Quo Challenger


4. Value and Risk. The forward vision (2012…)

Moving from “a business” to “an environment”

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From the old days of intensive

“light & power”…

• System’s supply to become mostly decentralized: renewables fully integrated: generation seeks to optimize consumption

• Retail & business market with strong competition: few barriers to entry

• Customer is king (again, finally)

• Majority of the externality costs are accounted for

…to Smart Household/Business Networks and Appliances “negative use of power”…

…to individual & collective Transportation Systems

& Smart Cities

Consumers rule (2018…): Adapting Renewables & “negative energy” paradigm to manage both

supply & demand

• System’s progressive supply decentralization: renewables as competitive energy source

• Technology brings competition and lowers barriers (still high from regulatory standpoint)

• Customer approach generally limited to medium/large businesses

• Increased weight of externalities

•Centralized supply grid: renewables as a regulated system investment

•No customer (just users & accounts to be supplied)

•Artificial, limited competition with high entry barriers

•No externality costs

Utilities rule (…2008): Renewables as a nice feature of the system

Utilities vs Renewables (2008-2018?): Who will lead in addressing Consumer

needs (not just energy ones…)?


Where can we sensibly put capital at work…?

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High

/Med

Risk

Sell

Efficiency

Disruptive

Technologies

Optimize

Restructure & Sell (by

Parts) to Specialized

Operators and New

Entrants

Developing C.

or C…?

New Energy

Markets

Development

or B…? Why A…?

2

Operational

Optimization of

Existing Assets

Buy

Inneficiency

Buy Large but

Diminishing

Shares of Integrated

Generation,T&D assets

3

Financial

Restructuring of

“OldWorld” co.

Additional

Energy Needs

“Negative

Energy”

Distributed &

Consumer

Oriented & 1

Developed Countries

5. Investing in a New Energy World. Where and how

to put Capital at Work (…and at What Risk)?

R

I

S

K

L

E

V

E

L

Low

risk

0 High

Risk

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MARKET TRENDS & INTELLIGENCE

BUSINESS STRATEGY DESIGN & EXECUTION

TRANSACTION SUPPORT

- Value chain & business models

- Regulation - Technology - Strategic positioning &

Competition - Financing & investors views - …

Market views and analysis:

Operating plans & reviews Portfolio companies optimization & restructuring

Initial Conversations

Closing

Analysis, Indicative Offers & Due

Diligence

Investors & Fundraising presentations

Periodic reports on trends in key markets; ad hoc specific reports

Final Bids & Negotiation

Highly Specialized Opportunity Identification

and pre-screening

Strategic plans & reviews Add-on opportunities

Board & Executive team

support

Specialized Energy & Renewables know-how & “hands-on” execution

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Focus

Teamwork

Commitment

Building Long-Term Value


José Espinosa

Managing Partner

[email protected]

electric & renewables industry vision 201207

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