the european ppp market 29 april 2008 hugh blaney
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The European PPP Market 29 April 2008 Hugh Blaney. DISCLAIMER. - PowerPoint PPT PresentationTRANSCRIPT
The European PPP Market29 April 2008
Hugh Blaney
2
The information contained in this presentation is given without any liability whatsoever to Babcock & Brown Limited or any of its related entities (collectively “Babcock & Brown”) or their respective directors or officers, and is not intended to constitute legal, tax or accounting advice or opinion. No representation or warranty, expressed or implied, is made as to the accuracy, completeness or thoroughness of the content of the information. The recipient should consult with its own legal, tax or accounting advisers as to the accuracy and application of the information contained herein and should conduct its own due diligence and other enquiries in relation to such information. The information in this presentation has not been independently verified by Babcock & Brown. Babcock & Brown disclaims any responsibility for any errors or omissions in such information, including the financial calculations, projections and forecasts set forth herein. No representation or warranty is made by or on behalf of Babcock & Brown that any projection, forecast, calculation, forward-looking statement, assumption or estimate contained in this presentation should or will be achieved.
Please note that, in providing this presentation, Babcock & Brown has not considered the objectives, financial position or needs of the recipient. The recipient should obtain and rely on its own professional advice from its tax, legal, accounting and other professional advisers in respect of the addressee’s objectives, financial position or needs.
This presentation does not carry any right of publication. This presentation is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by Babcock & Brown. Neither this presentation nor any of its contents may be reproduced or used for any other purpose without the prior written consent of Babcock & Brown.
.
DISCLAIMER
3
AGENDA
1. Introduction to Europe
2. Market Overview
3. Political & Legal Environment
4. Sector Development
5. B&B in Europe & Globally
For further information please contact:
Hugh Blaney5 Aldermanbury Square, London, EC2V 7HR+44 20 7203 [email protected]
4
INTRODUCTION TO EUROPE
• 48 countries – vast opportunity (€225bn annual infrastructure investment)
• January 2007 EU had 494m citizens
• EU 27 (+3) countries
Challenges:
• Language
• Legal framework
• Stakeholder buy-in
• Forms of PPP
5
MARKET OVERVIEW
CountryGDP ($bn)
Population Comment
Austria 320 8.2Early development, limited deal flow
Belgium 379 10.4Early development, limited deal flow
Czech Republic
249 10.2Early development, reasonable potential deal flow
Denmark 204 5.4Early development, limited deal flow
UK 2,147 60.9Advanced development, large deal flow
Finland 186 5.2Early development, limited deal flow
France 2,067 60.8Intermediate development, strong potential deal flow
Germany 2,833 82.4Intermediate development, strong potential deal flow
Greece 326 10.7Early development, strong potential deal flow
Hungary 194 10Early development, limited deal flow
Source: A Practical Guide to PPP in Europe
CountryGDP ($bn)
Population Comment
Ireland 188 4Intermediate development, reasonable deal flow
Italy 1,800 58Intermediate development, strong potential deal flow
Netherlands 639 16.6Intermediate development, reasonable potential deal flow
Norway 194 4.6Early development, limited deal flow
Poland 625 38.6Early development, reasonable potential deal flow
Portugal 204 10.5Advanced development, reasonable deal flow
Romania 247 22.2Early development, limited deal flow
Russia 1,589 143.8Limited development, strong potential deal flow
Spain 1,362 40.5Advanced development, large deal flow
Sweden 333 9Limited development, very limited potential deal flow
6
POLITICAL ENVIRONMENT
Positive political championing with specific legal framework
Positive political championing with well adapted legal framework
Reasonable to some political championing with limited or adapting legal framework
No political championing with no legal framework
Czech Republic, France, Germany, Greece, Ireland, Poland, Portugal, Romania, Russia
UK, Belgium, Italy, Netherlands, Spain
Austria, Denmark, Finland, Hungary
Sweden, Norway
• Central government sponsorship is essential for successful PPP delivery and has been achieved by specific Task Force or PPP units e.g. PPP units exist in:
• It is essential that these groups have appropriate involvement and authority in the PPP process
• Czech Republic • Ireland • Greece
• UK • Italy • Portugal
• France • Netherlands • Hungary
7
DEVELOPMENT BY SECTOR
PPP Projects Closed by Sector
Accommodation Health & Education
Transport Defence Water & Waste Water
UK, Finland, France, Germany, Ireland, Italy, Netherlands, Romania
Austria, Denmark, UK, Finland, France, Germany, Hungary, Ireland, Italy, Netherlands, Norway, Portugal, Spain
Austria, UK, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Spain, Sweden
UK, France, Germany
Austria, Belgium, UK, Germany, Italy, Netherlands, Romania
8
OVERVIEW
• Taken as a whole, Europe’s PPP markets are still in their infancy
• More than 50% of PPP markets still at an early stage
• UK has been a clear leader
• New member states are showing keen interest in PPP as they have new budgetary constraints and the need to improve infrastructure
9
UK
• Up to the end of 2007 UK has signed PFI & PPP projects with a capital value of £60bn
• 60 signed projects in 2007, worth £7.3bn (drop from the record £9.6bn in 2006)
• Recent years have seen a rise in average deal size – £122m in 2007
• Greater focus on procurement costs, reducing the number of smaller contracts
• PFI accounted for about 10-15% of public capital expenditure since 1996
– Transport – biggest PFI / PPP department accounting for £17.8bn of PPP projects (excludes Metronet Contract)
– Health – projects worth £12.6bn
– Defence (accommodation, marine vessels, satellites, garrisons) – projects worth over £8bn with and average size of £134m
– Education – projects worth £6bn (largest sector in 2007)
Source: International Financial Services, PFI in the UK & PPP in Europe
Department Number £m % share
Transport 62 17,754 29.7
Health 269 12,555 21.0
Defence 62 8,321 13.9
Education 156 6,427 10.8
Cabinet Office 107 5,285 8.8
Scottish Exec. 68 2,500 4.2
ODPM 52 1,400 2.3
DEFRA 22 1,333 2.2
H M Treasury 34 1,189 2.0
DCA 22 625 1.0
Welsh Assembly 7 522 0.9
DTI 9 393 0.7
DCMS 4 353 0.6
H M Cust. & Rev. 2 342 0.6
DWP 12 302 0.5
Others 13 446 0.8
Total 901 59,747 100
10
EUROPEAN PPP PROJECTS
• Outside of the UK, PPP has been rising rapidly
• €27bn PPP projects procured between 2001-2007
PPP Contracts in Europe (ex. UK)
0
2
4
6
8
10
2001 2002 2003 2004 2005 2006
Year
An
nu
al v
alu
e o
f s
ign
ed
de
als
, €
bn
Country
PPPs 2001-07
Value of Contract €bn
Total No. of Signed Deals
Spain 4.1 38
Italy 3.5 20
Ireland 2.9 18
France 2.9 26
Greece 2.4 7
Germany 1.9 34
Belgium 1.8 5
Netherlands 1.7 6
Poland 1.5 2
Austria 0.9 6
Finland 0.7 1
Bulgaria 0.7 6
Cyprus 0.5 1
Portugal 0.5 6
Others 1.0 17
Total 27 193
Source: International Financial Services, PFI in the UK & PPP in Europe
11
B&B IN EUROPE
• B&B Approach– Active developer since 1997
– Strong local presence with a wide range of skill sets
– Flexibility of approach – PPPs different risk profiles and delivery process throughout Europe
– Strong relationships with local partners and clients
– Long term investor
– Focused approach & thorough analysis of opportunities (business case, political buy-in, delivery team)
12
B&B EUROPEAN PIPELINEUK
Intercity ExpressAlso:WasteHealthCourts
France
Perpignan TheatreSathonay GendarmeriesPrison of SanteHSL SEACastres, ToulouseA355Route des VosgesDDERail Bretagne Pays de LoireCanal Seine Nord VNF
Italy
Sassari Hospital (€160m)Mestre Proton Therapy Centre (€160m)Brescia II (€130)Grugliasco University Campus (€250)Various car park portfolios (€75m)
Germany
TransAlp – TransportAlso:Education, Health & Govt.Buildings
Belgium
TransportEducationGovt. BuildingsSocial Housing
Turkey
HealthTransport
Portugal
MotorwaysRailHealthAirports
Greece
Education (€326m)Courts (€100m)Health (€763m)Custodial (€198m)
Ireland
EducationCourtsHealthArtsCustodial
13
B&B AUSTRALIAN PPP PROJECTS
Reliance Rail
Long BayForensic Hospital
New SouthWales Schools
RiverCity Motorway
Royal MelbourneShowgrounds
Orange Hospital
Royal Children’sHospital
LEAP Two (defence housing)
South Australian Schools
Victoria Schools Project
Brisbane Link Airport Toll Road
Singapore Schools
14
B&B NORTH AMERICAN PPP PROJECTS
• Projects in tender or at PB
Kelowna VernonHospital, BC
Oakland AirportConnector, CA
Fort Lauderdale I-595, FL
Port of Miami Tunnel, FL
CHUM ResearchCentre, QC
CHUM Hospital, QC
Montreal Symphony, QC
Alberta Schools, AB
Bridgepoint Hospital, ON
Midway Airport, IL
PennsylvaniaTurnpike, PA
Durham Courthouse, ON
15
CONCLUSION
• PPP is a global procurement solution to infrastructure investment needs
• Vast opportunities for PPP in Europe (€225bn pa of shortfall)
• Over 50% of European countries are at the early stages of PPP development
• PPP development is robust to downturn in economic cycles
• B&B is applying its global PPP experience locally in:
• Strong growth prospects for the B&B / BBPP platform
- UK - Belgium - Italy - Germany
- Ireland - France - Portugal
The European Renewable Energy Market29 April 08
Guy Thackwray
17
RENEWABLES: ATTRACTIVE MARKET FUNDAMENTALS
• Strong political backing:– EU targets 20% of total energy to be sourced from renewables by 2020
– Kyoto protocol ratified by the EU calls for a 20% reduction in CO2 emissions by 2020 (compared to 1990)
• Demand for electricity will continue to increase in the future driven by: (i) demographics: population growth; (ii) strong economic growth in emerging markets; and (iii) urbanisation
• Supportive regulation: most OECD countries have already set appropriate regulation to expand the market share of renewables within the generation mix through the following mechanisms:
– Feed-in tariffs: fixed tariff or fixed premium to market price is granted to output and guaranteed over a certain period - usually fall-back to market price or lower tariff thereafter in absence of repowering
– Green certificates: green producers are provided with these certificates that can be sold to polluters at a market price
– Other incentives: investment grants, accelerated tax depreciation, supplement for reactive energy and repowering incentives
• High oil price narrows the gap between regulated tariff and market price of electricity
18
WIND ENERGY
• 94GW installed wind capacity worldwide as of year-end 2007
• Wind capacity expected to grow by 25% p.a. through 2012 reflecting supportive regulation and increasing demand for electricity in general
• Asia and the US forecast to outperform market growth at respective CAGRs of 31% and 37%
• Germany is the most mature market with 22GW installed, while European countries such as Italy, France, Portugal and the UK offer significant growth potential
• B&B well positioned worldwide
Global cumulative wind capacity forecasts (GW)
75.961.348.136.627.319.4
129.5
110.793.9
78.866.7
56.8
67.5
53.7
41.7
30.9
21.714.0
15.0
11.5
8.5
6.5
4.93.8
0
50
100
150
200
250
300
350
2007 2008E 2009E 2010E 2011E 2012E
Pacific & Others
Asia
Europe
Americas
Source: BTM Consult
Total wind capacity installed per country (MW)
Source: BTM Consult
CAGR 25%
2,150
2,394
2,471
2,721
3,088
5,875
7,845
14,717
16,879
22,277
Portugal
UK
France
Italy
Denmark
China
India
Spain
US
Germany
B&B/BBW country
non B&B/BBW country
19
B&B/BBW - TOP 3 DEVELOPER IN WIND ENERGY WORLDWIDE
20
Americas 20.6%
Asia 14.9%
Pacific & Others 4.0%
Europe 60.4%
FOCUS ON WIND ENERGY
• Within renewables, B&B has been focusing on wind energy :
– Wind energy is one of the most economical sources of alternative energy - European average feed-in tariffs of ~ € 80/MWh vs. average West-European wholesale price of ~ € 55/MWh
– Wind energy represents one third of generation new build in European OECD countries
• Global wind capacity has shown a 25% CAGR since 2002 and BTM Consult expects a similar CAGR over 2008-2012
• European market is the most mature, accounting for 60% of the global capacity as shown below on the right
Historical global installed wind capacity (MW) Installed wind capacity breakdown as at year-end’07
31,158
39,502
47,656
59,198
74,214
94,005
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
2002 2003 2004 2005 2006 2007
CAGR 25%
Source: BTM Consult Source: BTM Consult
21
OVERVIEW OF REGULATORY REGIMES
Green certificatesGreen certificatesFeed-In TariffFeed-In Tariff
– Utilities are legally obliged to provide a certain minimum share of energy produced from RES in their total yearly sale
– Utilities can choose between generating its own RES energy or buying from another generator to meet the RES requirement
– A Green Certificate represents one megawatt hour (MWh) of renewable energy from an existing facility metered and verified by certifying agency
– Green Certificates are freely negotiated between utilities and RES generators
– Feed-in tariffs guarantee a fixed price, or a fixed remuneration in addition to the market price
– Generally, this mechanism includes priority access to the grid
– Utilities or transmission companies are obliged to purchase all the energy from renewable energy sources
– Different alternatives
- Guaranteed fixed price
- Fixed guaranteed premium plus energy market price (sometimes with cap and floor)
- Fixed price depending on annual production
- Term of 15, 20 years or for the whole life of the asset
Reg
ula
ted
ren
ewab
le p
ow
er p
rice
re
gim
es
Other incentives to support renewable energyOther incentives to support renewable energy
– Supplement for reactive energy: providing energy during hours of voltage dips provide the producers with supplementary income from the hours produced on top of the regulated tariff
– Accelerated tax depreciation: given the large investment required in turbines and construction of the wind turbines, accelerated depreciation ensures often that renewable energy producers do not have a heavy tax burden
– Investment grants: in certain countries (most notably Greece), the Government pays part of the eligible investment
– Repowering incentives: by reinvesting in a wind project (most notably turbines), the Government regards the project as new, and it can benefit from the often beneficial tariff available
European regulatory regimesEuropean regulatory regimes
Fixed feed-in tariff
Green certificate
Oth
er in
cen
tive
s to
pro
mo
te
ren
ewab
le e
ner
gy
22
6.8
5.1
3.6
2.9
1.2
6.1
0
1
2
3
4
5
6
7
8
IberdrolaRenovables
Acciona FPL EDP BBW/B&B EDFEnergie
Nouvelles
B&B/BBW ARE LEADING PLAYERS IN WIND ENERGY
• With 2.9GW installed capacity as at year-end 2007, the combination of B&B and BBW is the 5 th largest wind player worldwide
• B&B has a development pipeline of some 17,000MW as at year-end 2007, the third largest in the world
B&B/BBW installed capacity as of 31/12/2007 (GW)1 B&B/BBW pipeline as of 31/12/2007 (GW)2
1 Gross capacity 2 Gross capacitySource: Babcock & Brown Source: Babcock & Brown
41.1
17.115.8 14.8
12.415.0
20.0
0
5
10
15
20
25
30
35
40
45
IberdrolaRenovables
Gamesa BBW/B&B Acciona FPL EDP EDF EnergieNouvelles
23
9.3%8.9%
4.9%
4.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
BBW/B&B EDP Iberdrola Renovables EDF EnergieNouvelles
0
500
1,000
1,500
2,000
2,500Annual additional capacity as % of pipeline
Annual additional capacity (MWs)
302495 515
80 80 80 80 80 80 80
1,396847 892
370 400 400 400 400 400 400
570
600
800
900
1,100 1,100 1,100 1,100 1,100 1,100
0
500
1,000
1,500
2,000
2,500
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Northern America
Europe
Oz/NZ
B&B/BBW HAVE ONE OF THE MOST MATURE WIND PIPELINES…
B&B/BBW prob. weighted incremental annual capacity (MW) Average added capacity/gross pipeline
• B&B/BBW expect to add some 1,600MW p.a. on average over 2008-2016, of which 500MW in Europe
• The ratio of annual incremental capacity over communicated gross pipeline is a good measure of pipeline maturity and quality
Source: Babcock & Brown Source: Babcock & Brown
24
SOLAR POWER - A NEW AREA OF INTEREST
• Significant growth potential with PV accounting for less than 1% of electricity generated from renewable sources
• PV panel prices have been decreasing by 6.5% year-on-year for a number of years, making projects more competitive
• B&B is looking at Photovoltaic (PV) as well as Concentrated Solar Power (CSP)
25
PV POWER PLANTS ARE IDEAL FOR INFRASTRUCTURE INVESTORS
The PV generation sector has very attractive characteristics for B&B: - Wide resource availability - High expected growth rates - Continuous technology innovation and improvement of economic efficiency - Utility type cash flow profile - Increasing demand for renewable energy
a. Long term secured public subsidies: in most countries legal frameworks recognise a fixed feed-in tariff for a period of 20 or more years (400-500 €/MWh)
b. Capital intensive sector: PV energy plants require very high capex (~€5M/MW) and present low and predictable O&M costs
c. Predictable plant efficiency: yearly energy production depends only on the solar radiation at the specific site. This data is readily available for any possible location and remains very stable in time (variance max. 5%)
d. Low technological complexity: plants are structurally simple (arrays of panels, fixed metal structure, electric wiring, inverters) and extremely stable and reliable with a technical life of 25-30 years
e. High financial leverage applicable
26
Distinctive capabilities
THE SOLAR SECTOR IS A GREAT OPPORTUNITY FOR B&B
1. Successful development in wind energy has allowed B&B to acquire all the competencies and skills necessary along the solar value chain for a successful entrance (i.e., site identification, engineering, project management, procurement and project finance)
2. Early mover position to secure pipeline of good sites, framework agreements with developers and cost advantages on solar panel supply
3. The acquisition of Enexon brought on-board the necessary specialised skills and a pipeline of opportunities
4. The organisation for project development and opportunity origination in place is a mix of internal development and agreements with developers
27
CONCLUSION
• Political and social drivers for renewable energy will continue to increase
• Increasing costs of traditional generation and potential cost of carbon make renewables increasingly attractive
• Different tariff regimes and political backing will drive different levels of growth in different countries
• B&B is well positioned to benefit from the growth of this market worldwide
28
DISCLAIMER
The information contained in this presentation is given without any liability whatsoever to Babcock & Brown Limited or any of its related entities (collectively “Babcock & Brown”) or their respective directors or officers, and is not intended to constitute legal, tax or accounting advice or opinion. No representation or warranty, expressed or implied, is made as to the accuracy, completeness or thoroughness of the content of the information. The recipient should consult with its own legal, tax or accounting advisers as to the accuracy and application of the information contained herein and should conduct its own due diligence and other enquiries in relation to such information.
The information in this presentation has not been independently verified by Babcock & Brown. Babcock & Brown disclaims any responsibility for any errors or omissions in such information, including the financial calculations, projections and forecasts set forth herein. No representation or warranty is made by or on behalf of Babcock & Brown that any projection, forecast, calculation, forward-looking statement, assumption or estimate contained in this presentation should or will be achieved.
Please note that, in providing this presentation, Babcock & Brown has not considered the objectives, financial position or needs if the recipient. The recipient should obtain and rely on its own professional advice from its tax, legal, accounting and other professional advisers in respect of the addressee’s objectives, financial position or needs.
This presentation does not carry any right of publication. This presentation is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by Babcock & Brown. Neither this presentation nor any of its contents may be reproduced or used for any other purpose without the prior written consent of Babcock & Brown.