matt daly - project financing approaches for utility-scale renewable energy
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RENEWABLE ENERGY CORPORATION
Project Financing
Approaches for Utility-Scale RenewableEnergy
Matt DalyGeneral Manager, REC Solar Asia Pacific
ADB Asia Clean Energy Forum, Manila
June 7, 2012
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2 2011 REC All rights reserved. Confidential
Disclaimer
This Presentation includes and is based, inter alia, on forward-looking information and statements that are subject torisks and uncertainties that could cause actual results to differ. These statements and this Presentation are based on
current expectations, estimates and projections about global economic conditions, the economic conditions of theregions and industries that are major markets for REC ASA and REC ASAs (including subsidiaries and affiliates) lines ofbusiness. These expectations, estimates and projections are generally identifiable by statements containing words suchas expects, believes, estimates or similar expressions. Important factors that could cause actual results to differ
materially from those expectations include, among others, economic and market conditions in the geographic areas andindustries that are or will be major markets for RECs businesses, energy prices, market acceptance of new products
and services, changes in governmental regulations, interest rates, fluctuations in currency exchange rates and suchother factors as may be discussed from time to time in the Presentation. Although REC ASA believes that itsexpectations and the Presentation are based upon reasonable assumptions, it can give no assurance that those
expectations will be achieved or that the actual results will be as set out in the Presentation. REC ASA is making norepresentation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the Presentation, andneither REC ASA nor any of its directors, officers or employees will have any liability to you or any other personsresulting from your use.
This presentation was prepared for Clean Power Asia 2012 held on May 15, 2012. Information contained within will notbe updated. The following slides should be read and considered in connection with the information given orally duringthe presentation.
The REC shares have not been registered under the U.S. Securities Act of 1933, as amended (the "Act"), and may notbe offered or sold in the United States absent registration or an applicable exemption from the registration requirementsof the Act.
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3 2011 REC All rights reserved. Confidential
About REC
Founded in Norway in 1996, REC is a leading
vertically integrated solar energy companyand employs more than 3,200 peopleworldwide
REC produces polysilicon, wafers, cells andmodules for the solar industry, and siliconmaterials for the electronics industry
REC is also engaged in project developmentactivities in selected PV segments
REC had revenues close to USD 2.4 billion in2011
REC is listed on the Oslo Stock Exchangeunder the ticker: REC
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4 2011 REC All rights reserved. Confidential
Industry pioneer with commitment to PV
Presence throughout the entire value chain
World-class manufacturing facilities
REC an integrated company
Strong focus on operational excellence
Increased market presence throughpartners
Polysilicon Wafer Cells Modules Systems
Chemical process Casting and cutting Surface treatment Assembly Installation, additionalcomponents
Operations in USA Operations inSingapore
Operations inSingapore
Operations inSingapore
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5 2011 REC All rights reserved. Confidential
Global manufacturing and sales footprint
Butte, MT, USA
Moses Lake,
WA, USA
San Luis Obispo,CA, USA Houston, TX, USA
Foster City, CA,USA (R&D)
Milan, ItalyMunich, GermanyParis, France
Barcelona, Spain
Oslo, Norway
Singapore
Shanghai, China
Tokyo, Japan
Taipei, Taiwan
REC sales offices
REC representative
office / sales support
REC R&D units
REC production facilities
REC headquarters
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6 2011 REC All rights reserved. Confidential
Agenda
Maximizing The Income Stream
Reducing Capital Expenditure
Risk Mitigation For The Revenue Stream
Loan Guarantor GIEK
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Large scale projects require critical competence
Identify and securelocal developmentpartner / bid to tender
Secure all permits,building,environmental, grid
connection, etc.
Secure economics ofprojects, e.g., FIT,PPA, subsidies, etc
Perform due diligence
on the above
Assess financialattractiveness incl.yield analysis
Set up SPV anddevelop debt andequity , tax andinsurance structure
Identify equity sponsorsand start salesprocess
Build streamlined
financing processes
Design layout,
Perform cost calculationfor BOS and installation
Perform yield analysisand technical planning
Organize tenderprocess for EPC subcontractors andnegotiate contracts
Manage project ,
supervise site andcommission project
Manage closingprocedure of projectsinstalled + sold
Ensure sufficientfinancing for furtherdevelopment
Contract managementconcerning warrantiesand bank-guarantees
Monitor and Operate
Organize /outsourcelong-term services
Development or tendering
Finance / Legal / SaleEngineering and Construction
Own + Operate
http://www.pixmac.com/picture/green-fileds-of-young-cereal/000000378002http://www.pixmac.com/picture/numerals-and-finance/000010281181 -
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Major contributing factors to PV project returns
IRR
COST OF FINANCE
- Interest rate
- Term of loan
- Loan guarantor
- Timing of repayments
MAXIMISE REVENUE STREAM
- High yielding equipment
- Optimised design
- Ongoing maintenance
- Minimising degradation rates
REDUCE COSTS- Reduce capital expenditureof equipment
- Maximise performance ratiovia equipment and design
- Efficient systems to limitoperating expenditure
- Incentives and subsidies
MITIGATION OF RISK
- Securing PPA- Technology selection
- System durability
- Service and support
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Major contributing factors to PV project returns
IRR
COST OF FINANCE
- Interest rate
- Term of loan
- Loan guarantor
- Timing of repayments
MAXIMISE REVENUE STREAM
- High yielding equipment
- Optimised design
- Ongoing maintenance
- Minimising degradation rates
REDUCE COSTS- Reduce capital expenditureof equipment
- Maximise performance ratiovia equipment and design
- Efficient systems to limitoperating expenditure
- Incentives and subsidies
MITIGATION OF RISK
- Securing PPA- Technology selection
- System durability
- Service and support
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REC panels installed in a power plant in Alicante, Spain.System size of 8 MW, powering 4 896 householdsRIGHT HERE IN ALICANTE
Maximizing The
Income Stream
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How yield impacts project return
Al-BSF + Al
Assumptions: Site location in Perth, Australia with a Base yield of 1650kWh/m2/yr, Debt:Equity ratio of 70/30,
WACC of 11%, FiT of US$0.11/kWh and a CAPEX of US$2.70/W
Increases in yield can accelerate the project IRR in a non-linear fashion
PV modules are not a commodity! Project developers are prepared to pay a premiumfor higher yielding modules
There are inherent technical features of REC modules that enable higher yieldgeneration throughout the modules life
-10%
-7%
-3%
0%
5%
8%
11%
-15%
-10%
-5%
0%
5%
10%
15%
-10% -5% 0% 5% 10%
IRR
Yield
Change In Yield
Linear Reference
8%
6%
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Module part load efficiency is extremely important
Al-BSF + Al
Every module will have a different efficiency curve
REC maintains high performance through all levels of irradiance
Source: REC efficiencies generated from TUV Rheinland test reports, Tier-1 and Poor-Si irradiation numbers havebeen recreated form electrical data using the one-diode model
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
102%
0 100 200 300 400 500 600 700 800 900 1000
RelativeEfficiency (%)
Irradiance (W/m2)
REC Tier 1 -Si Poor Si
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Average irradiance levels highlight the STC deficiency
Al-BSF + Al
The STC nominal power rating is not the best indicator of expected performance
To make an appropriate assessment of a product special attention must be given to theefficiency level at the prevailing irradiance levels. Bangkok irradiance distribution showsthe importance of the curve
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Average irradiance levels in APAC 300-600W/m2
The majority of Asia has average irradiance levels under 600W/m2 between
sunrise and sunset
If you are not sure of the low-light efficiency levels of a module, ask themanufacturer
A performance simulation used to underpin project finance should take thisfactor into account
Al-BSF + Al Sydney 408 W/m2
Dehli 500 W/m2Tokyo 320 W/m2
Manila 346 W/m2
Beijing 320 W/m2
Bangkok 403 W/m2
Jakarta 370 W/m2
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REC ranks as number 1 in yield
Photon test 2011: most recognized test comparing module brands under real
life conditions, over several years
Generated more electricity than all its 45 competitors,6% more than test average
Average irradiance in this region is approx 230W/m2
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Residential home with 61 REC solar panels installed in Monterey, California.Annual capacity: 19 435 kWh 13.1 tons of CO2 saved annuallyRIGHT HERE IN CALIFORNIA
Reducing CapitalExpenditure
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How a module can reduce capital expenditure
Reducing system cost is more involved than simply
reducing the cost price of the module ($/W)
Modules can influence the developed cost in thefollowing ways:
Increasing efficiency reduces land and mounting structurecosts
Increased reverse current rating reduces the amount offusing
A high maximum system voltage that minimises the amountof strings and protection devices
Cable length that minimises additional string cables
Innovative frame design that allows for rapid installation rates
Equipment accessories that streamline the installationprocess
Packaging that reduces waste or simplifies transportation
By-pass diodes used to minimise yield loss from shading
Antireflection coatings to maximise sunlight transmission
Availability to finance via ECA
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REC is reducing module cost at a high rate
Q1 2012 costs;
March run rate at 90 Eurocents/Watt
2012 cost reductions;
Increased average cell efficiency
Improved sourcing of materials
Improved operational performance,debottlenecking and higher equipmentavailability
Reduced fixed costs and economies ofscale in support functions
-27%
Q412
57
Q112
78
-39%
Q310
127
Singapore module cash cost
Eurocents/watt
target
Costs include SG&A, amortization, R&D, silicon atmarket price, cash production costs and excludesdepreciation
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Increasing yield performance reduces CAPEX
REC is known for its high performing yield throughout the world
As simulated in PVsyst, in Asia Pacific the advantage still exists, whichtranslates to real value
1,120
1,124
1,124
1,143
1,154
1,154
1,191
1,191
1,080 1,100 1,120 1,140 1,160 1,180 1,200
Sharp
Kyocera
Trina
JA Solar
SunTech
Yingli
Sanyo HIT
REC
Annual Yield (kWh/kWp)
Assumptions: Yield numbers generated in Pvsyst v5.51. Site location in Tokyo with a tilt of 28 degrees oriented due
South. Sunny Tripower 10000TL inverters and module specific values for NOCT, mismatch and module quality loss.
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REC can command a $/W premium based on yield alone
Translating the yield numbers into a project IRR calculation, the premium REC can justifyagainst the major competitors is evident
This premium will change depending on climatic and financial factors, however the clearpattern is that REC maintains a yield advantage that has translated to higher ASPs
Warranty, bankability and quality advantages will further extend the premium
Assumptions: Debt:Equity ratio of 70/30, Cost of Debt 2%, cost of equity 9%, FiT of JPY38/kWh and a project
lifetime of 25 years. System specific capital costs based on module efficiency and equivalent BoS costs
-$0.11
-$0.11
-$0.11
-$0.09
-$0.07
-$0.07
$0.00
$0.05
-$0.12 -$0.10 -$0.08 -$0.06 -$0.04 -$0.02 $0.00 $0.02 $0.04 $0.06
Sharp
Kyocera
Trina
JA Solar
SunTech
Yingli
REC
Sanyo HIT
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REC production plant, Tuas, SingaporeRIGHT HERE IN SINGAPORE
Risk Mitigation for
the Revenue Stream
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Durability tests to gain comfort in long-term performance
Most PV modules are warranted for a period of 25 years but few havebeen in the field for that time.
How REC guarantees the lifetime of its module:
Highly automated production facility
Complete quality control (machine, man, method & material)
ISO 9001, ISO14001 & OHSAS18001 Certified in Singapore Optional loading up to 5400Pa under IEC61215 (551kg/m2)
TUV Salt Mist Corrosion - Severity 6
TUV Ammonia Corrosion
Extended qualification beyond IEC (DHT, TC, HF)
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Industry leading linear warranty for REC modules
Module bankability is key criteria for solar
REC holds a strong reputation with banksin our active markets
25 year linear performance warranty
10 year product warranty
Maximum degradation rate of 0.7%
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Low customer claims provide evidence of quality
Reduced module power or plant downtime will adversely affect the financial
performance of a PV plant Faults can occur at periodic times throughout the life of a plant. Remoteness
and lack of access to adequately trained personnel can cause systems to havedowntimes of weeks or months.
One bad module can affect the performance of an entire string of sub-array
49
79
35
72
98
33
110
5779
90
34
97
0
50
100
150
200
250
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Claim PPM Acc PPM 2011 TargetPPM
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REC has a strong track record of proven performance
Pandit Deendayal Petroleum University in Gujarat, India
(7.61% Above Expectations)
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REC has a strong track record of proven performance
100kW REC Factory Rooftop, Tuas, Singapore
7.3%
4.3%
4.7%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
Section 3
Section 2
Section 1
Energy Yield Compared to PVsystPrediction
Predicted
REC modules exceed expectations by deliveringbetween 4% to 7% more energy
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REC has a strong track record of proven performance
81.980.5
85.791.8
83.784.0
Freiburg582kW
Italy5.7MW
France5MW
Yield report
Actual
REC Systems Performance Ratio* Examples (%)
* The performance ratio (PR) describes the relationship between the actual and theoretical energy outputs of the PV plant. Low
conversion losses (glass reflection, temperature losses, transformer losses ...) are leading to a high PR.
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More Energy per M
Robust and Durable Design
Easy to Install
Energy Payback Time of One Year
Optimized for all Sunlight Conditions
The 5 Unique Selling Points of REC Modules
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Powerplant with REC Peak Energy modulesRIGHT HERE IN ITALY
Loan Guarantor
- Garanti-instituttet foreksportkreditt (GIEK)
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Who is GIEK?
GIEK is the Norwegian ECA (Export Credit Agency)Guarantees for Norwegian exporters on behalf of the Norwegian
Government
Buyer credit (export credit)
Supplier credit guarantees
Bond guarantees
Investment guarantees
GIEKs general guarantee framework EUR 15.5 bn
GIEK manages a portfolio of around EUR 10 bn (80% in the offshore
and maritime sectors)
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What are Commercial and Political Risks
Commercial risk:
Loss due to debtor becoming insolvent / going bankrupt
GIEK covers up to 70 90%
Political risk:
Loss due to conditions in the importing country: Confiscation, expropriation,nationalization, war or other agitation
GIEK covers up to 95 100 %
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GIEKs credit analysis
Pre-delivery risk
Performance risk EPC contractor
Credit evaluation debtor / sponsor
Cash Flow
Technical risk
Operation and maintenance risk
Legal due diligence of the underlying contracts, permits, licences, PPAetc
Political risk
Securities
Environmental impact / CSR
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Typical Financial Structure of a PV Installation
Courtesy of GIEK
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RENEWABLE ENERGY CORPORATION
THANK YOU
Contact:
Matt Daly
General Managermatt.daly@recgroup.com
The content of this presentation is strictly confidential. REC is the exclusive owner or licensee of the content, material, and information in this presentation. Any reproduction, publication or reprint, in whole or in part,is strictly prohibited. The information in this presentation may not be accurate, complete or up to date, and is provided without warranties or representations of any kind, either express or implied. REC, as well as its
directors, officers and employees, shall not be responsible for and disclaims any liability for any loss or damages, including without limitation, direct, indirect, incidental, consequential and special damages, alleged tohave been caused by or in connection with using and/or relying on the information contained in this presentation.
REC is the exclusive owner or licensee of the content, material, and information in this presentation. Any reproduction, publication or reprint, in whole or in part, is strictly prohibited. The information in thispresentation may not be accurate, complete or up to date, and is provided without warranties or representations of any kind, either express or implied. REC, as well as its directors, officers and employees, shall not
be responsible for and disclaims any liability for any loss or damages, including without limitation, direct, indirect, incidental, consequential and special damages, alleged to have been caused by or in connection withusing and/or relying on the information contained in this presentation.
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