How to ensure an energy business case during an economic crisis?” Investment Services Lecture TU Delft Page 1 May 2013 Content Introduction Royal HaskoningDHV Energy market developments Availability of funding Business case / concept Project development best practices Project finance best practices Investment Services Lecture TU Delft Page 2 May 2013 Profile Royal HaskoningDHV We are a leading independent global consultancy, design, engineering and project management service provider 8,000 staff, 800 in energy Royal Haskoning and DHV merged on 1 July 2012 Investment Services Lecture TU Delft Page 3 May 2013 Global presence in over 35 countries Introduction Investment Services Solar Investment Services Lecture TU Delft Biomass Hydro Page 5 May 2013 conventional Wind Content Introduction Royal HaskoningDHV Energy market developments Availability of funding Business case / concept Project development best practices Project finance best practices Investment Services Lecture TU Delft Page 6 May 2013 A Dutch Clean Energy gap to close (AMBITION) Investment Services Lecture TU Delft Page 7 May 2013 A European Clean Energy gap to close (AMBITION) Investment Services Lecture TU Delft Page 8 May 2013 A world of energy opportunities (NEED) (1/2) Investment Services Lecture TU Delft Page 9 May 2013 A world of energy opportunities (NEED) (2/2) Investment Services Lecture TU Delft Page 10 May 2013 Content Introduction Royal HaskoningDHV Energy market developments Availability of funding Business case / concept Project development best practices Project finance best practices Investment Services Lecture TU Delft Page 11 May 2013 Investment Services Lecture TU Delft Page 12 May 2013 Investment Services Lecture TU Delft Page 13 May 2013 Venture Capital & Private Equity Clean Energy deals (Q2 2012) Investment Services Lecture TU Delft Page 14 May 2013 Content Introduction Royal HaskoningDHV Energy market developments Availability of funding Business case / concept Project development best practices Project finance best practices Investment Services Lecture TU Delft Page 15 May 2013 Energy Asset Classes Hydro Power Plant Solar (PV) Power Plant Biomass Power Plant Waste to Energy Plant Windfarm Investment Services Lecture TU Delft Page 16 May 2013 Combined Heat and Power Plant Structuring of an energy asset in a SPC Investor Equity Others (roads roads,, water) Utility Authorities Services Service Development PPA SPC administration Permits Tax Incentives Operation & Maintenance (O&M) Land Landowners Grid contract Loan agreement Bank Investment Services Lecture TU Delft Engineering, Procurement & Construction (EPC) Insurance Insurance Co. Page 17 May 2013 Connection Feed--in / Feed Subsidy Utility / Authority Grid owner Our approach: vision, strategy, management content participation proposal intention plan idea check technical solutions, check urban design, make financial calculations strategy process/decisions Investment Services Lecture TU Delft support Page 18 May 2013 Project phase returns: from high to stable risk/return Pre-development Project finance planning Pre-developer sets up SPC Type of investor Estimated project IRRs & duration Investment Services Lecture TU Delft Development Realisation Operations 1st investor buy SPC (~70% developed) 2nd investor buys SPC (fin. close) 3rd investor buys SPC (12-18mths) Type 1 investor: •Family office •Entrepreneur •Intermediary •Fund •Bank Type 2 investor: •Type 1 investor stays in •Intermediary •Fund •Bank Type 3 investor : •2nd investor stays •Pension fund •Strategic investor •Fund Development/pipeline risk: •Private Equity IRRs (20-30%) Project duration: •Development 6-18 mths (avg 12) Page 19 May 2013 Construction risk: •High infra IRRs (10-15%) Project duration: •Construction ~4-8 mths •Operation ~1-3 yrs Operating risk: •Low infra IRRs (8-11%) Operating risk: •Operation ~17-24 yrs Content Introduction Royal HaskoningDHV Energy market developments Availability of funding Business case / concept Project development and finance best practices Investment Services Lecture TU Delft Page 20 May 2013 Project lifecycle Energy Asset Development Project lifecycle – overview Portfolio strategy and business planning Feasibility phase Scoping phase Definition phase Realization phase Operational phase Six phases can be distinguished in the project lifecycle: Portfolio strategy and Business Planning : Select relevant activities for organization based on the long term strategy and scope Feasibility : Assess leads on their feasibility (identify show-stoppers) Scoping : Select and optimize business opportunities Definition : Define, negotiate and finalize contracts Realization : Realization of the project (including commissioning) Operational : Operational management of asset Investment Services Lecture TU Delft Page 21 May 2013 Project lifecycle Energy Asset Development Opportunity • In line business plan • Commercial opportunity • Technical feasible • Plan & budget business development phase decision Gate criteria - key deliverables per phase * Gate 1 feasibility • Confidentiality agreement • Land secured • Soil analyses • Grid, fuel and cooling water study • Permit ability analyses • Stakeholder analyses • Study technical concept (capex ±30%) • Concept MoU • Business case analyses (financial model, strategy) • Management paper and project plan next phase decision Gate 2 scoping • MoU and exclusivity • Defined scope: BoD, ISBL, OSBL, grid, fuel, cooling water (capex ±20%) • Tender/permitting strategy • Define legal entity • Critical aspects secured (planning/risk perspective) • Term sheet PPA, fuel contracts • Permit documents initiated (ready for submission) • Dedicated financial model to confirm business case • Management paper and project plan next phase • Results review TAR/VAR Gate 3 (FID) definition • Evaluation and selection process tenders • Finalized assets contracts • Finalized other contracts (e.g. fuel, land, connection, utilities, etc.) • Results final reviews TAR/VAR • Confirmation business case (capex ± 10%) • Project plan realization phase • Initial plan of the operational phase • Results internal approval processes decision Board informed Investment Services Lecture TU Delft Page 22 May 2013 Final investment decision by Board Project development & finance best practices (1/2) Project development Valuation Stakeholder management Risk management Project structuring Program management Investment Services Lecture TU Delft Page 23 May 2013 Project development & finance best practices (2/2) Finance What do banks need for an investment decision? Sponsor with experience Coverage of construction risk Ideally a fixed price turnkey construction contract (not possible for offshore wind) Experienced contractor, cost overrun facilities O&M Proven equipment supplier For offshore wind, access to infrastructure for maintenance Investment Services Lecture TU Delft Page 24 May 2013 Relationship TU-Delft and Investment Services Jeroen van der Beek, is currently working on his master thesis within investment services (impact different support regimes) Second half year of 2013 there is another opportunity for finishing your master thesis within Investment Services Feel free to contact me, or my colleagues Jeroen or Leon Investment Services Lecture TU Delft Page 25 May 2013 Questions Investment Services Lecture TU Delft Page 26 May 2013 Thank you for your attention Emiel van Zwet Royal HaskoningDHV Investment Services Mobile: +31 6 50213418 Email: [email protected] Leon Pulles Royal HaskoningDHV Investment Services Mobile: +31 6 46363481 Email: [email protected] Investment Services Lecture TU Delft Page 27 May 2013 Jeroen van de Beek Royal HaskoningDHV Investment Services Mobile: +31 6 12678002 Email: [email protected]
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