EXECUTIVE SUMMARY INTERVIEWEES

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1 EXECUTIVE SUMMARY Welcome to Renewables Infrastructure Investment in Europe 2016, a new market report produced by Clean Energy Pipeline. This report includes data and insight on clean energy project finance and M&A in Europe. It includes investment analysis, league tables and profiles of the most active lenders and funds. It also includes a comprehensive list of all clean energy project finance and M&A deals in Europe in 2015 and the first half of We would like to thank the individuals (listed below) that gave up their time to be interviewed for this report. We hope you enjoy reading this report. As ever, we welcome all feedback. INTERVIEWEES DEBT PROVIDERS: Alejandro Ciruelos, Managing Director and Head of Project Finance UK, Banco Santander Steven de Gruyter, Project Finance Western Europe, EIB Sue Milton, Senior Director, Energy, Structured Finance, RBS Thomas Brehler, Global Head Power, Renewables and Water, KfW IPEX-Bank Laughlan Waterston, Head of Energy, Sumitomo Mitsui Banking Corporation, Europe Lars Quandel, Head of Energy & Utilities, HSH Nordbank Kit Hamilton, Managing Director, Head of MIDIS Investment Team, Macquarie Group Carol Gould, Head of Power and Renewables, Bank of Tokyo-Mitsubishi UFJ Nandita Parshad, Director of Power & Energy Utilities, EBRD Philip Bazin, Environment Team Manager, Triodos Markus Wessel-Ellermann, Head of Project Finance Origination Renewable Energies, Commerzbank EQUITY INVESTORS: David Jones, Head of Renewables, Allianz Capital Partners Oldrik Verloop, Managing Director, Aquila Capital Antoine Millioud, CEO, Aventron Klaus-Dieter Maubach, CEO, Capital Stage Guido Mitrani, Principal, Energy & Infrastructure, KKR Mark Dooley, Head of Infrastructure, Utilities and Renewables Europe, Macquarie David Tilstone, Managing Director Infrastructure and Real Assets (Europe), Macquarie Infrastructure Robert Pottmann, Head of Renewable Energy & New Technologies at MEAG, MunichRE Matt Setchell, Head of Renewable Energy, Octopus Investments Oliver Hughes, Partner, Oxford Capital Partners Jacco Minnaar, Director of Energy and Climate, Triodos Investment Management 5

2 PROJECT FINANCE HITS A FIVE-YEAR HIGH It now seems like some time ago but a review of renewables investment activity in 2015 is a good place to start. According to deals tracked by Clean Energy Pipeline, European renewables project finance totalled $66.3 billion in 2015 a 5% increase on the $63.1 billion invested in Investment in 2015 was in fact at its highest level since Offshore wind was the largest sector for investment in 2015, accounting for 33% ($21.6 billion) of total investment. Onshore wind was the second largest sector for investment, accounting for 31% ($20.4 billion), while solar PV was the third largest sector, accounting for 17% ($11.5 billion). This is a marked change from 2011, when offshore wind only accounted for 18% of European renewables project finance. Some 40% of investment in European renewables projects was in the UK. Germany was the second, accounting for 22% of investment. How has investment fared in early 2016? Investment in 1Q16 totalled $17.1 billion, 16% above the quarterly average volume of investment during the last five years ($14.7 billion). At the time of going to press in late June, investment levels in 2Q16 were looking robust due to a number of offshore wind farms reaching financial close. A comprehensive list of every renewables project finance deal in Europe in 2015 and the first five and a half months of 2016 is listed from page 73 of this report. These deals are segmented by country and technology. OFFSHORE WIND IN FOCUS Offshore wind project finance deal activity has surged in the last two years. A record $6.1 billion of debt finance was invested in seven offshore wind farms in 2015, a 49% increase on the $4.1 billion invested in three projects last year. Already, $4.9 EUROPEAN RENEWABLES INFRASTRUCTURE M&A AS A PERCENTAGE OF DEAL VALUE (2015) 3% 4% 7% 24% 22% 40% UK Germany France Spain Italy Other billion debt finance has been allocated to three offshore wind farms in the first five and a half months of The projects that have secured finance since the beginning of 2006 are outlined in the graph below. THE MOST ACTIVE LENDERS According to Clean Energy Pipeline data, 124 debt providers financed at least one European renewable energy project in This includes a diverse range of commercial banks, multilateral finance organisations, export credit agencies and institutional investors, both in and outside of Europe. All of these lenders are listed in a league table on page 10 of this report. Some 54% of these debt providers only financed one renewable energy project in A further 15% only made two investments. Only eight debt providers financed more than ten projects. The most active lender by deal credit is Banco Santander, which participated in 51 project EUROPEAN RENEWABLES INFRASTRUCTURE PROJECT FINANCE (1Q09-1Q16) Offshore wind Onshore wind Solar PV Biomass Other 6

3 RANK FIRM Number of deals 1 Banco Santander 2 European Investment Bank 3 Deutsche Bank 4 Natixis 5 Nord/LB 6 Royal Bank of Scotland Group 7 KfW Bankengruppe 8 Jefferies & Co 9 Sumitomo Mitsui Banking 10 HSH Nordbank Deal credit ($m) 51 2, , , , , , , ,062 Corporation finance deals and had a deal credit of $2.2 billion. Santander s profile, which showcases some notable deals and includes market insight from Alejandro Ciruelos, Managing Director and Head of Project Finance UK at Santander, can be found on page 33 of this report. The top ten lenders to renewables projects in 2015 are listed below. Institutional investors are becoming more active lenders to renewables projects. They have gained most traction providing longer dated facilities to refinancing transactions for large projects or portfolios of projects. DEBT TERMS, MARGINS AND TENORS Our series of interviews with debt providers and equity investors, which can be found in the profiles section of this report, revealed certain trends in renewables debt finance terms, margins and tenors. Of course, debt margins and tenors are specific to individual markets, but the general consensus is that margins have stabilised following significant compression in 2014 and Over the past two to three years we have definitely seen a lowering in the cost of debt, confirmed Lars Quandel, Head of Energy & Utilities at HSH Nordbank. We have seen quite a dramatic compression of the margins when it comes to the German, French and UK markets. These days you see all-in rates on the debt side for German and sometimes French projects around basis points. Two or three years ago that was around 50 basis points higher. I would say the rates for onshore and solar are roughly the same. M&A ACTIVITY TOPS $20 BILLION Some 315 European renewables M&A deals totalling $20.1 billion were announced in 2015, a 22% increase in value on the 382 deals totalling $16.5 billion announced in This made 2015 the highest year for M&A activity by deal value since Clean Energy Pipeline began tracking deals in this sector in On the flipside the number of deals in 2015 represented an 18% decrease on In short, renewables M&A activity is increasingly characterised by bigger but fewer deals. This is being driven by two factors. Firstly, the increase in offshore wind installations has triggered a surge in offshore wind M&A activity. These deals are always in the hundreds of millions of dollars. Second, institutional investors are increasingly acquiring portfolios of renewable assets rather than individual projects. This trend shows no signs of abating in early Some 64 deals valued at $5.9 billion were announced in 1Q16. This is 40% above the average EUROPEAN OFFSHORE WIND DEBT PROJECT FINANCE (2006 TO 2016-YTD) YTD Princess Amalia MW Thornton Bank (C-Power) Phase 1-30 MW Bligh Bank Phase I (Belwind) -165 MW Lynn and Inner Dowsing wind farms MW Borkum West II MW Thornton Bank (C-Power) Phases 2 & MW Global Tech MW Meerwind MW Baltic MW Gunfleet Sands MW Northwind - 216MW Lincs - 270MW Walney - 367MW Butendiek - 288MW London Array MW Gemini MW Westermeerwind - 144MW Westermost Rough MW 288MWBaltic 2-288MW Innogy Nordsee 1-332MW Nordergründe - 111MW Nobelwind - 165MW Galloper - 336MW Meerwind MW Belwind MW (refinancing) Dudgeon MW Luchterduinen MW Beatrice MW 7

4 quarterly value of M&A activity ($4.2 billion) during the last five years. Every renewables M&A deal tracked by Clean Energy Pipeline in 2015 and the first five and a half months of 2016 is listed on page 58 of this report. The UK was the largest country for M&A activity in 2015, accounting for 24% of the total value of transactions. Spain was second, accounting for 18% of M&A deal value, followed by Germany (15%), Italy (15%) and then France (8%). EUROPEAN RENEWABLES INFRASTRUCTURE M&A AS A PERCENTAGE OF DEAL VALUE (2015) 8% 15% 20% 24% 18% 15% INSTITUTIONAL INVESTORS WADE IN There are now more acquirers of renewables assets than there ever have been. Institutional investors, corporates, yieldcos, utilities and conventional infrastructure funds are all now hunting for assets in this sector. This is a marked change on three years ago, when infrastructure funds and power companies were the only potential buyers of renewables projects. This has contributed to a decrease in returns. In the last two years there are more and newer infrastructure funds and insurance companies who want to directly invest in our area, explains Antoine Millioud, CEO at Aventron. We know of a couple of funds which have started recently. The competition is increasing. It has impacted returns but that is only one reason. The other reason is that interest rates have reduced so the entire market adjusts to that situation. We have lost around 2% IRR but we also have a 2% lower interest rate on the project finance side. The entire system has dropped by 2% or 3%. UK Spain Germany Italy France Other 8

5 EUROPEAN RENEWABLES INFRASTRUCTURE M&A (1Q09-1Q16) Corporate M&A Private Equity Number of deals 9