Sustainability in Energy: From CSR to the CFO

Transcription

1 Sustainability in Energy: From CSR to the CFO Energy Summit Presentation 2017 Remco Frenken UMS Group Inc., All Rights Reserved

2 Agenda Setting the Scene Business Case Tips & Tricks Conclusion UMS Group Inc., All Rights Reserved 2

3 Setting the scene Sustainability in Energy Consumption is most easily achieved with Greening Electricity Key figures NL E(lectricity) G(as) H(eat) Consumption Total (TWh/y) Consumption Green (TWh/y) Commodity Value ( m/y) (33%) 1.3 (0.37%) Green Power is a more attractive option than Green Gas (growth, money, and simpler) P.M.: Greening of Steam (industry) and Molecules (feed stock in industry, like for fertilizer) UMS Group Inc., All Rights Reserved 3

4 Balancing the Sustainability and Cost Equation: CSR v CFO Motives Perspective Costs focus or Revenue focus? Head of CSR Maximise Energy Sustainability/ Challenge Costs CFO Show me the money Challenge the Business Case Approval Approve Costs Approve Business Case Typical risk Lower Priority CFO asked to delay 1 year, as no budget Low Payback/ROI Why does it take so long, it should have been ready last year UMS Group Inc., All Rights Reserved 4

5 Agenda Setting the Scene Business Case Tips & Tricks Conclusion UMS Group Inc., All Rights Reserved 5

6 Business Case What does the business case look like?..a puzzle with 7 pieces! UMS Group Inc., All Rights Reserved 6

7 Business Case Components 1/7: 1. Lower Cost of Capital/more attractive for investors Many funds want to invest green Few green companies to invest in => High Fund Availability (capital supply) & low investment opportunity (capital demand) => Price (of bond) goes down (or price of shares goes up) For example: 0.2% lower interest on 500 mln green bond = 1 mln/y How do companies show commitment to green energy generation? i. Larger companies (global): DowJones Sustainability Index, for example Unilever AkzoNobel ii. Larger Companies ( global): Green Bonds, for example TenneT Alliander iii. SME (in NL): projects qualifying for status of GroenProjecten (Green Projects) Fiscally (Tax advantages for potential investors) very attractive, but funds are closing due to a lack of investment project opportunities UMS Group Inc., All Rights Reserved 7

8 Business Case Components 2/7: 2. Revenues from Support Systems: E.g. Netherlands Trend 1: Increasing Amounts, allocated in a technology neutral competitive way Trend 2: Netherlands have become a Nirwana for green projects (12 bln/y, circa 50% of Germany in a power market only 20% of the German size) Trend 3: Increasing risk awareness subsidy providing governmental entities ( in depth feasablity study, credibality etc. ) and financers ( Floor price risk, value GoO, value off take contract, etc. ) Conclusion: A Company that makes a project bankable deserves a share of revenues A Favourable risk/reward ratio (but you have to take some risk) UMS Group Inc., All Rights Reserved 8

9 Business Case Components 3/7: 3. Risk Management Sustainability For example: ETS-4 ( CO 2 prices ) ETS-3 (now): low CO 2 prices (& low E prices) ETS-4: probability of higher CO 2 prices and/or higher E-prices Risk assessment: determine impact ETS4 for your company Risk mitigation strategies: what is method including cost/benefit analysis to limit risk? green steam, green gas, carbon credits, ACA level (airports), C0 2 free generation etc. UMS Group Inc., All Rights Reserved 9

10 Business Case Components 4/7: 4. Ease of doing business - Qualifier and/or Bonus in Purchasing Tenders Many companies impose minimum demands related to sustainability qualifier : KYC procedure with financial institutions: sustainability criteria Part of credit risk assessment High degree of sustainability increases grant you the deal factor, resulting in: Higher probablity of succes ( all things equal, the most sustainable wins ) Better price ( on price we were #3, but thanks to the 10 points voor sustainability we won ) UMS Group Inc., All Rights Reserved 10

11 Business Case Components 5/7: 5. Customer Loyalty Prevent clients going to greener competitor For example: Rail company: we should assures that the train remains greener than an electric car, as some clients choose rail for environmental reasons Avoid clients going to a Low Cost Competitor For example: Steel supplier provides sustainable steel to a major construction firm. The construction firm will proudly state on their website we use sustainable steel. Sets barrier to revert to low cost producers in subsequent years during periods of low growth/profitability UMS Group Inc., All Rights Reserved 11

12 Business Case Components 6-7/7: 6. Robustness Green Company has more margin for errors, before stakeholders lose trust 7. Attractive Employer For the same conditions, do you prefer working for WindMillFactory or Lignite Generation? UMS Group Inc., All Rights Reserved 12

13 Attractive Employer Putting the puzzle together How does the puzzle look for you? Impact Cost of Capital Subsidy share Customer Loyalty Robustness Risk Management UMS Group Inc., All Rights Reserved 13

14 Agenda Setting the Scene Business Case Tips & Tricks Conclusion UMS Group Inc., All Rights Reserved 14

15 Tips & Tricks: What does a project developer need? Financing Own Money Project developers have high out of pocket costs Long delay till first positive cash flow Uncertainty whether project will materialize Bankable contracts (required to get bank financing) Revenue Guarantee Power & Subsidy (90-95%) Basis SDE/ECN formulas (in NL) Operations (beating the SDE ECN formulas) (5-10%) Additional revenues (GoO s (1-2.5%)) Credibility The more successful projects (past) and the more credible partners, the easier you get a spot on the table Certainty of revenues implies lower costs as cheaper financing UMS Group Inc., All Rights Reserved 15

16 Tips & Tricks: How to best spend your ( or $) Multi year commitment Location More value than a 1 year commitment, due to the contribution to stable cashflows Especially the combination of location and licence Energy-Tax effects Flexibility in off take ( supplier may choose from which projects the GoO s are delivered ) The more flex, the more value (for supplier) Project Type Origin Time Co-financing Aligned with company risk profile Scale A 60m contract provides more opportunities (and management attention) than a 2m contract Combine GoO and Commodity Power Long term better than short term For some companies: Brand Association Do you want to link your name to an electric car manufacturer or a tobacco company UMS Group Inc., All Rights Reserved 16

17 Tips & Tricks: Power Generation using Local Natural Sources Five ways to produce 200 GWh green power... Eneco Bio Golden Raand ( hr) 25 MW Bio Energie Centrale Cuijk (@ 4000 hr) roof tops 10 wind turbines * 6 MW * 3,300 hours = 200 GWh 300 ha zonneparken (1.5 ha per GWh) UMS Group Inc., All Rights Reserved 17

18 Agenda Setting the Scene Business Case Tips & Tricks Conclusion UMS Group Inc., All Rights Reserved 18

19 Conclusion Sustainability: Push & Pull? Challenge organisation to make a viable business case Alternatives Revenues Define risk appetite Define project organisation Role Purchase Department : support, not drive Business case challenge by CFO/COO/CEO Validation of risk & business case during the project For internationally active companies: NL has a favourable investment environment ( 12Bn/Year SDE subsidy support, asset management knowledge & stakeholder management, financing etc.), so if you can not make it work here. UMS Group Inc., All Rights Reserved 19

20 UMS Group Contact Remco Frenken Managing Partner UMS Group Europe B.V. Amstel Business Park Joop Geesinkweg P.O. Box GA Amsterdam The Netherlands Mobile: Office: Fax: UMS Group Inc., All Rights Reserved 20