Is the "Energiewende" Still Financially Viable?

Transcription

1 Is the "Energiewende" Still Financially Viable? Roman Waleczek Morgan Stanley Bank AG 11 October 2012

2 What Needs To Be Financed? Example Germany Bn Energiewende Equity and Debt Investments Required until New Tech New Tech New Tech New Tech Renewables Transmission Distribution Generation Total A Truly European Dimension Already 1.5 x the accumulated market capitalisation of Europe s 10 largest integrated utilities 2.5 x the financing gap of Greece 4 x the accumulated required investments in German Autobahnen until 2020 Source DLR/Fraunhofer/IFNE 2012, Dena 2012, HWWI 2012, Bloomberg, Morgan Stanley Research 2

3 Is Sufficient Local Equity Available? Example Germany So far, "Energiewende" Has Been Financed Mainly by Households Others 32% Private Households 40% Also the Usual Financing Suspects With Limited Financing Headroom Net Debt / EBITDA (1) 5.0 x Utilities 14% Developers 14% However: Continued Support Would Require Substantial Conviction in Bn To finance Energiewende 300 Energiewende Investments 599 German Private Cash Deposits until 2020, every German would have to invest c. 50% of his current bank cash deposits 4.0 x 3.7x 3.5x 3.0 x A- Threshhold 2.0x 1.9x 2.0 x 1.7x 1.0 x 0.0 x E.ON, RWE, EnBW GER Mun. Utilities Major Rated EU Peers (1) 2.8x (1) Selected Peers: GDF Suez, EDF, Verbund, Dong Energy, Fortum Source DIW 2012, Bundesbank 2012, Bloomberg, CapIQ, Annual Reports 3

4 Other EU Countries Face Similar Local Equity Financing Issues Most EU Countries Still Need Substantial Green Investments Until 2020 Most Green Investments To Date By Local Money 73% Country % of Local Green Inv. Denmark Germany 78% 83% Portugal 70% Spain 20% UK 52% France 59% 61% Germany Italy Spain 68% France 68% Portugal 61% Ireland 60% Italy 55% Belgium 46% Denmark 39% % of 2020 targets achieved in 2010 UK 36% Source Eurostat 2012, BNEF 4

5 International Equity Is Available In Principle But Invests Globally And Only Where Investment Criteria Are Met Pension Funds Insurers Sovereign Wealth Funds Infrastructure Funds Funds Size (worldwide) ~$30,000 Bn ~ $25,000 Bn > $5,000 Bn $140 Bn Investor Examples CPP Borealis Ontario Teachers APG PGGM Allianz Munich Re Other German and international Insurers ADIA GIC CIC QIA Macquarie GIP IFM KKR, Blackstone ( Meerwind ) Target IRR ~8% - 10% ~10% - 15% ~11% - 17% Target Holding Period Quasi - Infinite Quasi - Infinite Quasi - Infinite 7 15 years Key Investment Criteria General rule: The lower the overall return targets, : the higher the required political stability the higher the required regulatory stability the higher the required technological maturity Obligation of International Equity : Entrusted money must be safe! N.B.: Same holds true for utilities investors expectations towards invested money and returns Source Morgan Stanley Research, Factiva, TheCityUK

6 However, Key Investment Criteria Not (Yet) Met German Example 1: Uncertainty Regarding Political Intentions Re Overall "Energiewende" Framework Which Offshore Parks Will Be Online When? Which Off-/Onshore Cables Needed When? Which Balancing Power Capacity When? North Sea Schleswig-Holstein Lower Saxony Baltic Sea 7.3 Schleswig-Holstein Additional Capacity in GW (Szenario B) Mecklenburg-Vorpommern Offshore Park online Offshore Park planned + licensed DC-reinforcement NEP 2012 AC-reinforcement NEP 2012 AC-reinforcement NEP 2012 Grid reinforcement in existing grid New construction of existing grid Source dena 2012, Netzentwicklungsplan 2012, Netzentwicklungsplan Gas 2012 CCGTs planned 6

7 However, Key Investment Criteria Not (Yet) Met (Cont d) German Example 2: Still Certain Elevated Technology and Regulatory Risks Example Offshore Wind Park: Comparatively Low Relative Returns... 15% 10% Institutional Comfort Zone UK France Germany...And Relatively High Risk Profile Higher technology risk due to water depth, etc. Higher connection risk given single line connection only Higher outage risk given O+M uncertainty due to offshore location Higher revenue risk given current liability regulation proposal Example Offshore Grids: Overall Improving Regulatory Environment... Regulation Attractiveness 1st Regulatory Period Introduction of cost plus regulation RoE improvement Introduction of incentive regulation (Base year 2006) nd Regulatory Period Investment budget agreement...but Onshore Returns For Offshore Risk Not A Truly Attractive Value Proposition Potential Equity Loss in % at Certain Damage levels (1) 13% 27% 37% 47% 53% Damage in Bn Source Morgan Stanley Research, BNetzA, Entwurf eines Dritten Gesetzes zur Neuregelung energiewirtschaftsrechtlicher Vorschriften 24/08/12 Note (1) Assuming project costs of 500 MM and a 30% equity contribution (70% debt financing) 7

8 Also, Debt Providers Focused on Established Technologies Because of Technology and Regulatory Risks. In Addition, Higher Lending Cost Expected Mid-Term Commercial Debt Only Available for Mature Green Technologies Selected Bank Green Energy Financing Focus Areas In Addition, Solvency II/ Basel III to Impact Green Infrastructure Lending Costs Equity Capital Requirement Across Certain Assets Classes under Solvency II Rules Onshore Wind 56% 26% 50% 48% Solar PV 46% 36% 40% 37% Biomass 24% 46% 30% 25% Offshore Wind 22% 22% 20% 16% 12% Solar CSP 12% 28% 10% 8% 5% 10% 32% Geothermal 0% 25% 50% 75% 100% Principal focus Moderate focus Source KPMG 2012, S&P % Private equity Equity Property Credit 10 years Credit 7 years Credit 5 years Credit 3 years 8

9 Conclusions 1 Offer Reliability in Uncertain Times: Stable politically supported strategic and regulatory planning framework required 2 Win the Global Competition for Equity Capital: Improve weak risk/return profiles of key "Energiewende" infrastructure in order to be able to access new capital pools/ revive old utilities ones 3 Bridge the Learning Curve on the Debt Side: Provide adequate support to commercial lending banks and investors until new technologies have matured 4 Don t Forget Your Stakeholders: Incremental costs of "Energiewende" for households, industry and also utilities need to be minimized and high level of security of supply needs to maintained The tools to manage system design and cost are already available today for decision makers 9

10 Disclaimer We have prepared this document solely for informational purposes. You should not rely upon it or use it to form the definitive basis for any decision, contract, commitment or action whatsoever, with respect to any proposed transaction or otherwise. You and your directors, officers, employees, agents and affiliates must hold this document and any oral information provided in connection with this document in strict confidence and may not communicate, reproduce, distribute or disclose it to any other person, or refer to it publicly, in whole or in part at any time except with our prior written consent. If you are not the intended recipient of this document, please delete and destroy all copies immediately. We have prepared this document and the analyses contained in it based, in part, on certain assumptions and information obtained by us from the recipient, its directors, officers, employees, agents, affiliates and/or from other sources. Our use of such assumptions and information does not imply that we have independently verified or necessarily agree with any of such assumptions or information, and we have assumed and relied upon the accuracy and completeness of such assumptions and information for purposes of this document. Neither we nor any of our affiliates, or our or their respective officers, employees or agents, make any representation or warranty, express or implied, in relation to the accuracy or completeness of the information contained in this document or any oral information provided in connection herewith, or any data it generates and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or otherwise) in relation to any of such information. We and our affiliates and our and their respective officers, employees and agents expressly disclaim any and all liability which may be based on this document and any errors therein or omissions therefrom. Neither we nor any of our affiliates, or our or their respective officers, employees or agents, make any representation or warranty, express or implied, that any transaction has been or may be effected on the terms or in the manner stated in this document, or as to the achievement or reasonableness of future projections, management targets, estimates, prospects or returns, if any. Any views or terms contained herein are preliminary only, and are based on financial, economic, market and other conditions prevailing as of the date of this document and are therefore subject to change. We undertake no obligation or responsibility to update any of the information contained in this document. Past performance does not guarantee or predict future performance. This document and the information contained herein do not constitute an offer to sell or the solicitation of an offer to buy any security, commodity or instrument or related derivative, nor do they constitute an offer or commitment to lend, syndicate or arrange a financing, underwrite or purchase or act as an agent or advisor or in any other capacity with respect to any transaction, or commit capital, or to participate in any trading strategies, and do not constitute legal, regulatory, accounting or tax advice to the recipient. We recommend that you the recipient, seek independent third party legal, regulatory, accounting and tax advice regarding the contents of this document. This document does not constitute and should not be considered as any form of financial opinion or recommendation by us or any of our affiliates. This document is not a research report and was not prepared by the research department of Morgan Stanley or any of its affiliates. This document is provided by Morgan Stanley & Co. International plc and/or certain of its affiliates, which may include Morgan Stanley Realty Incorporated, Morgan Stanley Senior Funding, Inc., Morgan Stanley Bank, Morgan Stanley & Co. Incorporated, Morgan Stanley Securities Limited, Morgan Stanley Bank AG, Morgan Stanley Japan Securities Co., Ltd, Morgan Stanley Dean Witter Asia Limited, Morgan Stanley Dean Witter Australia Securities Limited, Morgan Stanley Dean Witter Australia Limited, Morgan Stanley Dean Witter Asia (Singapore) Pte., Morgan Stanley Services Limited, Morgan Stanley & Co. International Limited Seoul Branch, Morgan Stanley Canada Limited and/or Morgan Stanley, S.V., S.A. Unless governing law permits otherwise, you must contact an authorized Morgan Stanley entity in your jurisdiction regarding this document or any of the information contained herein. 10