Avoca Capital Advisors May 2017 Open for business Financing the clean energy boom Avoca Capital Advisors 18 July 2017
Raising and investing equity in Australian renewables Avoca Capital Advisors Principal investment, asset management and advisory services to the infrastructure and renewables sector, working closely with: Large sources of capital seeking investment opportunities Developers and operators seeking to raise capital for their projects Overview Sourcing of equity capital for renewable projects: Unlisted market superannuation funds, institutional and wholesale financial investors Listed market Institutional and retail investors Key trends in equity capital markets Key opportunities for investing capital in Australian renewables
Unlisted capital markets Renewable assets are often considered a sub-set of infrastructure assets Risk-return profile commonly evaluated in the same way as traditional infrastructure assets Characteristics of traditional infrastructure assets Provide essential services Monopolies or have significant barriers to entry Long asset lives (30+ years) High capital costs, but low operating costs Exhibit long-term, stable cash flows with relatively low volatility Inflation-linked pricing, with low correlation to macro-economic conditions
Unlisted capital markets To date, long-hold capital has been attracted to renewable assets that: Are operational, with no development and minimal construction risk Construction risk limited to claims under EPC arrangements Have long-term off-take arrangements, with low-risk counterparties Typically government entities or large electricity retailers Have long operating lives, with off-take arrangements covering the majority of the assumed asset life Minimal value in the tail, thereby minimising revenue risk Can attract debt financing on commercial terms Gearing of >50% sought under long-term facilities
Unlisted capital markets Key capital commitments to renewables in CY2016 AGL Energy / QIC ~$3 billion Palisade & CEFC ~$1 billion Impact Investment Group ~$100 million Lighthouse ~$100 million CEFC & ARENA ~$1 billion Projects with committed financing in 2016 include: Wind Capacity Project (MW) Sapphire wind farm 270.0 Hornsdale stages 2 & 3 211.4 Mount Emerald 180.0 White Rock 175.0 Mount Gellibrand stage 1 66.0 Solar Capacity Project (MW) Clare Valley Solar 100.0 Sun Metals 98.5 Kidson 50.0 Emu Downs 20.0 Valdora 15.0 Projects supported but yet to be committed include: Solar Capacity Project (MW) Darling Downs solar farm 110.0 Lilyvale 100.0 Tailem Bend 100.0 Whitsunday 58.1 Parkes 50.6 Manildra 42.5 Collinsville 42.0
Unlisted capital markets Key trends Increasing appetite for merchant risk Increasing life of assets, including assumed refurbishment of assets Unbundling of off-take arrangements, with greater segregation of risk Key risks Impact of battery and other storage technologies Potential for policy response to high energy prices Continued regulatory uncertainty: RET from 2020, and pricing of LGCs Existence of RET from 2030 Increasing appetite for construction risk, and for certain development risk Greater scale, through larger solar projects and aggregation of assets Uncertainty in AEMO market regulation and dispatch rules Uncertainty in domestic gas supply
Listed capital markets Relative to unlisted investors, listed capital has demonstrated: A greater appetite for merchant risk Willingness to fund development and construction risk Willingness to invest in new technologies Ability to provide capital for smaller projects Key risks of sourcing listed capital include: Share price volatility, with value based on market forces, as well as intrinsic value Temporary closure of markets, causing inability to access further capital when required
Opportunities for investment State initiatives New South Wales NSW Climate Change Fund committed to: Enter into long term power purchase agreements for 50MW from NSW solar farms Investigate a competitive contracts of difference model to support up to 250MW of new large scale renewables generation Victoria Victorian government has a renewables generation target of 25% by 2020 and 40% by 2025 Victorian Renewables Energy Target (VRET) Intends to implement a scheme of awarding long term contracts to renewable energy projects Intends to allocate 20% of scheme to support solar projects Queensland Queensland government has a target of sourcing 50% of electricity from renewable projects by 2030 Renewable Energy Expert Panel recommended establishment of a reverse auction contracts for difference scheme to achieve target Recommended government implement scheme in 2017-18 to support 400MW of projects South Australia South Australia has a renewable energy production target of 50% by 2025 Over 40% of South Australia s production was from renewable sources in 2015/16 New $150 million renewable energy fund to encourage new investment announced as part of the South Australia s Energy Plan 2017
Opportunities for investment Projects located in states that are net energy importers, such as NSW and South Australia Batteries and storage assets, whether intended for firming, price arbitrages or back-up support Divestment of assets by developers, particularly where developer is also a key supplier under the EPC agreement Aging assets, particularly wind, that can become significantly more efficient following an upgrade of equipment Joint ventures with large energy consumers seeking pricing certainty, particularly where land is available Accumulation of assets to achieve meaningful scale