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www.cornwall-insight.com
Much Ado About Nothing: Brexit
www.cornwall-insight.comHELPING YOU MAKE SENSE OF
THE ENERGY AND WATER
SECTORS
HELPING YOU MAKE SENSE OF
THE ENERGY AND WATER
SECTORS
and energy project finance
12 April 2018
Conall Bolger
Cornwall Insight has customers from all areas of the Irish energy market. We are proud to be trusted advisors to
• Power generators and project developers
• Energy suppliers
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• Energy suppliers
• Regulators, policy-makers and industry bodies
• Legal and financial institutions
• Intermediaries and end users
• New market entrants
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4
Introduction
1. Metrics and the Irish market for energy project
finance
2. Brexit impact?
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3. Market change risk
Market metrics
www.cornwall-insight.comHELPING YOU MAKE SENSE OF
THE ENERGY AND WATER
SECTORS
HELPING YOU MAKE SENSE OF
THE ENERGY AND WATER
SECTORS
• Scenarios:o GCS 2017-2026
o Contracted
o RESS
• Averages: o €2.3bn-€5.7bn
Potential scale of wind investment
4.00
5.00
6.00
7.00
8.00
9.00
bns (
2018)
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o €2.3bn-€5.7bn
• Excludes:o DS3 gen
o Thermal gen
o Other RES-E
o Network
0.00
1.00
2.00
3.00
4.00
GCS Contracted RESS
€bns (
2018)
BEIS High BEIS Medium BEIS Low
Lazard High Lazard Low
• >€1.6bn
estimated
• Track record of
EU investment
EU Irish energy project funding
(€bns)
0.47
0.04European Fund for Strategic Investments
European Investment Bank
Projects of Common Interest
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• UKo EIB - €9bno EFSI - €1.8bno PCIs - €125.6mn
w/ €90mn in pipeline
o EEPR - €330mnNote: PCI & EFSI shared across jurisdictions Source: EIB, EC
1.55
Interest
• €2.6bn market
• RAs seeking to
increase liquidity
in I-SEM
Single Electricity Market (SEM)
2
2.5
3
3.5
€bns
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Source: SEM-O
0
0.5
1
1.5
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
€
Energy Payments Capacity Payments Constraint Payment
Brexit impact?
www.cornwall-insight.comHELPING YOU MAKE SENSE OF
THE ENERGY AND WATER
SECTORS
HELPING YOU MAKE SENSE OF
THE ENERGY AND WATER
SECTORS
Prophets of doom?
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• Engagement suggests: little evidence of Brexit risk premium for Irish assets
• Project finance risk basket: offtake/trading, technology & volume, construction & overspend
• Indirect impacts e.g. FX affecting build/commodity prices
Brexit interactions
1.6
Average monthly FX rate
Referendum Article 50
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1
1.1
1.2
1.3
1.4
1.5
1.6
20
15
JA
N
20
15
FE
B
20
15
MA
R
20
15
AP
R
20
15
MA
Y
20
15
JU
N
20
15
JU
L
20
15
AU
G
20
15
SE
P
20
15
OC
T
20
15
NO
V
20
15
DE
C
20
16
JA
N
20
16
FE
B
20
16
MA
R
20
16
AP
R
20
16
MA
Y
20
16
JU
N
20
16
JU
L
20
16
AU
G
20
16
SE
P
20
16
OC
T
20
16
NO
V
20
16
DE
C
20
17
JA
N
20
17
FE
B
20
17
MA
R
20
17
AP
R
20
17
MA
Y
20
17
JU
N
20
17
JU
L
20
17
AU
G
20
17
SE
P
20
17
OC
T
20
17
NO
V
20
17
DE
C
20
18
JA
N
Cu
rre
ncy/£
Euro Dollar
Source: ONS
Referendum Article 50
Market change risk
www.cornwall-insight.comHELPING YOU MAKE SENSE OF
THE ENERGY AND WATER
SECTORS
HELPING YOU MAKE SENSE OF
THE ENERGY AND WATER
SECTORS
Structural change: SEM to I-SEM
Pool market –all physical delivery
Long-term hedging
(CfDs) Month
s/Year
s
Day-
ahead Intra-Day Market (IDM)
Day-ahead market
(DAM)
Forwards contracts and FTRs
Month
s/Year
s
Day-
ahead
Within-
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all physical deliveryahead
Imbalance
Balancing Market (BM)
and dispatch
Intra-Day Market (IDM)Within-
day
Dispatch
Imbalanc
e• Complexity & timeframes
• Premium on trading capacity
• Market position
Revenue certainty?
BNE Cost (€/kW/yr)
Capacity
x
Capacity Payment
Mechanism (SEM)
Capacity Remuneration
Mechanism (I-SEM)
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Capacity
Requirement (MW)
7,368
ACPS (€)
546,116,160
T-1 auction price =
€41.80/kW
2018 BNE =
€74.12/kW
Balance responsibility
Introduction of P305
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• Volatility expected in imbalance pricing
PPA renegotiationsSection I-SEM risks
1. DefinitionsDifferent offtakers and advisors will have different
interpretations of I-SEM terms
2. General T&Cs Unchanged
3. Commencement and durationShort-term PPAs at I-SEM go live to avoid risks of
price lock-in
4. Forecasting and meteringWho takes imbalance risk? Will forecasting need
to be provided by the generator?
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4. Forecasting and meteringto be provided by the generator?
5. Force Majeure/ termination/
change in law
REFIT as a potential change in law re-opener.
PPAs likely to remain open until enduring decision
on TMR
6. Credit support Unchanged
7. Assignment and transfer Unchanged
8. Dispute resolution and audit Unchanged
9. Pricing schedulesHow will imbalance risk be priced? What will
reference prices be?
Final thoughts…
www.cornwall-insight.comHELPING YOU MAKE SENSE OF
THE ENERGY AND WATER
SECTORS
HELPING YOU MAKE SENSE OF
THE ENERGY AND WATER
SECTORS
• Opportunity/appetite for project finance in market
• Brexit effects likely to be indirect. Do not seem to be
manifesting in project finance terms
• Wholesale market change likely to have more significant
Conclusions
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• Wholesale market change likely to have more significant
impact on revenues underpinning funding and associated
arrangements (e.g. PPAs)
Contact details
Conall Bolger
Head of Ireland
+353 1 234 2413
www.cornwall-insight.com
+353 1 234 2413
