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FINANCING IN AN EVOLVING MARKET
Allan Baker
Global Head of Power
October 23rd 2017
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This presentation has been prepared by Société Générale Corporate & Investment Banking ("SG CIB"), a division of Société Générale.
In preparing this presentation, SG CIB has used information available from public sources. No express or implied representation or warranty as to the
accuracy or completeness of such information is made by SG CIB, nor any other party.
The contents of this presentation are subject to amendment or change at any time and SG CIB will not notify the recipients of any such amendment or
change. No responsibility or liability (express or implied) is accepted for any errors, omissions or misstatements by SG CIB except in the case of fraud or
any other liability which cannot lawfully be excluded.
Any views, opinions or conclusions contained in this presentation are indicative only, are not based on independent research and do not represent any
commitment from SG CIB. This presentation and any expressed interest of SG CIB in arranging or of Société Générale in providing finance or entering into
any other transactions do not constitute any offer of finance or any commitment from Société Générale to enter into any other transactions, such an offer
being subject to contract, the completion of satisfactory due diligence and all necessary credit, management and other approvals being obtained.
SG CIB conducts its business in the UK through Société Générale London Branch (“SGLB”). Société Générale is a French credit institution (bank)
authorised and supervised by the Autorité de Contrôle Prudentiel (the French Prudential Control Authority). SGLB is subject to limited regulation in the UK
by the Financial Services Authority.
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Metals & Mining Finance Group
Trade, Commodity Finance & Agribusiness Group
A GLOBAL PRESENCE IN THE WORLD OF NATURAL RESOURCES & INFRASTRUCTURE
Infrastructure Group
Sao Paulo
Sydney
Toronto
Calgary
Mexico City
New York
Dallas
Paris
Moscow
Singapore
Hong Kong
Shanghai
Geneva
Houston
London
Energy Finance
Metals & Mining Finance
Trade, Commodity Finance
& Agribusiness
Infrastructure Finance
North America
Energy Finance
Metals & Mining Finance
Trade, Commodity Finance
& Agribusiness
Infrastructure Finance
Latin America Energy Finance
Metals & Mining Finance
Infrastructure Finance
Africa & Middle East
Energy Finance
Metals & Mining Finance
Infrastructure Finance
CIS
Energy Finance
Metals & Mining Finance
Trade, Commodity Finance
& Agribusiness
Infrastructure Finance
Europe
Energy Finance
Metals & Mining Finance
Trade, Commodity Finance
& Agribusiness
Infrastructure Finance
Asia-Pacific
Madrid Milan
Frankfurt
Dubai
Pos. Mandated Lead Arranger Deal Value ($) (m) No. % share
1 Bank of Tokyo-Mitsubishi UFJ Ltd 4,601.62 42 3.81
2 SGCIB 4,047.41 37 3.35
3 Sumitomo Mitsui Banking Corp 3,988.19 37 3.30
4 BNP Paribas 3,636.43 36 3.01
5 Credit Agricole CIB 3,420.65 31 2.83
EMEA Project Finance League Table 2016 - MLA
Energy Group
Source: Dealogic
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One of the most awarded energy financing teams in the
market, with strong commitment and expertise in advising
and financing energy infrastructure assets worldwide
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SG has a clear renewable energy strategy and is playing
leading roles in advising, structuring and financing in the
sector
RECOGNISED EXCELLENCE IN PROVIDING FUND RAISING SOLUTIONS
IN DEPTH KNOWLEDGE OF RENEWABLE ENERGY FINANCING
Solid experience in renewable energy transactions across
different geographies and different technologies, including
the most innovative ones such as carbon capture & storage,
solar CSP and offshore wind
2
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4 Comprehensive knowledge of the most active
jurisdictions in renewable energy and leader in new
markets
SG : A LEADING ENERGY GROUP WITH A STRONG FOCUS ON RENEWABLE ENERGY
USD 298,000,000
Debt Financial Advisor, Bookrunner, Sole Underwriter, Initial MLA, Admin Agent, Depositary Agent, LC Issuer, Hedge Provider
Block Island Wind Project, 30 MW Offshore Wind Farm
2015 UNITED STATES
GBP 1,370,000,000
MLA, Joint Coordinating Bookrunner and Hedge Provider
Galloper 336 MW Offshore Wind Farm
2015 UNITED KINGDOM
Europe Bank of the Year
2015 PFI AWARDS
Energy Finance House of the Year
2015 ENERGY RISK
Europe & Africa Bank of the Year
2014 IJGLOBAL
Dudgeon 402 MW offshore wind farm being developed by Statoil, Statkraft and Masdar
GBP 1,340,000,000 Financial Advisor & Acting as MLA
2016 UNITED KINGDOM
Advisor of the Year
2016 PFI AWARDS
Borssele III and IV 700 MW Offshore Wind Farm Confidential Sell side Equity Advisor and Co-Financial Advisor
ONGOING NETHERLANDS
Enbridge
Acquisition of a 50% stake in the
French offshore wind projects from
CAD 282,000,000
Financial Advisor
May 2016 FRA/CAN
Floating Foundation
Offshore Wind Farm
Undisclosed Client
Ongoing Europe
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SG SUPPORT TO THE ENERGY TRANSITION
SG have been financing renewable energy since 2003
In 2016 more than 90% of lending to the power sector was to renewables
Providing Advisory and Financing services across geographies
Clear strategic aim to double commitments to renewable energy by 2020
Providing sponsors with innovative financing solutions in bank and
bond markets
SG bring to our clients:
Innovation
Bench strength – global reach with local presence
Market knowledge - based on extensive lending experience
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ENERGY MARKETS IN TRANSITION
Energy transition is not new – various markets have been transformed over the years:
UK privatisation, IPP “dash for gas” and market reform
German decentralisation, nuclear closure and renewable drive
US shale gas revolution
European Commission has been a driver of change – Various EU initiatives have been the trigger for “energy transition”
including unbundling, renewable energy targets and the drive to “energy union”.
Pace and scope of change is unprecedented - transition to a low (or no) carbon future
Moved from local to regional or potentially global transition
Driven by a wide spread consensus that there is a need to decarbonise the energy sector to meet climate change goals
Transition is the key principal – energy investment is long term so transition will be progressive rather than binary
A fundamental shift in long term energy policy, driven by environmental,
economic, technological, social and other drivers
Renewables in Europe has set the pace......
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RENEWABLE REVOLUTION – SCALE AND COMPETITION DELIVERING COST REDUCTION
Cost reduction driven by ............
Scale – Increasing project size in solar and offshore wind delivering supply chain efficiencies
Technology – technical advances in solar panels and turbine size/performance: betting on cost reductions
Supply chain maturity – sector maturing and regulatory environment improving
COMPETITION – lower return expectations
All good for the sector ............
Returns being squeezed – low single digit returns leave little room for error – increasing risk in a probability based industry
Pace of change could be a cause for concern – increasing risk ?
Breakthrough ‘zero bid’ for OWP West and Borkum Riffgrund West 2 – DONG Energy made bids at zero EUR
per MWh, i.e. these projects will not receive a subsidy on top of the wholesale electricity price.
(Dong Energy 13 April 2017)
Stunning new lows in solar and battery storage costs
A new contract signed by a utility in Arizona has set a new low price for large-scale solar power in that country, but more
importantly has also smashed expectations of the combined cost of large-scale solar and battery storage REneweconomy, 24 May 2017
Offshore wind power cheaper than new nuclear
Two firms said they were willing to build offshore wind farms for a guaranteed price of £57.50 per megawatt hour for
2022-23. This compares with the new Hinkley Point C nuclear plant securing subsidies of £92.50 per megawatt hour. BBC News, 11 September 2017
Renewable energy is experiencing its own revolution:
Saudi Arabia Gets Cheapest bids for Solar Power in Auction
Most recent bid from EDF and Masdar for a 300MW project at 1.79 c/kWh would set a new record low for PV solar
if confirmed. BBC News, 11 September 2017
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THE EVOLUTION OF OFFSHORE WIND FINANCING
The past 10 years – strong structures and comfortable ratios (for banks!):
Increasing liquidity for renewable as the energy transition gathers pace.
Increasing bank universe – offshore wind 43 financial institutions of which 20 completed >4 transactions
Higher value deals (> US$1bn is common)– higher final holds & support from ECAs and multilaterals
Improving terms – gearing increasing from 50% to 75%
Standardising debt sizing metrics -
Offshore wind is now mainstream but it has been a long road to get there:
New markets will benefit from
this experience and “leap-frog”
the early challenges
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THE NEW ERA OF OFFSHORE WIND - COST REDUCTIONS BUT INCREASING RISK?
There needs to be some caution on the rapid evolution of markets …………
Increased risk
Increased competitive bidding of
renewable projects is forcing
developers to increasingly seek
bid optimisations
Cost reduction in PV well
established but we now see
significant cost reductions in
offshore wind and batteries
Resulting bid price reductions
feeding confidence in the future
economics/role of renewable
energy
Bid optimisation could be: Contingency
Supply chain economies
Technology
Equity/debt assumptions
Financing
Technology development: Larger and better
Faster development cycle
Accelerated testing
Reduced contingency
Risk sharing
Increased risk
Lower bid pricing: Lower equity return
Tighter cashflow
Less headroom in debt
Deliverability
Option value
Increased risk
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IMPLICATIONS FOR THE NEW FRONTIERS FOR OFFSHORE WIND
Developers looking for new markets with better returns:
US going offshore: Massachusetts – “the Saudi Arabia of Wind”:
First successful project financing for Block Island (Rhode Island)
Large European players moving in – Dong (1,000MW Martha’s Vineyard), Statoil
(1,000MW Long Island)
Huge wind resource on the East Coast – 12 site leases and State Targets to deliver.
West coast potential for floating wind exploitation
Asia: “Taiwan’s “Energiewende” – Developing Renewable Energy”
Energy revolution – phase out of nuclear and development of 20GW of solar and 3GW
(now maybe 5.5GW) of offshore wind by 2025
US$40bn investment plan attracting some of the world’s largest renewable energy
developers
New market – new risk – better returns ?
Focus on Taiwan but ambitious plans in Korea, Japan, Philippines and elsewhere
Significant debt financing need starting to draw resources from Europe
Supply chains less developed but could come quickly given scale of the opportunity
Competition could erode returns more quickly than we have seen in Europe
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FINANCING OFFSHORE WIND IN TAIWAN – WHERE DO WE START?
The answer is likely to be all of the above ........... to a certain extent
Local NT$ debt market is more than deep enough to fund the early projects but banks lack experience of offshore wind
International banks have the experience of offshore in Europe but many may be constrained on long term NT$
The widely discussed issues with the PPA may be a challenge for debt and equity alike given the scale of investment
Other challenges .........
? Will supply chain immaturity and local conditions impact on the ability to take full construction risk
? Will commercial contract structure be sufficiently robust for international banks
Business as usual ?
More or less recourse:
Largely recourse
Tenor: 5+5+5 some 15-year debt
Gearing of 70%
Vintage Europe ?
Conservative structures:
Largely non-recourse
Limited construction risk
Tenor: tail of 2-3 years on tariff
Debt sizing: DSCR 1.30 @P90
Gearing of 60-70%
Debt sizing usually constrained by
gearing criteria rather than minimum
DSCR so base case ratios usually
healthy and robust sensitivity analysis
Contemporary Europe ?
Bid optimised structures:
Largely non-recourse
Full construction risk
Tenor beyond the tariff period
Debt sizing: DSCR 1.25 @P90
Gearing of 75%
Debt sizing now constrained by
minimum DSCR so typically higher
equity (approx 30%). Less headroom
- greater focus on assumptions
Combination of DD
and negotiation
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PREDICTIONS FOR THE FUTURE
Aggressive competition and borrower friendly terms
+
+
Liquid local market
Strong transaction pipeline
Supportive regime
Experienced international banks and advisors
Known and experienced sponsors
+
+
=
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NEW FRONTIERS – EMERGING TECHNOLOGY
Developers also looking for new technology:
Floating wind:
Transfer of O&G technology to exploit deep water
Demonstration projects already in the water – full scale machines
Huge potential in Asia and US West coast + deepwater Europe
Energy Storage
Many storage technologies being considered
Batteries emerging as competitive technology – power density
increasing and costs falling
Large players now entering the market – AES, Total (€1bn acquisition
of SAFT batteries)
Application in stand alone, integrated with REN and residential with
smart metering
All potentially transformative technologies attracting significant investment
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Westermost Rough 50% Stake Acquisition in 210 MW Offshore Wind Farm GBP 370,000,000 MLA, Technical Bank & Hedge Provider
2014 UK
Lincs 270 MW Offshore Wind Farm GBP 999,930,000 Lender
2015 UK
French Offshore 3 GW Wind Program
Confidential
Sole Financial Advisor to
GDFS/EDPR consortium
ONGOING FRANCE
Galloper 336 MW Offshore Wind Farm GBP 1,370,000,000 MLA, Joint Coordinating Bookrunner & Hedge Provider
2015 UK
Gunfleet Sands I & II 173 MW Offshore Wind Farm GBP 156,000,000 Structuring Bank
2012 UK
Non-recourse Acquisition Financing for 49.9% equity interest by Macquarie in Baltic 2 288 MW Offshore Windfarm EUR 540,000,000 MLA & Joint Documentation Bank
2015 GERMANY
Global Tech I 400 MW Offshore Wind Farm EUR 1,047,000,000 MLA, Market Hedge Provider,
Hedging Bank, Co-Technical
Bank, Insurance Bank,
Syndication Bookrunner, Global
Agent
2011 GERMANY
Block Island 30MW Offshore Wind Farm USD 297,000,000 Debt Financial Advisor, Initial MLA, Issuing Bank, Sole Underwriter, Bookrunner, Admin Agent, Collateral Agent & Hedge Provider 2015 USA
C-Power II & III 295 MW Offshore Wind Farm EUR 1,289,000,000
MLA, Technical Bank, Sole
Market Hedge Provider
2010 BELGIUM
SOCIETE GENERALE – A LEADING ADVISOR AND LENDER TO OFFSHORE WIND
Floating Wind Confidential Sole Financial Advisor
ONGOING UK
Offshore Wind Confidential Sole Financial Advisor
ONGOING TAIWAN
Borssele 3 & 4 700 MW Offshore Wind Farm Shell, Eneco, Van Oord & DGE Co-Financial Advisor and Sell-side Equity Advisor
ONGOING NETHERLANDS
London Array, CDPQ stake 630 MW Offshore Wind Farm
GBP 470,000,000
Sole Financial Advisor, MLA and
Hedge Coordinator
2017 UK
Deutsche Bucht 269 MW Offshore Wind Farm EUR 988,000,000 Acting as MLA, Sole Coordinating Bookrunner and Hedge Provider
2017 GERMANY
Trianel 200 MW Offshore Wind Farm refinancing Confidential MLA
2017 GERMANY
Veja Mate 400 MW Offshore Wind Farm EUR 1,275,000,000 Lender
2014 GERMANY
2017 BELGIUM
Northwind Offshore Wind Project Project Financing
EUR 541,000,000
Mandated Lead Arranger,
Pre-Hedge & Hedge Provider
2016 UK
Project Financing
GBP 1,338,000,000
Sole Financial Advisor, MLA,
Hedge Coordinator & Provider
288MW Butendiek Offshore Wind Project Project Finance
EUR 846,000,000
Mandated Lead Arranger &
Hedge Provider
2017 GERMANY
Innogy Nordsee One now Nordsee One 332 MW Offshore Wind Farm EUR 900,000,000 Initial Financial Advisor
Lender
2014 GERMANY
GBP 1,960,000,000
Mandated Lead Arranger,
Hedge Provider
2016 UK
Beatrice Offshore Windfarm Project Finance
THANK YOU FOR YOUR ATTENTION
Allan Baker – Global Head of Power
Tel: +442077624821
+447870258164
