Philippines  Islands:  Solar  Opportunity  

Bangkok  November  25-­‐26,  2014  

Private  &  Confiden/al  

Philippines  Power  Situa/on  CONFIDENTIAL  

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§  +7,000  islands  with  no  integrated  na/onal  grid  §  ~120  electric  u/li/es,  connected  to  regional  

grid  backbones    §  Total  genera/ng  capacity  ~  17GW  §  Exis/ng  power  shortages  constraining  

customers  (300-­‐450MW  on  Mindanao)  §  High  rate  of  demand  growth  (5-­‐7%  annually)  as  

electrifica/on  not  yet  complete  §  Base  load  power  provided  by  coal,  hydro  and  

gas,  peak  load  served  by  diesel  –  Current  diesel  power  price  of  12-­‐15  Pesos/kWh  

expected  to  grow  at  ~5%  per  year  through  2020  

§  Moderate  to  high  solar  Irradiance    –  Green:  5-­‐5.5  kWh/m2/day  –  Blue:  4.5-­‐5  kWh/m2/day  

Philippines:  Energy  Sources  CONFIDENTIAL  

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Oil-­‐Thermal  1%  

Diesel  5%   Gas  Turbines/CC  

0%  

Hydro  13%  

Geothermal  13%  

Coal  43%  

Other  (Wind,  Solar,  Biomass)  

0%  

Natural  Gas  25%  

Power  Generated,  2013    75.4  GWh  

 -­‐        

 10,000.00    

 20,000.00    

 30,000.00    

 40,000.00    

 50,000.00    

 60,000.00    

Luzon   Visayas   Mindanao  

Power  Generated,  2013  75.4  GWh  

Total  

Oil-­‐based  

• 5%  of  the  electricity  generated  is  diesel.      • While  Luzon  generates  the  most  electricity,  the  maximum  diesel  genera/on  is  in  Mindanao,  followed  by  Visayas.  

Philippines  Energy  Demand  Likely  to  Grow  Private  &  ConfidenSal  

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 -­‐          2,000      4,000      6,000      8,000      10,000      12,000      14,000    

kWh  

Per  Capita  Power  ConsumpSon  

Sources:  World  Bank  and  DOE  

0  

5,000  

10,000  

15,000  

20,000  

25,000  

30,000  

1991  1993  1995  1997  1999  2001  2003  2005  2007  2009  2011  2013  2015  2017  2019  2021  2023  2025  2027  2029  

MW   Peak  Demand  

Actual   Projected  

• Per  capita  consump/on  very  low  • Current  reliance  on  fossil  fuels  high  • Demand  growth  from  17GW  now  to  25GW  in  2030  • Hydro,  geo,  natural  gas  poten/al  limited  • Oil  (diesel)  very  expensive  • Coal  and  RE  will  be  big  part  of  new  capacity  addi/on  • Within  RE,  solar  both  high  poten/al  and  economically  adrac/ve  •  If  solar  is  20%  of  new  addi/on,  translates  to  1600MW  by  2030  

Oil  Based  19%  

Hydro  20%  

Geothermal  11%  

Coal  32%  

New  RE  1%  

Natural  Gas  17%  

Installed  Capacity,  2013    17,325  MW  

Solar  Compe//ve  With  Diesel  Today  Private  &  ConfidenSal  

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MWh

0%

20%

40%

60%

80%

100%

00+03%hrs% 03+06%hrs% 06+09%hrs% 09+12%hrs% 12+15%hrs% 15+18%hrs% 18+21%hrs% 21+24%hrs%

Base%Load% Peak%Load%

Source:  Pxxx,  nv  vogt  analysis  

0  

20  

40  

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

Avg  Diesel  Price  (PHP/litre)  

8  

13  

18  

2012  

2013  

2014  

2015  

2016  

2017  

2018  

2019  

2020  

Solar  vs  Diesel  Power  Cost  (PHP/kWh)  

Diesel  

Solar  

Typical  Peak  Loading  Profile  Matches  Solar  Resource  DistribuSon  

How  Big  is  the  Opportunity?  Private  &  ConfidenSal  

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§  Assume  40%  of  Diesel/Oil  consump/on  is  during  day/me  peak  hours  

§  Assume  75%  of  this  day/me  peak  can  be  replaced  with  solar  

§  =>  30%  of  diesel  can  be  replaced  

§  At  20%  PLF,  4700  GWh  would  require  800MW  of  solar    

§  This  is  at  current  demand  Luzon   Visayas   Mindanao  

Total   55,019.52     11,099.59     9,345.32    

Oil-­‐based   1,800.63     796.47     2,093.50    

 -­‐        

 10,000.00    

 20,000.00    

 30,000.00    

 40,000.00    

 50,000.00    

 60,000.00    

Power  Generated,  2013  75.4  GWh  

Solar  Market  Developing  Private  &  ConfidenSal  

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O  

FIT  

Bilateral  

§  Government  commided  to  renewable  growth  (10GW  by  2020)  

§  Solar  FiT  of  9.68  Pesos/kWh  introduced  in  2012,  FiT  program  being  increased  from  50  to  500MW  –  FiT  program  requires  power  plants  to  be  connected  directly  

to  na/onal  grid;  tariff  available  on  a  first-­‐built-­‐first  served  basis  

–  PPAs  signed  post-­‐COD;  no  PPA  signed  yet;  projects  not  bankable  

§  Electric  u/li/es  seeking  embedded  genera/on  through  bilateral  PPAs  –  To  offset  high  cost  of  diesel  –  To  meet  demand  in  growth  –  In  Mindanao,  to  offset  declining  hydro  power  output  

§  ~120  u/li/es,  typically  sized  between  40-­‐80MW;  ~65  of  these  have  “green”  credit  ra/ng  –  Willing  to  sign  “win-­‐win”  PPAs  

Solar  Incen/ves  Private  &  ConfidenSal  

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§  Tax  benefits  –  No  income  tax  for  7  years  –  No  customs  du/es  –  VAT  refundable  –  No  VAT  on  sale  of  electricity  sourced  from  solar  energy  

 

§  Grid  Connec/on  – Must  run  or  first  dispatch  

Relevant  Regula/ons  Private  &  ConfidenSal  

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§  Agreed  tariff  in  bilateral  PPA  s/ll  subject  to  ERC  approval.    Without  clear  guidance,  executed  PPAs  subject  to  uncertainty  un/l  this  approval  is  obtained.  SuggesSon:  Establish  automa/c  approval  for  tariffs  at  or  below  the  ERC  benchmark  (currently  at  PHP9.68/kWh).  

§  Time  bound  approvals  would  help  speed  up  projects.  Currently,  there  is  no  mandated  /me  limit  for  each  approval.    

§  The  treatment  of  VAT  refund  is  s/ll  not  clear  in  the  Ministry  of  Finance.  Currently,  VAT  is  paid  and  is  then  supposed  to  be  refunded.  Most  projects  will  be  in  SPVs  which  will  not  incur  future  VAT  expenses  against  which  to  adjust  the  VAT  credit.  A  simpler  treatment  of  VAT  (exemp/on  at  import  stage  as  an  example)  which  is  prevalent  in  many  countries  would  make  financial  planning  more  robust.  

Perminng  Process  is  complex  Private  &  ConfidenSal  

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Timing  •  Several  approvals  required  from  different  departments  

•  Process  takes  /me  •  In  our  project,  has  taken  ~18  months  to  get  all  approvals  

•  We  expect  future  projects  to  be  much  quicker  

§  The  solar  regulatory  process  is  exactly  the  same  as  that  for  senng  up  a  hydro  plant  or  a  thermal  plant.    

§  Valuable  /me  is  lost  in  obtaining  permissions  that  are  not  relevant  to  the  project.    

§  Clean  technology  energy  sources  require  a  separate  set  of  regula/ons  which  need  to  be  created.      

§  This  would  extend  to  doing  grid  impact  studies  where  needed  and  not  de  riguer.    

How  Will  Solar  Develop?  Private  &  ConfidenSal  

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Current  SituaSon  §  100+  electrical  discoms  §  Regional  grids  not  connected  

to  each  other  §  Diesel  electricity  supplied  by  

discoms  §  Diesel  costs  prohibi/ve  and  

rising  §  Rising  demand  with  

economic  development  §  Increasing  pressure  on  

discoms  to  improve  service  levels  

Likely  EvoluSon  §  Discoms  will  adopt  solar  

unilaterally  §  Financial  jus/fica/on  already  

exists:  solar  cheaper  than  diesel  

§  Discoms  will  sign  up  for  small  (5-­‐10MW)  plants,  embedded  in  their  networks  

§  Tariffs  will  be  nego/ated  bilaterally,  with  the  FiT  providing  a  benchmark  

Key  Challenges  for  Solar  Development  Private  &  ConfidenSal  

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Current  SituaSon  §  2  peaks:  one  in  the  day  /me  

another  one  in  the  evening/night  

§  Regional  grids  not  connected  to  each  other  leading  to  grid  not  being  infinite  

§  Even  though  Diesel  electricity  supplied  by  discoms  is  expensive,  it  is  rela/vely  quick  to  set  up  both  in  terms  of  regula/ons  and  /me  taken  

Challenge  §  Evening  peak  /me  cannot  be  

addressed  by  solar  currently  §  Cannot  eliminate  day/me  diesel,  

can  shave  use  significantly  §  Based  on  diesel  contracts,  can  

shave  variable  cost  but  not  capacity  cost    

§  Lack  of  infinite  grid  implies  very  large  solar  plants  cannot  be  built;  instead,  Discoms  will  sign  up  for  small  (5-­‐10MW)  plants,  embedded  in  their  networks  

§  Solar  is  very  new  in  the  country  so  clear  regulatory  processes  have  not  been  established.    This  will  improve  as  solar  becomes  more  prevalent  

§  Focus  on  emerging,  underserved  electricity  markets  §  Op/mize  project  returns  based  on  tariffs,  capital  cost,  financing,  and  technology  

§  Iden/fied  India  and  Philippines  as  ini/al  markets  §  Raised  ~$35m  for  Philippines  and  India  projects  

§  Customize  tariff  trajectory  and/or  buyout  op/on  for  win-­‐win  arrangement  with  bilateral  customer  

§  Flexible  approach  to  EPC  structuring  to  box  risks  while  ensuring  quality  

§  AssetCo  structure  provides  investment  scale  and  mul/ple  exit  opportuni/es  §  Equity  investment  tax-­‐op/mized  for  each  opera/ng  context  (India,  Philippines)  

§  Transparent  management  and  opera/ons  §  Procurement  policy  ensures  terms  and  pricing  are  in  line  with  market  prac/ces  

§  Engineering  for  reliability  around  replicable  building  blocks  to  minimize  construc/on  and  opera/ng  costs  

§  Deep  and  strategic  rela/onships  with  Tier  1  components  manufacturers  

About  nv  vogt:    Our  Approach  to  Value  Crea/on  Private  &  ConfidenSal  

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nv  vogt  has  iden/fied  specific  market  opportuni/es  and  designed  PPAs  and  project  structures  to  serve  customers  in  rapidly  emerging  markets  

Strategy  

Project  Structuring  

Investment  Structuring  

Project  Execu/on  

nv  vogt  Team  CONFIDENTIAL  

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Anton  Milner  Chairman    

Anton  has  a  long  history  in  the  solar  industry,  primarily  as  founder  and  former-­‐MD  of  Q-­‐Cells,  at  one  /me  the  largest  panel  manufacturer  globally.    Anton  has  also  worked  previously  with  Royal  Dutch  Shell  and  McKinsey,  and  currently  is  a  Managing  Director  with  ib  vogt,  the  manufacturing  and  genera/on/EPC  business  partnered  with  nv  vogt.  

Deepak  Verma  Managing  Director  

Deepak  has  held  a  range  of  senior  posi/ons  and  has  a  track  record  for  developing  successful  teams  and  organiza/onal  structures.    He  was  COO  of  Emergent  Ventures,  an  Indian  investment  advisory  firm  focused  on  clean  energy  where  he  arranged  equity  for  >75MW  of  Indian  solar  projects.    He  also  served  as  CEO  of  the  HIV/AIDS  ini/a/ve  at  the  William  J.  Clinton  Founda/on,  where  he  remains  a  senior  advisor,  as  CEO  of  eCredit,  and  as  engagement  manager  at  McKinsey.    

Vivek  Chaudhri  Director  &  President  Philippines    

As  co-­‐founder  and  Director  of  APCA  Power,  APCA’s  renewable  energy  business,  Vivek  has  already  commissioned  a  5MW  solar  plant  in  Gujarat.    He  also  has  over  a  decade  of  experience  as  an  investment  banker  and  trader  on  Wall  Street  with  firms  such  as  General  Re  Financial  Products  and  Jane  Street  Capital.  Vivek  remains  a  director  with  APCA  Power.  

Nikesh  Sinha  Director  &  Head  of  Interna:onal  Development  

Along  with  Vivek,  Nikesh  was  also  a  co-­‐founder  and  Managing  Director  at  APCA  power,  a  role  he  maintains  today.  Across  his  work  at  APCA  and  his  current  role  with  nv  vogt,  Nikesh  has  spent  over  four  years  developing  a  pipeline  of  solar  projects  in  the  Philippines.  Previously,  he  has  worked  with  the  Times  of  India  in  various  capaci/es  and  with  ANZ  Grindlays  as  a  currency  trader.      

Carl  Von  Braun  Director    

Carl  is  the  CFO  and  a  Managing  Director  with  ib  vogt.    Prior  to  this,  he  was  responsible  for  business  development  and  project  finance  at  Suntech,  and  has  been  in  the  solar  power  sector  since  2006.    Earlier,  he  held  a  series  of  management  and  finance  posi/ons  with  companies  in  Germany  and  India.  

Track  Record  of  Team  CONFIDENTIAL  

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§  400MW  developed,  primarily  in  U.K.  §  200MW  realized  on  EPC/EPCM  basis  §  150MW  under  O&M  management  §  70MW  owned  § Closed  porvolio  financing  transac/ons  with  two  solar  investors,  aggrega/ng  150MW  

§ Developed,  built,  operated  and  own  5MW  in  Gujarat  § Raised  equity  finance  for  80MW+  under  Gujarat  and  Na/onal  solar  programs  

§  Secured  10MW  alloca/on  in  Telangana  solar  auc/on  

§ Closed  first  bilateral  PPA  in  the  country  § Obtained  $29m  project  equity  commitment  for  first  50MW  being  developed;  obtained  debt  term  sheet  for  first  6.25MW  

Europe  

India  

Philippines