Sustainable Infrastructure Financing:

Investing in Renewable Energy Infrastructure -

Private Equity Funds vs. CDOs?

TBLI Conference Europe 2010November 12th, 2010

SUSI Partners AG

Tobias Reichmuth

Fraumünsterstrasse 11

CH - 8001 Zurich

Switzerland

Tel: +41 43 497 26 10

Fax: +41 43 497 26 11

Email: t.reichmuth@susi-partners.ch

2

In the next 20 minutes…

Part 1:

• Introduction: SUSI Partners AG

• Groundwork laid for renewable energy funds

• Business model: how does a renewable energy infrastructure fund work?

Part 2:

• The SUSI Sustainable Euro Fund

• How can renewable energy infrastructure funds be securitized?

• Pros/cons of creating sustainable infrastructure finance CDOs

3

We are:

• Fund Advisors to our own Luxembourg Fund Structure

• Focussed on Renewable Energy Infrastructure

• Strictly transparent

We do:

• Investments guided by the Brundtland definition

• Minimize investment risk before maximizing profits

• …believe, that doing no harm is not good enough

We have:

• Successful First Closing (Pension Fund, Utility, 3 Family Offices)

• 3 investments done (IRR >14%), € 95m (equity) in the pipeline

Introduction SUSI Partners AG

A Truly Sustainable Fund Advisory

4

Global Warming

Electricity need is raising

Groundwork Laid for Renewable Energy Funds

Global Warming and Energy Dependence Call for Renewable Energy

• EU Directives on the Promotion of Electricity from Renewable Energy Sources

• Renewable Energy Sources Act (Germany)

• Guaranteed Feed-in Tariffs in many European countries

Renewable Energy as an investment opportunity Renewable Energy Funds

5

How Does a Renewable Energy Infrastructure Fund Work?

Example Solar: (Radiation x Feed-in Tariff ) – Cost = 14-17% ROE

• 14-17% ROE is achievable with a solar investment

• A 2.1 MWp solar plant in France saves 754t CO2 p.a. – that equals the emissions of 251 cars!4

€ 0,42 / kWh1

Feed-in tariff

guaranteed

by the

government

Capital

Total investment: € 7„431„202

Equity: € 1„114„680

Debt: € 6„316„521

Revenues

Solar radiation: 2„083„951 kWh

Turnover p.a.: € 875„259

(=2„083„951 x € 0,42)

Cost

Operating cost p.a.: € 74„858

Land-lease: € 34„000

Interest/amortization p.a.2: € 561„665

Taxes3: € 8„196

Total cost p.a.: € 678„719

Return

Cash Flow to fund: € 196„540

Return on equity p.a.: 17,6%

CO2-Reduction: 754 tons p.a.

1) Depends on FIT agreement vintage year and country2) Annuity credit with an interest rate of 5,5% (interest year 1 = 347„409 and loan reduction year 1 = 214„256)3) Minimal taxes levied on project level since the project is mainly financed with shareholder loans (fund investment) and debt4) The reduction varies with the country specific energy mix. In France the production of one kWh electricity generates approximately 362 kg CO2. Furthermore, an average car with 200g CO2/km produces 3 tons CO2

per year (assumption: 15‟000km p.a.)Note: The Fund holds the project for a maximum period of 7-9 years; equity will be released from the project‟s sale; example of a 2010 French 2152kWp solar roof top park

6

Agenda

Part 1:

• Introduction: SUSI Partners AG

• Groundwork laid for renewable energy funds

• Business model: how does a renewable energy infrastructure fund work?

Part 2:

• The SUSI Sustainable Euro Fund

• How can renewable energy infrastructure funds be securitized?

• Pros/cons of creating sustainable infrastructure finance CDOs

77

SUSI Sustainable Euro Fund

Focus on Solar-PV and Wind Onshore: High Diversification Strategy

Germany

Italy

Belgium

France

Geographical

diversification

Solar

Wind

Technical

diversification

Operational

Turn-key

Diversification along

the value chain

Solar Wind23% 23%

23% 31%

50% 50%

80%

20% 100%

88

SUSI Sustainable Euro Fund

Value Creation: Focus on Turn-Key and Operational Projects

Example:

2MW wind

park

Example:

1MW solar

roof park

Return on

equity p.a.:

15-25%

Return on

equity p.a.:

15-25%

Return on

equity p.a.:

20-30%

Return on

equity p.a.:

20-30%

Return on

equity p.a:

10-20%

Return on

equity p.a.:

10-20%

SUSI Investment

SUSI Investment

Low risk

Moderate risk

High risk

9

Why is a Renewable Energy Infrastructure Fund Most Probably the Best

Investment Opportunity in the Current Environment?

2005 2010

Renewable Energy Infrastructure Sample Portfolio

S&P 500

DJSI (Dow Jones Sustainability Index)

Swiss Federal 10 Year Bond

Correlation Matrix

(quarterly IRR calculation)

2005 2010

• 10-14% annual return

• Minimal correlation

• Low risk

• Truly sustainable

• Transparent

…is currently hard to beat.

Absolute Return (indexed to Dec. 1, ‟05)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

10

SUSI Sustainable Euro Fund is…

• …investing in solar (PV) and wind parks (onshore) only

• …a high-yield fixed income style fund, distributing stable yearly double-

digits dividends

• …having a very low correlation with stock markets

SUSI Sustainable Euro Fund is not…

• …a J-curve private equity fund

• …investing in shares of technology companies

SUSI Sustainable Euro Fund

Summary

SUSI-PartnersEQUITY

Bank

DEBT 80-85%

Bank„s Pool of

SUSI-Partners

Project Finance

Loans

Protection

seller

(Intermediary)

Senior Credit

Default Swap

Provider

Special

Purpose

Vehicle

(Issuer)

CLASS A+

CLASS A

CLASS B

CLASS C

CLASS D

CLASS E

Credit

protection

payment

Premium

Premium

Credit

protection

payment

Cash

proceeds

from notes

Cash

proceeds

from notes

Interest and

principle

Interest and

principle

Certificates of

indebtedness

1

How can a renewable energy infrastructure fund be securitized?

Case Study

111111

CDO Tranches6

4

5

2

3

• Guaranteed stable returns would allow for a CDO structure

• CDO can only be used for refinancing

• Currently, direct loans at 3.0 to 5.5% are possible

• Therefore a CDO structure only can make sense with low interest and therefore with a significant volume

1212

Benefits of creating a sustainable infrastructure financing CDOs

Benefits:

• Recovery rate is guaranteed with proven technologies and sound government FIT

• Post construction, there are little cost overruns or operational issues; furthermore, projects

will be less likely to default after having amortized a substantial amount of debt

• CDOs can facilitate utility and institutional investor appetite to purchase „green assets‟

• Lower correlation compared to a typical corporate bond portfolio

• Help accelerate sustainable infrastructure financing

Challenges:

• Currently cheap financing available without CDOs – is it worth it?

• Credit Ranking needed (diversity of projects might be an issue)

• Market stigma against CDO

13

Thank You For Your Attention!

SUSI Partners AGTobias Reichmuth

Fraumünsterstrasse 11CH - 8001 Zurich

SwitzerlandTel: +41 43 497 26 10

Fax: +41 43 497 26 11Email: t.reichmuth@susi-partners.ch

1414

Currency Euro

Management fee2% (on committed capital during the commitment period of 30 months after first closing and on

the afterwards invested capital)

Service fee0.25% (on committed capital during the commitment period of 30 months after first closing and

on the afterwards invested capital)

Performance fee 20%

Hurdle rate 5% (cumulative)

Expected return 10-14%, distributed annually (IRR over fund life time: 16-20% via exit upside)

NAV calculation Quarterly

Duration 7 years after final closing; subject to two 1-year extensions

Final closing December 2011 (target: EUR 100‟000‟000)

Minimum subscription EUR 125„000

SUSI Sustainable Euro Fund

Fund Terms

Back-Up

Exit Strategy: Significant Upside Potential

Project Exit

SUSI Sustainable Euro Fund invests in solar and wind

parks which profit from feed-in tariffs for 20 years

guaranteed by the government. The Fund‟s term is 7

years; therefore, for any project exit the potential buyer

profits from…

A) operational projects which produce electricity,

B) a 7 year project track record, and

C) projects that benefit for another 13 years of

“guaranteed” turn-over

Already now, the minimal market price after year 7 can be

determined by use of the DCF-method.

For the project discussed (solar park France, equity €

1‟110‟000) and provided that the debt amortization is

based on an annuity credit, an exit value after 7 years of

operation will be € 1‟380‟000. This allows a double-digit

IRR for the new investor over the rest of the project life

time. Hence, the exit value covers the equity by 124%,

which represents a significant upside potential and

reduces the exit risk.

Further-on, the Fund profits from a portfolio premium

when exiting projects.

1) Return after cost, tax, and interest payments equals € 180‟000 p.a.2) Debt amortization of annuity credit3) Sales of the initial equity price of € 1‟110‟000 will result in an IRR of 16.4%; an exit for the market value of €5‟928‟000 results in a project IRR for the fund of 19.3%

Inve

sto

r a

fte

r ye

ar

7S

US

I In

ve

stm

en

t

Investment year 1

Total investment: € 7‟430‟000

Equity: € 1‟110‟000

Debt: € 6‟320‟000

Returns year 1-7

Total returns1: € 1‟274‟000

Debt amortization2: € 1‟772‟000

IRR3: 16.40%

Investment year 8

Total investment: € 5‟928‟000

Equity: € 1‟380‟000

Debt: € 4‟548‟000

Return year 8-30

Total returns: € 3‟695‟000

Debt amortization: € 4‟548‟000

IRR: 10%

An external investor will pay up to € 5’928’000 for

the this project after year 7. The SUSI equity (€

1’110’000) will be covered to 124% by the investor

(project equity price € 1’380’000 with 10% IRR).

15

Preliminary Criteria

- Country/region developer - Technology (modules, inverter) - Quality and experience of project

- Radiation/feed-in tariff - Expected annual returns and project IRR

- Permits/licenses complete - Data quality

Note: Similar process for wind parks; slightly different process for operational power plants

1. Project Due Diligence

• Radiation survey

• Verification of all permits (incl.

checks with local authorities)

• Verification of counterparty for

land lease/purchase

• Adequacy of technology for

micro climate

• Financial modeling, exit

options, preliminary tax

analysis

• Double checking of analysis by

debt partner

• Recommendation to Investment

Committee

2. Investment Committee /

Industry Experts

• Critical due diligence on market,

developer, project level

• Review of used technology

• Double-check all permits

• Recommendation for local due

diligence

3. Local Due Diligence

• With local partners (lawyers,

technical, tax experts, etc.)

• Double checking all contracts,

permits, etc.

• Micrositing, contacting local

authorities, grid operator, land

owner, general contractor

4. Unanimous

Recommendation

• Investment Committee to

Fund BoD

SUSI Sustainable Euro Fund

Due Diligence Flow Chart (Solar): 4 Stages Ensure Project Quality

16

Technology

• Excess capacities;

technology prices

down by 30% in 1 year

• Mature technology

• Buyer‟s market in

2010-2012

• Downstream value

creation

Market & politics

• € 1‟000bn. investment

planned worldwide

• Established markets

(Germany, France,

Italy, Belgium, Spain)

• From subsidized to

sustainable markets

• Broad political support

Globally

installed

MWp in

Solar p.a.1

Techn. DemandTechn. Supply

Electricity demand

• Need for energy

independence

• Strong trend to

electrification

• Generally rising

electricity demand

• Higher cost of fossil

fuel due to CO2-tax/

supply shortage

Projects

• “Off the shelf” projects

with attractive pricing

• Operational power

plants on the market

• Project developer with

substantial experience

• Buyer‟s market

• Attractive debt rates

1) The Spanish government surprised many developers by placing a sudden block on new solar projects in SpainNote: for wind energy a very similar situation applies

Sustainable Investments, Business Model, Market

Market Environment: Ideal Time of Entry (e.g. Solar)

• For the next 2-3 years, there will be a highly favorable window of opportunity for long-term investments in

renewable energy infrastructure

• The market has changed; for SUSI Sustainable Euro Fund this presents an ideal time to enter the market

17

2000

0

12„000

6„000

2005 2010 2015

Financial

Crisis/

Spain

Effect1

18„000

18

Back-up

Risk Management: Risk Avoidance on all Levels

Construction

• Experienced general contractors

• Payment after completion and

grid connection

Fund

• Well-established partners;

external NAV calculation

• Asset backed; very low exit risk

• High diversification

Project

• Turn-key or operational

• Project developers with local

experience

• Proven technology

• Tax optimization1

External factors

• Very low correlation to other

asset classes

• Strictly ecological

• Loss-of-use insurance

Management

• In-house competencies

• Adequate lead time

• No key man risk

• Industry experienced Investment-

Committee

Market

• Government guaranteed feed-in tariffs

• Focus on developed markets (Germany, France,

Italy, Spain)

• Only Euro investments

1) Please consult page 31 to learn more about the tax optimization strategy.

19Source: EU Comission 2010

Back-up

EU With a 20% Renewable Energy Target For 2020

in %

EU target overall (2020)

v

To reach the EU targets, large investments in renewable energy infrastructure are needed. For

SUSI this means a wide open window of opportunity for the target markets.

EU target per country (2020)

Today

Italy

Spain

France

Germany

2020

Back-up

Industry Forecast: Solar Industry Offer/Demand Situation

5

10

13

6

Silicon

Wafer

Cells/Modules

Installation/Demand

2008

Silicon

Wafer

Cells/Modules

Installation/Demand

2009

Silicon

Wafer

Cells/Modules

Installation/Demand

2010

Silicon

Wafer

Cells/Modules

Installation/Demand

2011

9

16

19

5

14*

18*

23*

8*

18*

21*

25*

15*

Industry Capacity (in GWp)

* Analyst assessments; Source: Q-Cells, Jefferies&Company, SUSI AnalysisNote: The market for wind turbines looks similar

• Great excess capacity in the

industry until at least 2011

• Technology prices are under

pressure

• Marginal revenues go

„downstream“ to project

developers and investors

• Starting 2011, global demand

will rise dramatically (high

elasticity of demand)

• For 2010 and 2011 ideal

market conditions for

investments in solar farms

Back-up

Crisis Allowed for Additional Returns for Down-Stream Investors

1) Für Module aus Silizium (Monokristallin); Quelle: U.S. Department of Energy

2) Quelle: pvexchange.com

3) Für Deutschland, Dachanlagen ab 100kW bis 1MW; Quelle: Deutscher Solarverband

Wirkungsgrad1Einspeisevergütung3Entwicklung der Modulpreise2

Entwicklung Marktpotential Solar Deutschland

120%

100%

80%

60%

40%

20%

0%

Zusatzrendite nach Krisenbeginn

2007 2008 2009 2010 2011 2012 2013 2007 2008 2009 20101995 2001 2003 2005 2007 2009 2011

2007 2008 2009 2010

19%

17%

15%

13%

11%

9%

7%

5%

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0

50

40

30

20

10

0

€-cent€/Wp

Europa China

Einnahmen indexiert Kosten indexiert

222222

Appendix

Diagram LUX SICAV/SIF Fund Structure

Investors

Investment

(e.g. Solar Farm SPV)

Investment

(e.g. Wind Farm SPV)

Investment

(e.g. Solar Farm SPV)

SUSI Partners AG (Zurich)

Fund Advisor

Sustainable

SARL

(General Partner)

SCA structure

„SUSI Sustainable Euro

Fund“; SICAV/SIF LUX

(Limited Partner)

SUSI Sustainable Energy

SOPARFI

(SPV)

Board of Directors (LUX)

(to profit from the Double

Taxation Treaties)

Advisory Board

SUSI-PartnersEQUTIY

CLASS A+

1

How can a renewable energy infrastructure fund be securitized?

Method 2

232323

CLASS A

CLASS B

Protection

seller

(Intermediary)

Credit

protection

payment

Premium

Class Rating (S&P)* Percentage of Debt Amount Interest Rate Cost of Debt

A+ (1-5 Years) AA 30% 120 4% 4.8

A (6-11 Years) A 60% 240 6% 14.4

B (12-18 Years) BBB+ 10% 40 7% 2.8

Bank 100% 400 5.50% 22

Citigroup A 5.38%

Acelormittal BBB- 5.25%

Barclays AA- 5.20%

Time Warner BBB 4.88%

HSBC AA- 4.63%

2 3

Hypothesize – for discussion purposes only.

*S&P Debt Rating Criteria for Energy, Industrial, and Infrastructure Project Finance

http://www2.standardandpoors.com/spf/pdf/fixedincome/SP%20Debt%20Rating%20Criteria%20for%20Energy%20Industrial%20and%20Infrastructure%20Project%20Finance%20March%2019%202001.pdf

SUSI SPV – CDO TranchesDEBT