facilitating project finance through standardised risk ... · what is the eip-scc about? the...

Facilitating Project Finance through StandardisedRisk Assessment

Webinar | 07.05.2020 | 3:00 PM CEST

Welcome!

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This webinar will be recorded

Presenters

▪ Eelco Kruizinga – Moderator

▪ Principal Consultant @ DNVGL

▪ EIP-SCC Matchmaking expert

▪ Jorge Rodrigues de Almeida

▪ Managing Director @ RdA Climate Solutions

▪ 15+ years in energy and sustainable finance

▪ EIP-SCC Matchmaking expert

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Presenters

▪ Michael Pachlatko

▪ VP Finance @ Joule Assets Europe

▪ Joule's European project work and investor relations

▪ LAUNCH H2020: Leader work package on Risk Assessment Protocol.

▪ Quentin Nerincx

▪ Senior Advisor Sustainable Energy Technology @ BNP Paribas Fortis

▪ Facilitating the financing of the green energy revolution

▪ Advisor in the central team and cleantech expert at the Innovation Hubs Projects

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Agenda

▪ Housekeeping rules

▪ Welcome and introduction

▪ Why risk assessment is key for the projects’ bankability - Jorge Rodrigues de Almeida

▪ The LAUNCH Risk Assessment Protocol: a standardised tool to de-risk project finance –Michael Pachlatko

▪ A real-life example: the importance of risk assessment for a bank – Quentin Nerincx

▪ Conclusion and Q&A

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Housekeeping rules

▪ You are all muted by default to minimise background noise but we are looking forward to your questions!

▪ We will have the Q&A session at the end of the webinar.

▪ You can ask questions either by raising your hand during the Q&A session (and we will allow you to unmute yourself) or anytime by using the chat box on the GoToWebinar control panel.

▪ We will get back to you via email if there are any questions we cannot answer in the course of this session.

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Please note: This webinar will be recorded

What is the EIP-SCC about?

▪ The European Innovation Partnership on Smart Cities and

Communities (EIP-SCC) is a major market-changing undertaking supported by the European Commission bringing together cities, industries, SMEs, investors, researchers and other smart city actors.

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Our Instruments

- Database of smart city solutions- Quantitative and qualitative

information- Contacts

- Pan-European action cluster working groups and initiatives

- Regular workshops and webinars

- Matchmaking events with investors

- Open calls for proposals ready to match

- Guidance on how to create bankable investment proposals

Marketplace & Smart Cities Information System

Why risk assessment is key for the projects’ bankability

Jorge Rodrigues de Almeida, EIP-SCC consortium member (RdA)

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Project Maturity Level Framework

▪ PML 1 – Potential project identified (project or technology apparently suitable for intervention)

▪ PML 2 – Project potential quantified (via audit, study, benchmarking, etc.)

▪ PML 3 – Project investment estimated and suitable business models identified

▪ PML 4 – Technical project and business case developed

▪ PML 5 – Investment-Ready (business case and tender model confirmed)

▪ PML 6 – Investment offer or tendering requirements created (ready to sign or launch tender)

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What Is Risk Analysis?

According to Investopedia*:

▪ “Risk analysis is the process of assessing the likelihood of an adverse event occurring within the corporate, government, or environmental sector.”

▪ “Risk can be analysed using several approaches including those that fall under the categories of quantitative and qualitative.”

▪ “Risk analysis is still more of an art than a science.”

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* https://www.investopedia.com/terms/r/risk-analysis.asp

Lack of data on performance

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Car loan data exists from 1919 onwards

Mortgage data even longer

Very little data on Smart Cities performance & links to financial performance

How to overcome the lack of data on performance

▪ “Risk assessment protocols must become standardised for project investors in order to encourage market growth in a manner which will launch the market for Sustainable Energy Assets as tradable securities.”

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Standardisation

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Factories need standardisation Banks are factories

LAUNCH H2020: Risk Assessment Protocol

Michael Pachlatko, LAUNCH Consortium member (Joule Assets Europe)

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LAUNCH H2020 – Risk Assessment Protocol

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LAUNCH is a EU H2020-funded project that aims to accelerate deal closure and pipeline growth for Sustainable Energy Assets through standardised tools.

5 Partners

1,4M € Grant support

May 2019 –October 2021

300+ Stakeholders involved

LAUNCH Standardised as-a-Service agreement, enabling off-balance sheet accounting for the end client and securitisation of project returns

LAUNCH Risk Assessment Protocol, covering 17 risk types and gathering allrelevant risk-related information in a standardized way

LAUNCH H2020 – Risk Assessment Protocol

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LAUNCH H2020 – Risk Assessment Protocol

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First Lender

SPV Bond Buyer

SECURITIZATION

LAUNCH H2020 – Risk Assessment Protocol

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First Lender

SPV Bond Buyer

SECURITIZATION

Benefits

Competitive advantage

Enhanced transparency

Increased efficiency

Better risk management

Scope

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Regulatory Risk

Country Risk

Energy Price Risk

Currency Risk

Credit Risk

Exogenous Risks

Endogenous Risks

Contractor and Client

Technical Risk

Performance Risk

O&M Risk

Interface Risk

Pipeline Risk

Prepayment Risk

Occupancy Risk

Management Risk

Change in Control Risk

ESG Risk

Construction Risk

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Credit Risk Assessment

Credit risk is essentially counterparty risk – important for both the contractor and its end-client.

Assessment of the likelihood of timely and sufficient cash flows and potential default rates.

Most other risk types can result in positive or negative impacts on credit risk itself.

Some investors will rely on (external) credit ratings, but all will require at least a few years worth of financial track record.

Ratio / Test Source

Liquidity Current Ratio B/S

Quick Ratio/Acid Test Ratio B/S

Solvency Solvency Ratio I/S & B/S

Profitability Net Profit Margin I/S

Commercial Profitability I/S

Repayment Capacity Ratio I/S & B/S

Activity Working Capital B/S

Days of Receivables I/S & B/S

Days of Payables I/S & B/S

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Credit Risk Assessment – for contractor and end client

Other Risk Types

Contractor fills in RAP for each project, provides supporting documentation

Process

Practical in use for Contractors/Clients

Meaningful for Investors

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Process

Risk Type Risk Type

Credit Risk: Contractor Static, periodic updates O&M Risk Variable, harmonized through LAUNCH agreement

Credit Risk: Client Variable Interface Risk Static through LAUNCH agreement

Regulatory Risk Mostly static Pipeline Risk Variable

Market Risk Mostly static Prepayment Risk Static through LAUNCH agreement

Energy Price Risk Static Occupancy Risk Static through LAUNCH agreement

Currency Risk Mostly static Change in Control Risk Static through LAUNCH agreement

Technical Risk Variable Management Risk Contractor: static, periodic updatesClient: variable

Performance Risk Variable, harmonized through LAUNCH agreement

Construction Risk Static - N/A

ESG Risk Mostly staticClient: variable

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Format

Relevance

Responsibility

Mitigation

Documentation

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SUMMARY

Format

Standardised format

Summary of key risk factors

Allows for quick benchmarking

Index of all included documentation

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ESG as an additional Risk Type

Contractors will be asked to fill in all relevant information regarding potential ESG factors

Alignment with EU Taxonomy

Identification (and removal) of overlaps (e.g. Management Risk)

Next Steps

Mitigation/Insurance

Discussion with insurance companieson standardised policies to addressand mitigate various risk types (technical, performance, etc.)

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How you can get involved...

... as a Contractor/ESCO:

- Join the LAUNCH Education Pilot- Stay informed on the latest

developments of the LAUNCH tools- Test LAUNCH tools in real-life projects- Get support on other areas: sales

process, value propositions and access to growth capital

... as an Investor:

- Join the LAUNCH Investor Board- Provide feedback on the development of the

tools ensuring they are most valuable to you- Contribute to the ESG Working Group

The importance of risk assessment for a bank

Quentin Nerincx, LAUNCH consortium member (BNP Paribas Fortis)

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Two financing approaches :Corporate Lending VS Project Finance

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Energy Performance Contracts : The banker point of view

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Maintenance of installations

Performance Guarantee

EPC routine payments

Risks linked to the project performance

Risks linked to the counter party

→ EPC are considered as hybrid structures mixing counter party risks and project risks which are two

different approaches and usually managed by different teams.

Importance of a Risk Assessment : which approach ?

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Usually available by

▪ Local & retail banks

Attention points

▪ Based on trust and historical relation with a client

▪ Based on ratios and accounting reports

▪ Based on classic securitization tools

▪ Not comfortable with a technical performance risk

Usually available by

▪ Private Investors (Equity – Venture ….)

▪ Specialized teams in Investment banks

Attention points

▪ Complete due diligence

▪ For big investments (50 MEUR)

▪ Will usually not take any counter party risks

CORPORATE LENDING PROJECT FINANCE

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The first ESCO contact with a bank = its own retail bank (probably) which:

→ Knows the ESCO

→ Does not know the ESCO’s client

→ Does not know anything about techniques

Give the information needed and use pedagogy!

Challenge for the ESCO :

→ Provide a business plan and business perspectives

→ Use the banker’s language to give comfort on the client

→ And do NOT explain him a lot of technical information, but explain (prove) why it is under control

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▪ Select your bank financing partner

▪ Give him business perspectives, not one shots

▪ Give him a complete view of

✓ The risks

✓ Their mitigation

Conclusion

Simplify and ease the risk analysis process

Q&A

Any questions

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We are looking for your smart city project concepts!

▪ Are you looking to make investments in the area of Energy, Transport & Mobility or ICT?

▪ Is your city ready to redevelop certain areas?

▪ Is your company working on a smart city project?

Submit our intake form and the EIP-SCC matchmaking team link your to those investors whose investment strategy is matching your type of project!

More info: https://eu-smartcities.eu/page/we-are-looking-your-smart-city-project-concepts

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Webinar series & staying tuned

▪ Join our webinar series:

▪ Webinar on ‘Delivery models, funding & procurement for smart cities’ –18 June 2020, 10:00-11:30 AM: https://register.gotowebinar.com/register/4091287571373544203

▪ Master Class focusing on ‘Project bankability’ – June 2020, date online soon

▪ To stay tuned, sign up for our newsletter: https://confirmsubscription.com/h/d/E6512D91496F7750

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Interested in knowing more about the LAUNCH project?

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JOIN THE LAUNCH COMMUNITY!

Visit our website: www.launch2020.eu

Follow us on Twitter: @LAUNCH_H2020

Contact us at communication@launch2020.eu

Join our LAUNCH Community Upcoming webinar:

How sales processes and marketing messages help accelerating deal closure

Live in May (Date TBD)

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STAY IN TOUCH!

https://eu-smartcities.eu/

Sign up for our newsletter here: https://confirmsubscription.com/h/d/E6512D91496F7750

info@eu-smartcities.eu

@EUsmartcities

Linkedin - https://www.linkedin.com/company/5211434/admin/

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Thank you foryour attention!EIP-SCC Marketplace Eelco Kruizinga, Jorge Rodrigues de Almeida | Email: matchmaking@eu-smartcities.eu

BNP PARIBAS FORTIS – Sustainable Business Competence CenterQuentin Nerincx | Email: Quentin.nerincx@bnpparibasfortis.com

Joule AssetsMichael Pachlatko| Email: mpachlatko@jouleassets.com