jonathan maxwell
DESCRIPTION
Founding Partner - SDCL-Sustainable Development Capital Ltd. - UKInvesting in Renewable Energy Infrastructure - Private Equity Funds vs. CDOs?TRANSCRIPT
Inves&ng in Sustainable Infrastructure in
Interna&onal Markets
Presenta&on For TBLI
12th November 2010 Presented by:
Jonathan Maxwell
Founding Partner and CEO
Sustainable Development Capital LLP
Inves&ng in Low Carbon and Resource Efficient Infrastructure
2
INTRO
DUCTIO
N TO
SDCL
IntroducFon to SDCL
SDCL is an independent, mulF-‐disciplinary investment banking and advisory firm providing financial and strategic advice on: • Funds – advising financial insFtuFons and corporaFons on creaFng sustainable investment vehicles • Projects – structuring and raising finance for large scale sustainable developments • Special opportuniFes – facilitaFng investment in sustainable innovaFons SDCL is authorized and regulated in the UK by the Financial Services Authority
Investment advisory firm
SDCL focuses on projects which have the opportunity to: • Create aTracFve levels of return on investment • PosiFvely impact the environment and society • Create sustainable and replicable business models
SDCL has a diversified and mulF-‐disciplinary team, with professionals with a background in banking, finance and industry in: • London • New York • Hong Kong and PRC
Professional team
SDCL has team members who serve on the: • Advisory Council to the United NaFons Environmental Programme (UNEP) Green Economy IniFaFve • Advisory Council on the Clinton Climate IniFaFve Climate PosiFve Development Programme • Board of Directors & Trustees for the London Thames Gateway InsFtute for Sustainability
Industry network
Introduction to SDCL Group
Strategic Focus
3
Projects Funds
SDCL structures and raises finance for large scale sustainable development projects in partnership with financial insFtuFons, corporaFons, project developers, engineering firms, governments, academic insFtuFons and NGO’s.
The Firm advises on the design, implementaFon and management of various projects such as: sustainable urban development, resource management and energy infrastructure.
SDCL advises financial ins&tu&ons, governments and corpora&ons on creaFng sustainable investment vehicles, thereby moving capital from the financial markets into the environmental markets.
The Firm advises on the design, structuring and capital raising for vehicles involving investment in the Private Equity, Infrastructure, Real Estate and Listed SecuriFes sectors.
INTRO
DUCTIO
N TO
SDCL
Mobilizing Private Equity into Environmental Markets
4
Clean Energy Infrastructure
Disclaimer
5
Disclaimer Global Trends in Investment in Clean Energy
6
Disclaimer Public and Private Capital Markets
7
Disclaimer Investment in Sub-‐Sectors of Clean Energy
8
Approach to Inves&ng in Clean Infrastructure in Emerging Markets
Disclaimer
9
Demand for sustainable energy and water, natural resources, waste management, transportaFon etc is going to exceed supply, creaFng investment opportuniFes at scale in:
low carbon and resource efficient infrastructure
Target investments
Clean and renewable energy assets
Water treatment Land Use
Waste management
Transport
Energy efficiency
10
The Need for Equity Investment
Planning Development ConstrucFon OperaFon
Private Equity at Development and Construction Phase
Project Debt & Equity during Operational Phase
Illustration of Investment Lifecycle and Financing Requirement of a Typical Environmental Infrastructure Project
Investment of Equity Capital:
- Project requires risk capital to support planning and development - Project requires capital for construction - Project generates little or no income during pre-construction completion
Project Finance:
- Project generates income - Cash flow supports debt financing
Infrastructure Services Companies Supply/Value Chain: Developers, Utilities/IPPs, Manufacturers, Contractors & Suppliers
11
The need for scale
If current popula4on and consump4on trends con4nue, by the middle of the next decade we will need the equivalent of two Earths to support us
Copenhagen Accord calls upon the industrialised countries to contribute:
o €30 billion in short-‐term funding between 2010 and 2012
o up to €100 billion per year by 2020
to finance climate change miFgaFon and adaptaFon in developing countries.
InsFtuFonal investors, parFcularly pension funds, sovereign wealth funds, insurance companies, development banks and foundaFons are part of the soluFon given their objecFve to make investments both in the short and long term.
12
Why Asia? Why low carbon?
Based on GDP growth , urbanisa&on trends and energy consump&on, impact of investments:
High Medium Low
Half of the world’s populaFon One billion people to move to ciFes by 2030
Energy consumpFon to double by 2030
Share of worldwide GHG emissions increased from 9% in 1973 to 24% in 2003 and could increase to 29% by 2030
Why Asia?
Energy and water shortages, deforestaFon and soil degradaFon are driven by populaFon growth and urbanisaFon -‐ economic costs, lower life expectancies, health costs and natural disasters follow
Why low carbon?
Where in Asia?
13
Results of a consulta&on process
Why is it not already happening?
Market failures
Perceived risks inherent in region and sector o PoliFcal, regulatory, technology,
execuFon, currency and governance risks
o Lack of adequate market incenFves
o Lack of appropriately bundled risk miFgaFon tools
Perceived lack of quality pipeline
Funding gap associated with an informaFon and knowledge gap
ExisFng iniFaFves lack scale
Projects themselves tend to be small and have high transacFon costs
14
The consulta&on process
What do investors need?
Commercial/market investment terms and financial return profile
Risk miFgaFon & government involvement – the influence of mulFlateral insFtuFons as well as host country governments
Structured program to invest and co-‐invest in funds and projects o Some prefer co-‐investment to ensure minimise costs
and maximise control o Others prefer managed and diversified market
access via a private markets with specific experFse o Exposure and balance to be customised for investors
Access to technical assistance & concessionary finance at underlying project level
A cost-‐effecFve and value-‐addiFve delivery plamorm
Sovereign Wealth Funds Public Sector
Ins&tu&onal Investors
P1 P2 P3
15
The Climate Public -‐ Private Partnership Fund Structure
1 Technical Assistance and Risk MiFgaFon Facility will be built around the strengths of the MDBs and others (including possibly host governments) to maximize synergies and minimize costs; draw on skills & capabiliFes of the MDBs to raise and deliver new and addiFonal resources including targeted subsidy and concessional financing, policy dialogue, sector and regional experFse and technical assistance, at significant scale. 2High quality management and investment team with an established track record and pipeline. 3The Fund will invest in mulFple lower level funds, each managed by its own GP2 and having an investment scope defined by country and sector.
$ $
Example of a “PPP” structure
$
$
GP 2
GP 2B Technical Assistance and Risk Mi&ga&on Facility
GP 2
GP 1 “Best of Class”
Team2
Public and Private LPs
Fund Investments
P1 P2 P3
Donors
Co -‐ Investments
Funds3
$
$
GP 2s3
16
Equity Investment Allied with Risk Mi&ga&on
with assistance from mul4-‐ and bi-‐lateral ins4tu4ons
Iden&fied risk Mi&gated by
A funding gap associated with an informaFon and knowledge gap
An insFtuFonal vehicle that can provide both capital and know-‐how
Lack of scale: projects tend to be small in scale and have high transacFon costs
Investment through private equity funds and development of scalable and replicable projects
Low carbon regulatory/policy risk and lack of adequate market incenFves
Policy dialogue and access to concessionary finance
Low carbon technology & execuFon risk
Technical assistance to be provided by the Climate PPP’s Advisory Group
Country/poliFcal risk MIGA/ADB insurances
Currency risk PotenFal for TCX facility
Governance risks Due Diligence and MDB Networks
In prac4ce, the risk mi4ga4on technique/public finance mechanism applied will depend on what is appropriate for the par4cular project because the risks differ between Asian countries and low carbon and resource efficient infrastructure sectors.
17
Crea&ng Public Private Partnerships
Bringing together investment and assistance
Private sector
P8
Sovereign Wealth Funds
Ins&tu&onal Investors
IFC
Public sector can provide:
Investment capital
Risk miFgaFon tools (policy risk, technology & execuFon risk, country risk and currency risk)
Policy dialogue with host country governments
Access to sources of concessionary finance and targeted subsidy
Environmental, social, technical and governance advice
Private sector can provide:
Investment capital
Access to pipeline of commercial projects
Commercial investment experFse
Ability to aTract and mobilise leading internaFonal Fund Managers/General Partners
Capacity and scale through exisFng and establishing funds
ADB P8 P8
Sovereign Wealth Funds
Insurance Companies
IFC ADB
DFID / UK
Governments IFIs
Climate Investment
Funds
Pension Funds
Ins&tu&onal Investors
P80
Climate Public-‐Private Partnership
Fund
18
Inves&ng in Efficiency
Disclaimer
19
Disclaimer Resource, Carbon and Capital Efficiency Opportuni&es
20
Countries & consumers – energy intensity levels in 2009
GDP generated per tonne of energy consumed US$
10,000 – 20,000
1,000 – 9,999
0 – 999
Not Included
Western Europe leads the way Denmark leads the world in terms of energy efficiency as it generated US$17,761 worth of GDP per tonne of oil equivalent of energy (“toe”) used in 2009.
Energy intensive Eastern Europe The economies of Eastern Europe are generally energy intensive. Ukraine generated US$903 of GDP per toe consumed
China aims to improve In 2009, China generated US$2,261 of GDP per toe of energy used, an improvement of 4.6% in energy intensity over a year earlier.
Source: 2010 Euromonitor InternaFonal: Countries & Consumers – Energy Intensity Levels: 2009
ENERG
Y INTEN
SITY LEVELS: 2009
Mapping global energy intensity: opportuni&es will arise from the development of energy efficient technologies
21
EC
ON
OM
ICS
OF G
LOB
AL B
UILD
ING
TR
AN
SFO
RM
ATION
The economics of global building transformation
21
Addi&onal investment (Billion USD per year 2005–
2050
Net-‐present value* (Billion USD per year 2005–
2050)
Emission reduc&on (Million tons in 2050 rela&ve
to BAU)
Average abatement cost (USD per metric ton, 2005–
2050)
OECD North America 244 -‐45 1699 30
United States 209 -‐40 1555 28
OECD Europe 170 -‐26 915 30
EU 158 -‐25 861 30
OECD Pacific 67 -‐17 353 48
Japan 37 -‐9 168 52
TransiFon Economies 78 -‐12 548 24
Russia 51 -‐10 345 33
Developing Asia 188 -‐26 2343 14 China 114 -‐15 1427 14 India 19 -‐2 221 12
LaFn America 31 -‐5 142 39
Brazil 10 -‐2 28 61
Middle East 80 -‐17 663 32
Africa 29 -‐3 298 10
BAU = Business as usual
* Net-‐Present Value is calculated over 20 years using constant energy prices and a 6 percent discount rate.
Source: WBCSD Energy Efficiency in Buildings Model, InternaFonal Energy Agency, United NaFons Development Program, Economist Intelligence Unit.
22 22
Investment Strategy - Energy Efficiency Investment Program
APEEC invests in energy efficiency projects by installing energy savings equipment to reduce operating costs, while seeking investment returns via payments from the energy savings achieved.
Capital is deployed by the Manager into energy efficiency projects and is paid from the measured and verified energy efficiencies (i.e. savings) achieved.
The Company provides the development capital, and where necessary, arranges third-party debt financing for energy efficiency projects implemented by energy savings companies (ESCOs) and facilities managers. The investment program provides investors with the opportunity to capitalise on the inefficiency.
‘Paid from Savings’ Energy Efficiency Equity Facility
INV
ES
TME
NT S
TRATE
GY
BUILDING / INDUSTRIAL SITE
COMPANY Receives a
percentage of the income streams from the B uilding owner’s
energy savings
Manager funds the implementa4on of the
energy efficiency Projects
Energy savings achieve income streams from
Buildings
The Manager deploys capital into the energy efficiency projects
MANAGER
23
Investment Strategy – Typical Cash Flow Profile
23
• Medium term cash flows once the energy saving solutions and equipment have been installed. • Strong cash generative characteristics with relatively short pay-back periods. • Private equity-type returns at infrastructure-type levels of risk, i.e. risks that can be identified and mitigated.
Investment Characteristics
INV
ES
TME
NT S
TRATE
GY -2,000,000
-1,500,000
-1,000,000
-500,000
0
500,000
1,000,000
1,500,000
1 2 3 4 5 6 7 US$
Years
Annual Cash flow to fund Cumulative Cash Flows
Cumulative Cash Flow (Sample Project)
24
This document has been prepared by Sustainable Development Capital LLP (“SDCL”). SDCL is authorised and regulated in the UK by the Financial Services Authority.
This document summarizes current discussions (which are on-‐going) among DFID, ADB and IFC with the support and assistance of SDCL as a consultant, and nothing herein should be interpreted as a commitment by any of DFID, ADB or IFC to make an investment in the Fund; any investment in the Fund would be subject, in respect of each insFtuFon, to such insFtuFon’s management and board approvals (or equivalent).
Confiden&ality: This document contains confidenFal informaFon regarding the Fund. By accepFng this document, the recipient agrees that it and its representaFves will use the document and such confidenFal informaFon only to evaluate the Fund and for no other purpose and will not divulge any such informaFon to any other party.
Not an offer: The informaFon herein does not consFtute an offer of interests in the Fund to the public and no acFon has been or will be taken to permit a public offering in any state or jurisdicFon where acFon would be required for that purpose. Any offering will only be made pursuant to the relevant informaFon within a private placement memorandum and subscripFon documents, all of which must be read in their enFrety and no offer to make an investment will be made prior to receipt by a potenFal investor of such documents and the compleFon of all the appropriate documents. The informaFon herein does not take into account the investment objecFves, financial situaFon or needs of any person and does not contain all of the informaFon necessary to make an investment decision, including, but not limited to, the risks, fees and investment strategies. Nothing in this document consFtutes advice relaFng to legal, taxaFon or investment maTers and potenFal investors are advised to consult their own professional advisors in connecFon with making an investment decision. No informaFon contained in this document, nor any oral or wriTen communicaFon with a potenFal investor should be relied upon as a representaFon or warranty, and no liability shall aTach to any person or enFty as a result of such informaFon.
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Poten&al U.S. Investors: The Fund interests referred to herein will not be registered under the U.S. SecuriFes Act of 1933, as amended (the “SecuriFes Act”) or the securiFes laws of any state or other jurisdicFon. The interests will be offered and sold under the exempFon provided by secFon 4(2) of the SecuriFes Act and rule 506 of regulaFon D promulgated thereunder and other exempFons of similar import in the laws of the states and jurisdicFons where the offering will be made. As such, each purchaser of the interests will have to be an “accredited investor” within the meaning of regulaFon D promulgated under the SecuriFes Act. The Fund will not be registered as an investment company under the U.S. Investment Company Act 1940, as amended (the “Investment Company Act”) so investors will not be afforded the protecFons of the Investment Company Act.
Disclaimer Important informa&on
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Tel: +44 20 7287 7700
The Centrium 60 Wyndham Street Central, Hong Kong
Tel: +852 3622 5088
880 Third Avenue New York NY 10022 United States of America
+1 917 254 4320
For further information please contact:
Jonathan Maxwell
Founding Partner and CEO Sustainable Development Capital LLP
Sustainable Development Capital LLP www.sdcl-ib.com