All Energy 2014 Alternative business models & funding structures Engaging with merchant risk in a rapidly changing industry October 2014 Stuart Anderson +61 419 135 065 (mob) +61 2 8264 2483 (tel) [email protected]Level 6, 2 Bulletin Pl Sydney NSW 2000 Australia www.sydneycapital.com.au
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Renewable Energy - Alternative business models & funding structures
2014 All Energy presentation on alternative business models for Australia's renewable energy sector. How to leverage disruptive innovation in a changing industry
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All Energy 2014 Alternative business models & funding structures
Engaging with merchant risk in a rapidly changing industry October 2014
Significant investment funding is available, seeking quality projects
However, investment levels into Australian grid scale renewable especially grid are falling – Lack of attractive PPAs (outside ACT) plus regulatory uncertainty (RET review etc)
– Recent poor financial performance of industry
– Falling wholesale demand
Maturing renewables technologies - pricing approaching grid parity, especially behind meter – Significant market acceptance of rooftop solar PV (Moore’s law in energy!)
– Enables customer choice through small scale generation at point of consumption
Changing Industry dynamics with falling power usage / demand
Observations from Europe demand as manufacturing activity slows renewables penetration. e.g. rooftop solar Led to talk of the “theft of peak demand” (by rooftop solar)
End user price trends Almost treble 1990 prices From Govt. owned to user pays models
Electricity prices in Capital Cities Observations
Changing energy industry Characterised by long term pricing volatility
15/10/2014 5
Observations Australia’s wholesale market is characterised by wholesale
pricing volatility since mid-2007 - Environmental factors, regulatory, demand
YieldCos require stable PPAs to attract infrastructure style investment characterised by higher debt ratios
- Sustainability?
Source: IES Consulting, 2014
Adapting to merchant risk Own the integrated solution for the customer’s energy problem
– Deliver c.30% through embedded generation (ie Solar PV)
– Lift to c.50% ++ through storage
– Reduce (efficiency) & shift (demand management)
Diversified portfolio of grid scale renewable assets to
supplement embedded generation
Changing energy industry Dynamic regulatory environment
15/10/2014 6
Source: The Guardian, The Age, ABC, Energy Matters, Solar Council Australia, SMH
High Demand / Low Regulatory
Increased investment in grid scale generation capacity
Rising wholesale electricity prices
Improved economic activity, weak signals for innovation
Customers drive investment behind meter
Investors agnostic
Low Demand / Low Regulatory
Low wholesale, high retail prices
No extension of existing targets / policies -> No / Low PPA prices
Customer seeks - behind the meter, distributed & embedded generation
Less opportunity for centralised project development
Higher capital costs – higher equity % in financing structures
Consolidation of market participants
Low Demand / High Regulatory
Low demand, low wholesale and higher retail $ includes carbon
Social discontent to higher electricity price
Flood of cheap imports of RE (ie Solar PV), lower asset values
Capital – higher premium (debt + equity) & hybrid instruments
Fragmentation of NEM grid – increased solar PV @ customer site
Demand Low
Regulatory Low
Demand High
High Demand / High Regulatory => Mature & static
Carbon tax / cap and trade / re standards/ stable policy / reg certainty
Price parity vs alternates for customer
Willingness to embrace new models & tech
Privatisation of energy companies
Drive for supply chain efficiency
Improved capital availability -> able to leverage assets & distribute dividends
& create “YieldCos”
Changing energy industry Dynamic environment
Regulatory High
15/10/2014 7
Impact on renewables financing Significant fall in activity in light of poor performance