Investment

Financial information for investors

Investment Parameters

Completed projects to be acquired by Investors will range in size from 5 MW to 100 MW.

The purchase price of the assets varies according to a number of factors relating to feed in tariff and energy production which is determined by various factors for that particular location and the type of technology and equipment.

Purchase prices vary between £1.0M or €1.1M / MW for a solar park with a low electricity feed in tariff, fixed installation and modest irradiation hours and up to £1.20M or €1.4M / MW for a solar park with higher feed in tariffs, tracking installation and higher irradiation hours.

The total cost of acquiring a solar park will therefore range from £5.0 or €5.5M for a 5 MW fixed installation solar park with low tariff and irradiation to £100.0M or €150.0M for a 50 MW  park with a high tariff and superior irradiation.

A portfolio of completed and operating solar parks of 100 MW will cost in the order of £100M or €110M up to £120M or €140M with fixed installations.

Leverage with project finance is typically in the order of 70% of total acquisition costs.

The equity investment required is therefore in the order of 30% of total acquisition costs. Many institutional investors do not desire leverage and finance with 100% equity.

A solar park of 5 MW may cost £6.0M or €7.0M and after leverage of 70% will require an equity investment of £1.8M or €2.1M.

The total cost of aggregating a portfolio of solar parks of 100 MW will range from £100M or €110M to £200M or €300M as determined by energy production which is dependant on the following factors:

  • The location and amount of annual irradiation.
  • The type of installation – a tracking system will attract greater irradiation than a fixed system.
  • The type and quality of the panels.
  • Engineering design.
  • Proximity to the grid.

Assuming the leverage is 70% the equity investment for a 100 MW portfolio will therefore range from £30.0M or €33.0M to £60M or €90M depending on the location and type of installation.

The acquisition of a portfolio of 100 MW would be staged over 6 to 12 months and  the equity investment would be staged accordingly.

Parks can be acquired with lower or no leverage as required by the investor.

Forecast IRRS

The projects will generate a post-tax IRR of around 7.0% in the UK and Germany, 8.0% in France and low teens in Italy assuming a zero terminal value after 20 to 25 years and no leverage.

The  post tax-tax equity IRRs after leverage are up to 10% in the UK, Germany and France and mid teens in Italy after leverage over 25 years with zero terminal value.

The equity IRR will increase to over 60% assuming a 2 to 3 year exit providing the investor with a 3x payback.

Exit Strategies

As the projects are strongly cash flow positive, with long-term guaranteed income from a major utility company, there is flexibility regarding the type of exit strategy:

Trade Sale

An equity IRR of 60% will be achieved assuming the assets are sold in year 3. This IRR is based upon the assets being sold for an IRR of 8%. This forecast assumes a pension fund (or similar) acquires the assets for their long term annuity-style requirements. Pension funds currently require a return similar to that of an A rated corporate bond, which is currently yielding 5.5%. As such there is an additional 2% risk premium. A number of pension funds have shown interest at the 8% IRR level.

 

 

IPO

Renewable energy is becoming increasing attractive with larger institutional investors increasing their awareness of and exposure to this sector. As a result the current high returns will compress to become more closely correlated to mainstream infrastructure asset classes that have similar cash-flow characteristics where returns and yields are currently much lower.

Investor Returns Assured

 

  • High investor returns with IRRs of 7.0% pa (UK, unlevered) to 15% pa (Italy, levered).
  • Long-term returns for the life of the plant of 35 years.
  • Tariffs are guaranteed by Government legislation.
  • Revenue is paid by the electricity utility pursuant to a Power Purchase Agreement. The main utility in France is EDF, local utilities in Spain are Union Fenoza, Iberdrola and Endesa, all of which are investment grade. The main utility in Italy is Enel.
  • Favourable electricity feed in tariffs have been legislated in regulatory regimes in Western Europe, other selected EU countries and North America. This is supported by mandated targets for increasing the contribution of renewable energy sources, which provide a long-term framework of support for the renewable energy industry.
  • The feed in tariffs range from over €30 cents/KWh in UK, Italy and France to under €30 cents in Germany and Spain.
  • The Governments of Turkey, Greece, Hungary, Czech, Poland and other EU countries and some US states have introduced similar attractive tariff regimes and/or tax incentives to attract the development and operation of solar PV and solar thermal plants.

Operating Costs

 

  • Long-term Operations and Maintenance (O&M) contracts are arranged and managed by Sustainable Energie Partners.
  • Total O&M costs are paid as a percentage of the revenue generated by the solar park and vary between 8% and 12% p.a.
  • The costs cover all O&M, spare equipment, land lease payments, and insurance.
  • O&M costs are fixed for the first five to ten years.
  • The land lease payments are agreed for a 20 to 30 year period a a percentage of revenue or a fixed amount. Options to extend the leases beyond 25 years are common.
  • Insurance costs are re-negotiated every 5 years.
  • Administration costs to manage audit, accounting, tax, and regulatory reports cost up to 1% pa of revenue.

Indicative Term Loan Facility

The following terms are an indicative of the Term Sheet of an international bank to provide non-recourse term debt for the financing of the Initial Investment Assets.

Borrowers
An SPV or a number of SPVs. In any case, the total financing of the project must be for a minimum of 10 MW.
Base Case debt sizing criteria

Minimum & Average DSCR

Years 1 – 6 – 1.20x

Years 7 – 15 – 1.25x

Years 16 – 20 – 1.30x

Minimum LLCR

1.30x

Tariff

As advised by the Lenders Legal Adviser and subject to the date of achievement of Regulatory Approval. In any case, the lender is not to take any direct or residual tariff risk.

Solar Irradiation

Nominal vs. peak power as advised by the Lenders TA.

Gearing

Up to 80%.

Panel Degradation

As opined by the Lenders TA but typically this is in the range of 0.3%-0.6% p.a.

Term
Fully amortising over 20 years
Upfront fee

1.00% to 2.5%

Interest

EURIBOR + Margins (as below)

Construction Margin – 3.00% p.a.

Operations Margins

Year 1 – 6 – 2.40% p.a.

Years 7 – 13 – 2.50% p.a.

Years 14 and onwards – 2.60% p.a.

A reduction in the margin for the next period of 5 bps if the historical DSCR is higher than base case DSCR.

Commitment Fees

1/3 of the Margin

Agency Fees
€45,000 p.a.
Reserve Accounts

DSRA – 50% of next 12 months debt service

Maintenance Reserve – as opined by the Lenders TA

Interest Rate Hedging

Minimum 85% of total senior debt to be hedged for the duration of the term to be undertaken at Financial Close with the MLA.

The credit spread for the interest rate hedging will be 12 bps.

Main ratios

Distribution Lock up

Historic or forward looking DSCR <= 1.10x (rolling 12-month basis);

LLCR<= 1.15x.

Default Level

DSCR<1.05

Key Investment Risks and Mitigants

Construction risk
The EPC contractors are reputable and have significant experience and track record. EPC contracts provide fixed-term and fixed-price for Investors and liquidated damages. EPC contractors must be approved by Investor and approved by the lender.
Completion delays
All projects have been completed. Any delays will result in the Investor being able to withdraw.
Equipment failure
Performance of the entire operation and energy production of the solar power plant is guaranteed by the EPC contractor for up to two years. The panel manufacturer provides warranties in the supply contract for up to 25 years and other equipment manufacturers provide warranties for lesser periods.
O&M contractor performance
The O&M contractors have significant experience and track record. O&M contracts have damages and warranties clauses to protect Investors interests. The O&M contractors must be approved by the Investor and approved by the lender.
Energy generation
Detailed irradiation studies confirm a high degree of certainty of energy generation levels. Most solar pv parks are operating at production levels exceeding their forecasts.
Revenue generation
The tariff for the sale of electricity is set by the relevant government for a defined period of 15 to 25 years and beyond for the life of the plant.

Investment Strategy

 

Phase 1- Completed and operating in Western Europe
The total purchase price of the initial solar parks in Western Europe could be €150M representing total capacity of 45 MW in 5 different plants. The equity component of the Purchase Price is €30M assuming 80% leverage plus costs.

Phase 2- Growth in Western Europe
A second portfolio of solar parks can be secured which are a combination of completed and operating parks as well as fully permitted and approved ready for construction. The Purchase Price is €100M for 30 MW making total assets of €250M. LOIs have been signed or are in the final stages of signing. There are further projects in Italy, UK, France and Germany which have been sourced and are in the process of negotiating.Phase 3- Growth in the EU
Further solar parks can be acquired in UK, France, Germany, Italy, Turkey, Greece and CEE which will bring total assets to €450M in 12 months.

Phase 4-Growth in the EU and North America
Investments in further solar parks in the EU and North America will bring total assets to €1000M in two years. An indicative equity investment schedule is as follows:

Investment Strategy

 

Phase 1- Completed and operating in Western Europe
The total purchase price of the initial solar parks in Western Europe could be €150M representing total capacity of 45 MW in 5 different plants. The equity component of the Purchase Price is €30M assuming 80% leverage plus costs.

Phase 2- Growth in Western Europe
A second portfolio of solar parks can be secured which are a combination of completed and operating parks as well as fully permitted and approved ready for construction. The Purchase Price is €100M for 30 MW making total assets of €250M. LOIs have been signed or are in the final stages of signing. There are further projects in Italy, UK, France and Germany which have been sourced and are in the process of negotiating.Phase 3- Growth in the EU
Further solar parks can be acquired in UK, France, Germany, Italy, Turkey, Greece and CEE which will bring total assets to €450M in 12 months.

Phase 4-Growth in the EU and North America
Investments in further solar parks in the EU and North America will bring total assets to €1000M in two years.

0 – 6 months 7- 12 months 13 – 18 months 19 – 24 monthsTotal
Portfolio Size 45 MW 70 MW 90 MW 80 MW285 MW
Equity € M 31 49 63 56200
Debt € M 127 196 252 225800
Total Portfolio Value 158 246 316 280€1,000M

Role of Sustainable Energie Partners

 

  • Manage risk management strategies including hedging debt margins, foreign currency exposures and inflation indexing.
  • The Manager will arrange all acquisitions of newly completed solar parks with long term Power Purchase Agreements at legislated feed in tariffs with major Electricity Utilities.
  • Current debt financing options assume an 80% LVR with current market rates and terms. In accordance with the draft term sheet provided by an international bank it is anticipated the debt will be fixed for a minimum of 20 years. The loan interest base rate and the margin will be fixed for the full term of the loan at 250 basis points over Euribor. The inflation-linked tariff increases can also be fixed for 25 years.
  • Arrange and manage all due diligence.
  • Arrange transaction structuring.
  • Arrange the necessary project financing for the development and construction of each project and a separate VAT loan facility.
  • All investment decisions reside with the investor.