Published on March 12, 2014
MAKING IT MAINSTREAM DEVELOPING RENEWABLE ENERGY IN GLOBAL MARKETS University of Strathclyde Presentation by Adam Bruce March 2014
Overview • Introduction to Mainstream Renewable Power • The Renewable Energy Opportunity • Some parting thoughts
Introduction to Mainstream Develop and sell wind and solar plant at scale on a global basis. Onshore: exit at commissioning. Offshore: exit at “ready to build”. Sell to utilities and infrastructure asset investors. Entrepreneurial Renewable Energy Company The world is in a once-off transition from fossil fuels to sustainability. Holders of generation assets need new plant. Mainstream has the ability and focus to address the need for new plant at scale. The Value Proposition
Unique source of competitive advantage A Values Driven Culture Differentiated Business Model Record of Delivering Real Value to Shareholders Positioned at the Cutting Edge of Policy Formation Company and Investor Interests are Aligned Sale of Airtricity for total equity of €1.80bn, realizing value of €1.36bn over invested shareholders capital of €0.44bn Management invested significant amount of equity capital Not a utility Focus on development and create high value by building strong JV partnerships with local developers Industry foresight, thought leadership and first mover advantage
Mainstream’s Knockaneden Wind Farm, Ireland operating since 2012. • EXPERIENCED STAFF180 • CONTINENTS4 • TOTAL MWS IN DEVELOPMENT (approx.)19,000 • TOTAL MWs IN CONSTRUCTION AND OPERATION 334 • MILLION IN CORPORATE FINANCE RAISED €351.7 Overview
Global Development Pipeline
Corporate fundraising - €351.7m Oct 2013 €100m Closed a €100 million equity investment by global Japanese trading company, Marubeni Corporation. The deal makes Marubeni the largest institutional investor in Mainstream with a significant minority stake of approx. 25%. Sept 2012 €40m Corporate facility closed with Macquarie Bank comprising junior debt and equity warrants for up to €60m (€40m drawn). Sept 2012 €17m Equity raised from high net worth individuals in Ireland which began in 2011 and closed in 2012. Dec 2011 – Mar 2012 €40m Repaid the loan notes which were issued in December 2008 and raised €40m from the issue of new loan notes which were again structured and arranged by Dolmen Corporate Finance. Aug 2010 €56.7m Raised €56.7m from private investors in the latest round of equity fundraising which began in 2009 and closed in 2010. Dec 2008 €26m Successfully raised €26m in loan notes, structured and arranged by Dolmen Corporate Finance. Aug 2008 €40m Barclays Capital invested €20m for a 14.6% stake in the company. The Board, management and staff, as well as close associates of the company invested an additional €20m. Feb 2008 €32m Founded by Eddie O’Connor and Fintan Whelan with a seed capital of €32m. €351.7m
Timeline of growth 7,000MW * * In construction – Aug.’13
Projects in construction and operation De Aar solar park, South Africa (In construction) Jeffreys Bay wind farm, South Africa (In construction) Knockaneden wind farm, Ireland (In Construction) Knockaneden wind farm, Ireland (Operating)
Scottish Territorial Waters 5 sites 4.8GW Zone and approximate capacity Developers Argyll Array (1.8 GW) Scottish Power Renewables Beatrice (1 GW) SSE Renewables plc Inch Cape (1 GW) Repsol Islay (0.68 MW) SSE Renewables plc Neart na Gaoithe (450 MW) Mainstream Renewable Power Ltd Inch Cape Neart na Gaoithe Beatrice Argyll Array Islay
Neart na Gaoithe • Neart na Gaoithe = ‘Nart na Gweeha’ • Gaelic for ‘Strength of the Wind’ • 450 MW capacity • Will generate enough electricity to power 325,000 homes – equivalent to the city of Edinburgh • Between 70 and 90 turbines • 15.5 km from shore at closest point (Fife Ness) • Area of approximately 105 km2 • Water depths of 45-55 m • 1 or 2 offshore substations • 28 km of offshore export cable • 12 km of onshore cable • Grid connection at Crystal Rig onshore wind farm in East Lothian
Neart na Gaoithe • Total estimated capital expenditure (“capex”) - £1.3bn • Compares to: - – New Forth crossing (~£.15bn) – New QE Class Carrier (~£2bn) • All three projects require similar transferable skills and are all located in the R. Forth basin • 3 turbine manufacturers now pre-qualified – Pre-qualification for “balance of plant” work issued shortly • Potential for up to 40% of total capex to be sourced in Scotland • Potential £150m-£600m GVA for Scottish economy
THE RENEWABLE ENERGY OPPORTUNITY
Key Drivers – the energy trilemma Finite fossil fuel supply – where will the electricity come from? Reduce dependency on imported fossil fuels Reduce CO2 and noxious gas emissions Average global surface temperature is likely to rise by 2.6-4.8C this century(1) Threat of extreme climate events – economic disruption Worldwide energy consumption projected to rise 56% from 2010 to 2040(2) EIA projects that developing countries will require c. 90% more energy by 2040(3) EIA projects OECD countries will require c. 17% more energy by 2040(4) Today’s population expected to increase from 7.2 bn to 9.6 bn in 2050(5) Transportation – moving to electricity Climate Change Increased Global Energy Demand Security of Supply ___________________________ 1. Footnote: The Intergovernmental Panel on Climate Change, Physical Science Basis, 2013 2. Footnote: EIA, International Energy Outlook, June 2013 3. Footnote: Ibid. 4. Footnote: Ibid. 5. Footnote: UN Department of Economic and Social Affairs, World Population Prospects: The 2012 Revision, Updated Feb. 2014
17 Volatility of prices of fossil fuels Wind is a vital part of energy mix Carbon being included in cost base for generators and users of fossil fuels New industry promotes economic development Renewable sector considered a safe haven for investments Ongoing technology innovation Correlation of wind to fossil fuel prices Government support and policy interventions – e.g. Feed-in Tariffs, Renewable Obligation Standards, PTC, ITC, Loan Guarantees EU Targets – to 2020 (and possibly to 2030) China – 12th 5 year plan S Africa – IRP and SARI Targets drive volume: volume drives price Solar PV down 70% since 2011; Onshore wind down 38% since 2008 New RES cheaper than new fossil plant Australia (2013): new wind AUD 80/MWh (USD 83), new coal AUD 143/MWh or new CCGT AUD 116/MWh (inc carbon tax) S Africa (Rd 3 2013): new wind ZAR 737/MWh (USD 68), projected new coal (Eskom) ZAR 1050/MWh (USD 96) Economic Drivers Government Response The economics of renewables The new reality
The world’s transition • International policies and targets in place to support development of renewable energy – 138 countries have renewable energy targets(1) – 71 countries have adopted some form of feed-in tariff to promote renewable power generation, while 22 countries have implemented renewable portfolio standards (1) • In 2013, more than €184 bn was invested in renewable energy globally (2) • Renewable energy will account for nearly 50% of all new power generation capacity additions from 2014 to 2035(3) • Wind and solar will make up 45% of all new renewable energy generation out to 2035(4) ___________________________ 1. Footnote: REN21 Renewables Global Status Report (June 2013) 2. Footnote: New Energy Finance: Global Trends in Renewable Energy Investment 2913, 2013 3. Footnote: International Energy Agency, World Energy Outlook, 2013 4. Footnote: Ibid. 5. Footnote: International Energy Agency, World Energy Outlook 2012; Renewable Energy Outlook The world is undergoing a fundamental transition from fossil- fired electricity generation to renewable energy sources Global Electricity Generated from Renewables (5) 0 3,000 6,000 9,000 2010 2020 2035 TWh 31% (5) 25% (5) 20% (5)
19 The Marginal cost of renewable energy is essentially zero, because there are no fuel costs Spain’s high wind penetration levels illustrate the price impact of renewables: When the wind blew strongest in 2013, wholesale power cost €7.69/MWh When there were the lowest levels of wind, power cost €93.11/MWh(1) As renewable penetration rises, wholesale power costs go down, which challenges conventional generators profitability As a consequence, utilities are losing money and being forced to mothball gas plant (coal is still competitive compared to gas) Major utilities declaring staggering write downs: RWE wrote down $4.5bn in European assets GDF-Suez announced writedown of $20bn in assets Net income at Eon declined by 50% over course of 2013(2) Utility share prices have plummeted The fall of the traditional utility model ___________________________ 1. Footnote: EWEA blog power, Wind energy is Spain’s number one electricity provider, 3 March 2014 2. Footnote: The Financial Times, RWE warns of €3.3bn writedown on power plants, 28 January 2014 3. Footnote: The Economist, How to lose half a trillion euros, 12 October 2013 Falling power prices and losses at utilities (3)
A look ahead
Utility sized pressures
Fatih Birol of the IEA to EWEA 2013
An elephant in the room…
The European conundrum • EU imports EU400bn of fossil fuels each year • 2020 energy and climate package designed in part to increase EU energy security • 2030 energy and climate package under discussion • Will renewable energy and an internal market for electricity deliver security of supply, competitiveness and GHG reductions?
What is the Supergrid? • EU 2030 direction of travel: - – EU GHG target – EU RES target – ? EU Interconnection target – Internal electricity market • How to deliver? • Supergrid • The Supergrid is a pan-European transmission network that: - – facilitates the integration of large- scale renewable energy – the balancing and transportation of electricity – with the aim of improving the European market.
A European industrial initiative with a mutual interest in promoting the policy agenda for a European Supergrid. Who are the Friends of Supergrid?
RENEWABLES Some parting thoughts
Wind energy is a subsidy junkie • Global subsidies for fossil fuels significantly exceed renewables • All new energy tech supported by Government: – UK Nuclear – 1950s to date – UK Oil & Gas – N Sea 1970s – UK Renewables - 2002 to date • Government dilemma – Tax the bad (Carbon tax) – Support the good (RO/ FiT) • Reduction in RES costs – Significant cost savings – Reduction in subsidies (RO Banding) – CfD auctions
Wind energy puts up prices • Wind energy is “expensive” and pushes up prices Wind energy generation in Ireland will reduce wholesale electricity prices by EU74m • Subsidies for wind energy push up prices Reduction in wholesale market costs equates to PSO (subsidy) of EU50m and constraint costs • Err...wind energy still puts up my Bill Total cost of generation does not increase with addition of 2011 wind energy It is not implausible that UK LNG imports fall to zero by the end of 2012 especially if none of Japan's nuclear power plants are re-started this year.... With Asian demand resurging, UK and European gas prices will have to increase to stem the ongoing diversion of LNG cargoes to Asia." [Analysts at Bank of America] said UK gas prices for winter 2012/13 could increase to 90p a therm, compared with current trading levels for next winter of 71.7p a therm. Daily Telegraph 8 March 2012
Wind energy is intermittent and unreliable • Wind energy is a variable generator • National Grid maintains sufficient reserve capacity • 30 GW wind in 2020 will require 6.5 GW additional short term operating capacity • N Grid est. 2% increase in annual bills • OR – replace with greater interconnection with other markets Supergrid and Smartgrids www.friendsofthesupergrid.eu
Conclusions • Global energy – and electricity – consumption will continue to grow. • Wind and solar energy are part of the global energy mix. • Wind and solar energy reduce costs to consumers, increase energy security and enable policy makers to meet GHG reduction targets. This is a once off transition to a sustainable future The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil. Sheikh Zaki Yamani, Minister for Oil, Saudi Arabia 1962-86
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