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ETTC – Montreal

August 2004

Equity Finance for Renewable Energy

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Renewable Energy in Europe

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A Broad Agenda

• Onshore wind

• Offshore Wind

• Biomass

• Portfolio Refinancings

• Etc.Financial adviser to the Crown Estate’s Round 2 offshore windfarm lease

bid evaluations for award of lease options for up to

7.2GW of capacity.

£19,575,000

Construction Finance for the Crystal Rig

Wind FarmImpax advised Nordex on

the restructuring of construction finance and operating period bank-

bond for this 50MW wind project

EPR Ely Ltd.£ 60 million

Project finance for a 31 MW straw-fired power station

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Lessons in Europe

• Regulation is key to Renewable Energy Tariffs/Businesses

- Debt oriented tariffs = Germany, Spain, Denmark, Italy CIP 6

- Equity oriented tariffs = UK ROCs, Italy CVs

• Project Debt Is Widely Available

- Skills in the banking sector - familiarity with regulatory issues

- Capital allocated by banks - even post Basel 2!

• Returns are “Infrastructure Returns”

- 12%-18% IRR is proven to be acceptable to institutions

- 5%-12% IRR plus tax breaks was briefly a retail product where capital markets were reasonably developed

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Appearances vs Reality

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Renewable Energy

in

Emerging Markets

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International Mezzanine Finance

This announcement appears as a matter of record only

Theun Hinboun Power Co. Ltd.

Subordinated Loan

Theun Hinboun Power Co. Ltd. owns and operates a 210 MW hydroelectric power plant in Lao Democratic Republic

InvestorsAsian Mezzanine Infrastructure FundCaisse des Dépôts et Consignations

September 1998

This announcement appears as a matter of record only

Theun Hinboun Power Co. Ltd.

Subordinated Loan

Theun Hinboun Power Co. Ltd. owns and operates a 210 MW hydroelectric power plant in Lao Democratic Republic

InvestorsAsian Mezzanine Infrastructure FundCaisse des Dépôts et Consignations

September 1998

$10 Million Deal with Nordic Hydropower and EDF

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GEF and IFC – Micro-finance for PV

Deal Example: Barclays Bank of Kenya

Barclays Bank of Kenya co-invests with PVMTI to provide loans to multiple Kenyan Savings and Credit Co-Operatives (“SACCO’s”) in partnership with KUSCCO, an umbrella organisation representing over 1,500 SACCO’s.

SACCO’s will on-lend funds to their members to purchase PV systems, which will be supplied by Solagen and other quality PV companies.

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Lessons in Emerging Markets

• Government Regulation is key to Renewable Energy Tariffs

- Tariffs may be new, changing or not widely available

• Project Debt Is Less Widely Available

- Skills exist in the banking sector

- Regulatory support not as developed

- Capital allocations vary - country debt risk ratings, etc.

• Returns are “Infrastructure Returns” and less!

- 12%-18% IRR less proven to be acceptable to institutions given additional risks

- 5%-12% IRR not acceptable to traditional investors

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Bridging the Market – Grant Gap!

• Technology Transfer• Applications – not R&D• Long term, market forces are more sustainable• Regulation can support investment

• Applications Require Private Funding:• IRR levels create “market funding gap”

• ODA funds:• Country Co-financing – process is heavy as you know!• Even risk being drawn into “debt relief” debate• Largely focussed on non-energy issues• May need to be given more “leverage and efficiency”

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Existing Funding Programmes

Developing Market Funding Sources

Type of Investment

Public sector dealPrivate sector deal

Debt

World Bank (IBRD, IDA)Regional Development Banks (ADB)EIBGovernment Aid AgenciesDevelopment Banks

EIB, IFCRegional Development BanksGovernment Aid AgenciesDevelopment Banks:Export credit agenciesKFW, FMO, JDA, etc.

Equity Not applicable to public sector

DEG, FMO and IFC *1]Few others except through funds(Frmer CDC – now private as “Actis”)

GrantKfWGovernment Aid Ag’ys/Dev.’t BanksWorld Bank

KfWGovernment Aid Ag’ys/Dev.’t Banks:Economic Cooperation Funding

[1]* DEG, FMO and IFC usually invest in minimums of €5-15 million, not in smaller deals.

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Key Issues Addressed by the PCI

• Technology Transfer• Applications – not R&D

• Only market forces are sustainable long term• Regulation can support investment

• ODA funds:• Miss the Energy-Poverty Link• Need to recognise the oil bill impact = debt bill impact• May need to be given more “leverage and efficiency”

• Points remain:• IRR levels create “market funding gap”

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“Patient Capital Initiative”

Global Renewable Energy Fund of Funds

Presented at the World Conference for Renewable EnergyBonn, June 2004

In Support Of The Johannesburg Renewable Energy Coalition

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Public – Private Partnership Process

• 2003 - Private Sector Informs Public Sector (JREC context)

• Expert Group meetings and high-level political discussion • Equity “Funding Gap” Defined • Patient Capital Initiative Emerges

• 2004 - Public Sector Engages Private Sector to Address Issues

EC Feasibility Study of Patient Capital Initiative• Expert group meetings • Financial and market feasibility review• Public presentations/consultations

• 2005-2006 - Public Sector invests in Public-Private Partnership

• Subject to private sector co-investment - leverage• Requiring private sector execution skills

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Basics of the PCI Fund of Funds

• Outsourcing what is most economically done by others• Policy guidelines in force• Private sector executes what policy investors cannot achieve

directly

• Separation of Strategic and Operational Roles • Policy controls retained – Top Level Role• Investment Identification and Execution on the ground

• Bring in Other Sources of Funds • Leverage – commercial and other co-investment funds multiply

funds committed by the PCI – at both the subfund level and the investee company level

• IRR Buy-down• “subordination terms” of patient capital!

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Structure of PCI Fund of Funds

Regional Funds

Specialist Funds

Core Sponsors

Funding down by seed funding or through Patient “A” Share Investment

Global Renewable Energy Fund of Funds

Private and Public Co- Investors in Sub-Funds through Commercial “B” Shares

Local co-investment in projects based on sub-fund investment requirements

Specific Project or Business Investments

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The PCI = A One Stop Shop

• Co-funding for Local / Regional Subfunds

• Invest with local institutions

• Invest with local experts on the ground

• On “subordinated terms” – “first in, last out”

• Funding for Carbon Credit purchase

• Funding for Technical Assistance

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Prospective Carbon Credit Funding Structure

Sub Fund 1

Investment

€ Flow

Carbon Facility

Sub Fund 2

Project 1

Project 2

Project 3

€ Flow

Carbon Investors

Project Assets

Carbon Credits € Flow

Carbon Credit Generation

Note: Project 3 sells carbon credits to the Carbon Facility; revenues support the sub fund investment with ultimate flow back to investors in the sub fund.

Policy Investors

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The PCI - What and Where?

• Funding for Specialist subfunds

• Regionally Specialised = Africa, AOSIS, LA, etc.

• SME and technology specialist options for the subfunds

• Solicitation Process

• Market changes, one cannot prejudge “best opportunity”

• Subfund proposal solicitations

• Where (policy), How much (leverage), Patience (Deal Terms)

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Operational Structure of the Fund of Funds

Fund Manager Trustee Bank

Investors and Core Sponsors

Fund of Funds Entity

• Investment Committee 1 • Governance Committee 2 • Secretariat 3

Investments in Subfunds

Funding by either Debt, Equity or Grant

Trustee Agreement for holding funds

Fund Management Agreement

Investment Agreements

1. Investment Remit: Approves investments based on policy and economic criteria 2. Policy remit: Oversees fund activities (and may include an audit subcommittee) 3. Communicates official Fund instructions and reports to outside parties and investors

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Base Case Full Life Cycle Sources and Uses of Funds

Uses of funds Sources of funds

Investments 61.2 Funds under mgmt 75.0

Operating/Technical expenses 11.9 Investment returns 50.7

Total gross expenses 73.1 Total gross proceeds 125.7

Net retained cashflow for recycling 52.5 86% return of initial subfund investments (before opex and TA)

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PCI Scenarios Altering Subfund Size, Number and Performance

Top Tier Case SubFund IRR

FoF € in SF

Default Rate

Avg. deal Size (€m)

PCI Recovery

Avg. PCI Recovery

"B" Share Returns

Top Tier Summary:A Strong 15% 35 1 4.9 91% 18%B Weak 8% 30 1 4.1 72% 10%Top Tier Summary:C Strong 14% 30 1 4.0 78% 18%D Medium 8% 20 1 2.7 66% 11%E Weak 5% 20 1 2.6 51% 10%Top Tier Summary:F Medium 8% 20 1 2.7 66% 11%G Weak 5% 20 1 2.6 51% 10%H Weaker 1% 20 2 2.6 33% 6%Top Tier Summary:

4 €40 million D Medium 8% 20 1 2.7 66% 11%H Weaker 1% 20 2 2.6 33% 6%

50%

81%

65%

50%

1 €65 million

2 €70 million

3 €60 million

Subfund Case

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Time Frames

• Project launch -- January 2004

• Bonn – June 2004

• Draft Feasibility Study of “Patient Capital” Vehicle

• Deal Flow to Substantiate the Investment Agenda

• Vehicle structure reviewed with Stakeholders

• Final Feasibility Analysis – September 2004

• Report socialised with stakeholders

• Fund-raising for the Fund of Funds

• Subfund Solicitations in 2005-2006

• Investments on the Ground – Late 2006 Target

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Contact Us Directly

Peter Rossbach

Impax Group plc

Broughton House

6-8 Sackville Street

London, W1S 3DG

UK

Tel: +44 207 434 1122

E-mail: p.rossbach@impax.co.uk