Renewable Energy & Smart Grid Opportunities for Finance Institutions

Global Sustainable Finance Conference Karlsruhe, June 14th, 2014 Thomas Walter

Agenda

• Opportunities for renewable energies in sunbelt countries

• Overcome challenges and create even more opportunities

• A film if you have time….

• More details on financing if you wish….

July 22, 2012 Footer text here 2

Huge Market:

• Diesel powered grids

• RE is cheaper than Diesel already

(fuel cost ~ 0.3 $/kWh)

• Maximize RE share: solve energy

storage - the smart way!

• Example Indonesia: >3GW diesel

capacity in public grid alone

A new perspective: PV is a low cost replacement for Diesel Electricity

Opportunities for Renewable Energies

PV is beyond Grid Parity in diesel grids today, gas will follow soon..

Opportunities for RE

Client perception: CAPEX vs. OPEX

July 22, 2012 Based on estimation 5

Inve

stm

en

t

Diesel solution*

Diesel solution

Inve

stm

en

t

PV solution*

PV solution

Clients used to low CAPEX / high OPEX

PV is a new investment model with high CAPEX (upfront investment) and low OPEX

More liquidity for the upfront investment required in first year for PV project

Profitability analysis

July 22, 2012 Footer text here 6

Scenario Europe Scenario Emerging

market Project specification PV Installation capacity 300 kWp 300 kWp Specific installation output 1 457,017 kWh/a 457,017 kWh/a PV portion / energy need 7% 7% Investment CAPEX 625,250 € 625,250 € Investment per kWp 2,085 €/kWp 2,085 €/kWp Savings (1st year) Fuel Savings (€) 113,917 € 113,917 €

Fuel Savings (Diesel litre) 135,016 litre 135,016 litre Emission savings CO2 361,844 kg 361,844 kg Savings (over 20 years) Fuel savings 4,397,279 € 4,397,279 € Total savings after OPEX ² 3,451,638 € 3,221,103 € Emission savings CO2 6,893,127 kg 6,893,127 kg Fuel savings (litre) 2,572,062 litre 2,572,062 litre Project financing

Equity ratio 70% 70%

Interest rate 7.50% 18.00% Amotization time 10 years 10 years

These two scenarios differ on financing conditions (European vs. emerging countries context). Impact: pay back period. Note: A PV plant (EEG basis) in Germany might have payback of 10 to 14 years.

-2.000 k€

-1.000 k€

k€

1.000 k€

2.000 k€

3.000 k€

4.000 k€

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Years

Pay Back Flow

Scenario Europe Scenario Emerging Market

Scenario Europe

Scenario Emerging market

Main five conditions to achieve success…

19 February 2014 7

PV Know-How & Perception

Awareness : PV is for the poor /

is too expensive“

Unrealistic expectation : „I want a carbon free solution“

Finance

Below 4 million € value, we

can‘t propose project

financing

Local banks not ready for type of project or technology

Grid Infrastructure

Invest to mini grid <-> grid

extension

Implementation

Logistics and local partner

management: higher $/W

than in Germany

Service

Difficult access / long reaction time in remote

area

Local commitment and competences are essential

1 DSM = Demand Side Management

Spinning Reserve (short term <minute)

Volatility of Renewables

Solution Challenge

Balancing Demand and Supply

Storage & DSM1

(long term >hour)

Storage type 1

Storage type 2

Grid balancing and stability become key from about 20% RE share

Challenges for Renewable Energy

Diesel 0.50 $/kWh

PV 0.25 $/kWh

Generation cost (Maldives)

Value of flexibility of diesel electricity

System cost (Smart Grid)

0,00… USD/kWh

Battery 0.20 $/kWh

E-mobility 0.00… $/kWh

Flexibility cost

Desalination 0.00… $/kWh

Cooling 0.00… $/kWh

Cheap solutions by Flexibility market: • Flexibility sources compete on price

• Smart Grid: provide means and incentives

to mobilize cheapest flexibility (Cooling, Desalination, Pumping, Electric Vehicles)

Challenge: As RE becomes cheaper, Flexibility becomes more important

Real Electricity Prices in Mini Grids: - If generation < load: Increase price until balance is reached - If load < generation: Reduce price until balance is reached - Flexible generators: Shift generation to high price times - Flexible consumers: Shift consumption to low price times - Storage: Charge at low price, discharge at high price (arbitrage) How to implement? - „Big Data“ (adapt planned industrial country „Smart Meter“ solutions)

or - „Easy“ Smart Grid (the robust mini grid solution with minimum cost)

Easy Smart Grid: A mini grid energy market

f [Hz]

p [$/kWh]

0.25

0.55

50.0 49.5 50.5

-0.05

Consumer: Switch off if possible

Consumer or storage: Switch on or charge if possible

Provide means and incentives to mobilize flexibility

KISS: „Easy“ Smart Grid

Easy Smart Grid - early markets and applications

Public

Public/ Private

Private

Small (100 kW)

Medium (3 MW)

Large (100 MW)

ccc Option 1

ccc

ccc

ccc

Option 2

Option 3

Option 4

Grid Operators - Make most of grid capacity - Reduce damage from blackouts - Increase customer satisfaction Infrastructure Players (governments, dev. banks, communities) - Greenfield and brownfield developments - Synergies from hubs and anchors RE Project developers and industry - Multi source integration (PV+Wind+Hydro

+Biomass) PV Project developers and industry - Get more PV into diesel grids - Lower battery investment

Be prepared for evolving business in RE

Option 1: Leasing of PV installations (IFC could refinance)

Option 2: gain know how financing energy projects of local

resources (e.g.biomass)

Option 3: PPP and Anchor Investor projects stimulate RE growth

Option 4: Use market mechanisms to stimulate RE and energy

availability (price down, reliability up)

Finance opportunities

July 22, 2012 Footer text here 13

Thank you for your interest! Dr. Thomas Walter Easy Smart Grid GmbH, Karlsruhe Mobile : +49 171 229 4629 E-Mail : thomas.walter@easysg.de Coming soon: www.easysg.de

IOSD Economics analysis

Key economic indicators

July 22, 2012 Footer text here 16

The Levelized Cost of Electricity calculation enables the economic comparison of different energy generation plant, for example diesel generator and PV plant. Discount rate is equivalent to the cost of capital. It takes into account : • Project specific conditions • Stability of the financial climate • Charges and country specific financing

conditions • Amount of foreign and local investments • Technology specific risk • how financing institutions perceive PV

technology today and in the future…

Scenario Europe

Scenario Diesel Substitution

Key Indicator Discount ratio 6% 15% Levelized Cost of Electricty (LCOE)

.19 €/kWh .28 €/kWh

LCOE with financing cost

.22 €/kWh .36 €/kWh

ROI 20 years 552% 515% IRR 18% 15%

Change in the discount ratio increases the LCOE of 47% to 63% in comparison with European context.

Clients approach toward infrastructure investment Solutions are required to provide clients with guarantee, risk mitigation tools as well as adequate financing instrument.

July 22, 2012 Footer text here 17

Clients

On Balance / Corporate Finance

Off Balance / Corporate Finance

Willing to buy energy (commodity)

Loan with a local bank

Leasing concept

PPA on PV /RE energy

Willing to buy an energy system

PPA on whole energy (diesel, PV/RE)

Overview of Financing possibilities

However, these financing solutions can’t be designed in Europe but in these emerging countries. They should be managed by local institutions, with a deeper understanding of the local constraints and advantage.

July 22, 2012 Footer text here 18

Small project Small projects bundled

Big project

Size -> ~6 M.€ -> ~ 3 MWp

from ~6 to 20 M. € from ~3 to 11 MWp

from 20 M. € from 11 MWp

EPC Local Bank (Scenario 1)

~ 15 % interest Difficult support from Germany

~ 15 % interest Difficult support from Germany

~ 15 % interest Difficult support from Germany

EPC Leasing (Scenario 2)

Not possible 15-18% interest rate 15-18% interest rate

PPA (Scenario 3)

Not possible Complex structure - Same client - Same country

Classical WIRSOL Financing offer (SPV Structure)