Show me the Money

Rabobank International

Marc Schmitz – RabobankDecember 20th 2011

-How viable is the offshore wind sector?

The history of onshore and offshore wind

• Started in 1985 with first onshore

Onshore windOnshore wind Offshore windOffshore wind• Started only a few years ago (Horns

wind farms (250KW)

• To date turbine size 2-3 MW/turbine

y y g (Ref, Prinses Amalia Windfarm and C-power 10)

To date turbine size 2 3 MW/turbine

• Onshore wind is already a commodity with 200GW installed

• Turbine size started with 2/3 MW, increasing to 5-7 MW

commodity with 200GW installed world wide

• From 1985-1995 strong decline in

• Only 3GW installed until now. Forecast: 36 GW in 2020

From 1985 1995 strong decline in O&M costs and later on still improvements, but smaller

• Strong learning curve coming years

Levelised cost of selected power technologies Levelised cost of selected power technologies (EUR/MWh)

Wind - offshore

STEG-Tower & Heliostat 184.18

159.82

Biomass - anaerobic digestion

PV - c-Si 143.45

106.80

Wind - onshore

Biomass - incineration 79.63

54.68

l

Natural Gas CCGT

Coal fired 54.94

43.03

0 50 100 150 200 250

Electricity prices 53.64

LCOEBNEF 2011 EU-ETS EUA forecastBNEF 2011 EU ETS EUA forecastCentral scenario

Rabobank’s view on lowering cost of offshore Rabobank s view on lowering cost of offshore wind energy: A calculation exercise

Assumptions

• Medium sized wind farm (200 MW), 3300 full load hours 660GWh per

Potential improvements

• Scale

• Pl i3300 full load hours, 660GWh per annum

• Capex EUR 4 mln/MW (EUR 800 mln)

• Planning

• Equipment

• Operation and maintenancemln)

• Construction two years, FiT tenor 15 years (EUR 150 MWh)

• Financing

• Debt/equity: 65/35, ROE 10-12%

According to Bloomberg and Rabobank the investment costs and O&M According to Bloomberg and Rabobank the investment costs and O&M g gcosts could decrease in 2022 up to 30%!

g gcosts could decrease in 2022 up to 30%!

Influence of cost reduction

Results

O ti d i t tOperation and maintenance cost

Investment cost/MWh 0 -15% -30%

0 150 145.5 141

-15% 132 127.5 123

Pl h O&M i h i d d d f EUR 50 MWh

-30% 114 109.5 105

• Please note that O&M costs in onshore wind decreased from EUR 50 per MWhto EUR 15 per MWh in the period from 1985 – 1995

Market price electricity

160

180

120

140

80

100 Electricity Price

40

60 Offshore LCOE

0

20

2012 2014 2016 2018 2020 2022 2024 2026 2028 20302012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Investment volumes

• Total investments in Europe of EUR 130bn (2012 – 2020)coming from 3GW in 2010 to 36GW in 2020

• EUR 15bn/yearEUR 15bn/year

4%

40%

23%Turbine

FoundationFoundation

Electrical

Installation

14%Project

19%

Funding example (400MW wind farm)

Financing EUR 1.5bn

Equity1 EUR 500m

Public financing institutions2 EUR 700m

Commercial loan3 EUR 300m

Example

1. Utilities (Eneco, EDF, RWE, Dong), Project developers (C-power, Belwind, PNE)Private 1. Utilities (Eneco, EDF, RWE, Dong), Project developers (C power, Belwind, PNE)Private equity (Blackstone), Turbine suppliers (Siemens, Vestas), Pension funds (PGGM, Pension Denmark), Rabobank. Rabobank has as well provided subordinated debt

2. Kfw, European Investment Bank, Green Investment Bank, Export Credit Agencies

3. Rabobank, Unicredit, BNP, BOTM, ASN, ING, etc.

Financing Offshore Wind to date

• Approximately 1 GW of Offshore Wind has been financed on a non-recourse

Non-recourse FinancingsNon-recourse Financingspp y

basis until now

• Other 2 GW financed on balance sheet by utilities like Centrica RWE Eneco • Other 2 GW financed on balance sheet by utilities like Centrica, RWE, Eneco, Stadtwerken in Germany, Dong, EON, etc

• Until now approximately 25 commercial banks have been involved in the off-shore market

• Before 2011 maximum 2 non recourse financings/year. In 2011, 5 non-recourse financing have been done (Borkum West, Global Tech 1, Lincs, Meerwind and Baltic I), of which two were financed by Rabobank

Offshore Wind – Non-recourse Financings

In Operation

Portfolio Rabobank: 1.4GW – EUR 6 bnPortfolio Rabobank: 1.4GW – EUR 6 bn

2006 Prinses Amalia 120 MW Netherlands

2007 C-Power I 30 MW Belgium00 C o e 30 e g u

2009 Belwind 165MW Belgium

2010 GLID 194 MW UK2010 GLID 194 MW UK

Under Construction

2010 C-Power II, III 325 MW Belgium2010 C Power II, III 325 MW Belgium

2011 Borkum West 200 MW Germany

l b l h2011 Global Tech I 400 MW Germany

Lessons learned…

• Complex projects require good communication

• Most projects are based on multi contracting, so strong project management is required required

• Cable damages could arise, but issues are solved adequately

• Issues in design of the foundations and turbines (grouting issue) strongly i dimproved

• Cost overruns during construction are within contingency levels

• Project completion is mostly on time

All projects are performing to (and slightly above) expectations, even All projects are performing to (and slightly above) expectations, even p j p g ( g y ) pwith the issues mentioned above

p j p g ( g y ) pwith the issues mentioned above

Financing requirements

• Stable subsidy schemes (stable income), fixed price PPA, consistent governmental support

• Proven/reliable technology. In case of new technologies strong guarantees are Proven/reliable technology. In case of new technologies strong guarantees are even more important (Areva)

• Solid, creditworthy and reliable partners

• St • Strong sponsor

• Long term operation and maintenance contracts (5 15 years today)

• Good insurance package

• Last but not least: Strong project management

How can we reach our common goal to How can we reach our common goal to increase Offshore Wind?

• Stable support from governments

• Innovative technologies• Innovative technologies

− Lower costs, more efficient (larger capacities for example)

• Mobilizing new providers of funding

− Institutional investors

Public Financing institutions − Public Financing institutions

− Export Credit Agencies

− More commercial banks

− Project bonds

− More advanced project finance structures (Shorter tenors and/or hard refinancing triggers)refinancing triggers)

PdW1

Slide 14

PdW1 Een hoofdconclusie trekken; maar gericht naar de drie typen stakeholders: constructie, regulatie en financiële institutiesWaardP; 4-3-2011

Conclusions

• In 10-15 years off shore wind can compete with other sources of sustainable energyenergy

• Political support for sustainable energy has increased after Fukushima

• Teething problems off shore mainly solved, however a lot of room for cost reductions

• Promising off shore wind market, good returns compared to the risks

PdW2

Slide 15

PdW2 Een hoofdconclusie trekken; maar gericht naar de drie typen stakeholders: constructie, regulatie en financiële institutiesWaardP; 4-3-2011

Questions?Questions?

Rabobank InternationalRabobank International

Marc Schmitz

Telep ho ne: + 31 (0)30 7 12 3351E-mail: Marc.Schmitz@rabobank.com