Patrick DoyleMGM Innova Capital

Sao Paulo, Brazil

30 2016

August

CONGRESSO BRASILEIRO DE

EFICIÊNCIA ENERGÉTICA COBEE

INTRODUCTIONMGM SUSTAINABLE ENERGY FUND (MSEF) focuses on financing energy efficiency and renewable energy projects in Colombia,

Mexico, Central America and the Caribbean, and is now expanding to Brazil

ENERGY EFFICIENCY RENEWABLE ENERGY

Efficiency in buildings

Hotels, hospitals, shopping centers, fast food chains.

Efficiency in municipal infrastructure

Water pumping systems.

Street lighting.

Industrial efficiency

Waste heat recovery, biogas and waste biomass.

Cogeneration.

Technologies

Solar for sale to the grid.

Hydro generation (small scale) and rehabilitation of hydro electric plants.

Landfill Gas

Early stage Enter projects at early stage to add value to local developers

Distributed generation

Opportunities in countries with high electricity retail prices.

INVESTMENT TYPES AND STRATEGY

Up to 100 % of the investment by MSEFIncludes investments required for analysis, main equipment, auxiliary systems and civil and electric works needed by the projectLong-term contractsCompany not required to provide collateralContract conditions to ensure company’s balance sheets and debt capacity are not affected Early exit contract clause if so required by companyAutomatic transfer of assets to company on contract expiry

INVESTMENT FEATURES

• Based on walk-through inspection and available information• Analysis of technical and production risks• Submission of report and non-binding conditions for project

development under ESCO model

Conceptual analysis of the opportunity(A1)

• Basic engineering and adjustment of investment budget• Environmental assessment• Legal and financial due diligence• Submission of binding terms and conditions

Analysis of basic engineering and due diligence (A2 and due diligence)

• Development of detailed engineering• Procurement and project implementation• Project tests and commissioning• Close financing

Detailed engineering, financing and project implementation

• Project operations• Preventive and corrective maintenance• Monitoring of achieved savings or energy supply

Project operation, maintenance and monitoring

• Transfer of the installation in operating conditions for continued use by the companyTransfer of installation

TYPICAL ANALYSIS STEPS

Offshore

Onshore

Energy sale contract/leasing/shared savings

Equity (100%)

Dividends

Fixed monthly payments indexed to CPI

Special Purpose Vehicle (SPV)Service contract

Design, construction, installation, commissioning and monitoring

(optional: operation and maintenance)

MGM Innova Capital manages MSEF

Pre-Construction steps- Signature of term sheet- Submission to Investment Committee

1. Contract signature between SPV and Client.

2. Capitalization of SPV.

3. SPV purchases equipment and coordinates installation through service contract.

4. Suppliers provide equipment and associated guarantees.

5. Payment of investment through savings/energy generated by the project.

6. SPV returns dividends to MSEF.1

2

3

4 5

6

Client

local/international contractors

MSEFTYPICAL INVESTMENT STRUCTURE

ENERGY EFFICIENCY AND CLIMATE CHANGE MITIGATION PROJECT SUNSET HOTEL CHAIN – CANCUN, MEXICO

CASE STUDY

Scope

Replacement of chillers and air conditioners

Installation of heat recovery chiller

Installation of high efficiency lighting

Installation of temperature control systems

Replacement of air handlers

Solar water heaters

Development of Greenhouse Gas Inventory and Climate Neutrality Strategy

Equity IRR:

Contract:

Tenor/Duration:

Energy Savings Payment:

High teens unlevered

Operating lease

6 years

93% of recorded savings (Baseline) + fixed payment component (fan & coils and solar water heaters)

Before

Standard water heater Solar heaters

High efficiency cold water generatorStandard cold water generatorAfter

Savings

Electric energy: 38.40% (MX$ 6,573,243/yr)GLP gas: 32.50% (MX$ 1,369,727/yr)GHG emission reductions: 26,096 tCO2e over project lifetime (12 years)

CASE STUDY

Scope

Rooftop solar panels (98 kWp, 136 kWp and 122 kWp)

Hybrid controller to switch between solar and diesel generation

Remote monitoring system

Equity IRR:

Contract:

Tenor/Duration:

Payment Structure:

High teens levered

Operating lease

20 years (expected exit prior)

Fixed payment equivalent to $0.30/kWh in first year and $0.21/kWh in subsequent years

Savings

Renewable energy generated: 234,510 kWh/yr Fuel savings: 20.019 Gal/year (118,000 US$/yr)GHG emission reductions: 3,804 tCO2e over 20 years

DISTRIBUTED GENERATION PROJECTRED FROG BEACH RESORT - PANAMA

CASE STUDY

Scope

Replacement of AC units for VRV technology with a centralized monitoring system

Installation of high efficiency lighting

Installation of a 75 kWp solar generation system divided in three 25 kWp systems

Equity IRR:

Contract:

Tenor/Duration:

Energy Savings Payment:

Mid-teens levered

Operating lease in US$

10 years, to be negotiated

95% of the savings

Savings

Electric energy: 51.18% (237,000 US$/yr) GHG emission reductions: 7,894.8 tCO2e over project lifetime (10 years)

COMMERCIAL ENERGY EFFICIENCY AND SOLAR DISTRIBUTED GENERATION PROJECT BANCO DE AMERICA CENTRAL (BAC) – EL SALVADOR

P1 –P2

Variable flow system

Control by floor Control by air management unitOnly operates in

required area

CASE STUDY

Scope

Replacement of Municipality of Ensenada’s 25,000 street lights with high efficiency LED lighting

MSEF investment of up to US$ 2.5 million mezzanine financing for Optima’s Ensenada street lighting project

Remaining 85% of project capital structure provided by senior loans from InterAmerican Development Bank (IDB) and Canadian Climate Fund for the Private Sector in the Americas (C2F)

Equity IRR:

Contract:

Tenor/Duration:

Payment Structure:

Exit Strategy:

High teens

Sub Debt Contract (mezzanine debt)

9 years

Monthly payment with variable interest rate in MX$ adjusted to US$-MX$ exchange rate

Total sub debt repayment, or pre-payment premium

Savings

Electric energy: 59% (approx.)GHG emission reductions: 150,000 tCO2e over 20 year life of luminaires

OPTIMA STREET LIGHTING IN MEXICO

• Contractual complexity:– Lease (operating/financial?), PPA or rental?– Take or pay – on weekends/holidays?– Risks of tax and net-metering legislation changes– High legal costs for small projects– Insurance coverage

• Debt issues– Off-taker/customer credit ratings may not be available– What if customer wants a buy-out early?– Delays in bill paying possible– Finance pre-construction? EPC wrap possible? – What tenor and % leverage is likely?

• What is the expected exit/sale price for the projects?

Challenges in financing off-balance sheet distributed generation vs. utility-scale solar

Shades of : Renewable Energy (27%)

Shades of : Energy Efficiency (73%)

MSEF PORTFOLIO MSEF INVESTMENT AMOUNT PER TYPE OF INVESTMENT

Commercial EE30%

Industrial EE17%

Solar Utility5%

Hydroelectric Generation

10%

Landfill Biogas12%

Solar Distributed Generation

16%

Street Lighting10%

PIPELINEINVESTMENT AMOUNT BY COUNTRY

Costa Rica6%

Mexico18%

Colombia23%

Dominican Repub-lic5%

Panama4%

Peru2%

Honduras7%

Haiti2%

Brazil32%

Regional1%

THANK YOU !!!

Patrick DoyleManaging Director, MGM Innova Capital

pdoyle@mgminnova.com