FINANCIAL INSTRUMENTS FOR OCEAN POWER Brussels, 4 April 2014 - - PowerPoint PPT Presentation

FINANCIAL INSTRUMENTS FOR OCEAN POWER

Brussels, 4 April 2014

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Overview

EIB Group: an introduction Instruments relevant to the ocean energy sector Who is investing? Who is not? Towards bankability

EIB Group

EIB + EIF = EIB Group EIB = EU's long-term lending institution Established 1958, owned by the 28 EU Member States Policy driven, innovation and climate action as high priorities

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EIF’s Shareholders

EIB: Main shareholder (61%) European Community represented by the European Commission (29%) 30 public and private financial institutions from 17 countries (9%), including:

* 1% of EIF’s shares are still to be issued

EIF/EIB financing: an overview

• Risk Capital
• CIP Resources (SME)
• RSFF (SME / MidCap)
• Entrepreneur, friends, family
• Business Angels
• Seed/Early Stage VC Funds
• VC Funds
• Bank Loans and Guarantees
• Seed / Start-Up Phase
• Emerging Growth Phase
• Development Phase

Facility: High Growth Innovative SME Scheme (GIF), Ecotech Purpose: IP financing, technology transfer, seed financing, investment readiness Target Group: VC Funds, Business Angels EIF Product: Fund-of- Funds Competitiveness and Innovation Program (CIP) Guarantee schemes Growth financing for SMEs VC Funds, CLOs SME guarantees (loans, microcredit, equity/mezzanine, securitisation) RSFF including RSI and soon MCI /GFI Innovation financing SMEs/MidCaps, Banks, PE Investors (sub- investment grade) Loans (incl. Mezzanine), Funded Risk Sharing Facilities with Banks (Investors) Special Operations

• RSFF / Investment Loans

RSFF Investment Loans RDI financing MidCaps/Large Corporates/Public Sector Entities (investment grade) Guarantees Special Operations

• Later Stage
• Counterparts
• EIF

EIB

EIB Financing Instruments

We have an extensive range of instruments to finance public and private sectors at investment and sub-investment grades of risk

• EIB lending instrument

for Investment Grade

• perations
• Special Activities
• For low and sub

investment Grade

• perations
• Project Finance
• Direct Loans

Project

• Project finance with

direct project risk

• LGTT/RSFF
• (Mezzanine)
• Equity through
• Funds
• Intermediated

Loans

Banks

• Public Sector

Financing

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Principal Features of an EIB Loan

Benefits of low cost of funding passed on to clients:

Up to 50% of project costs financed (extended to 75% for eligible environmental projects), at competitive interest rates Broad range of currencies Long maturities Catalyst for participation of other banking or financial partners

Two main facilities:

Direct Loans - Large-scale projects (more than EUR 25m) Corporate and project finance Risk sharing finance facility (RSFF) may be of particular interest to ocean energy sector: complementary to other sources of debt capital available for low/sub investment grade RDI intensive corporates Intermediated Loans Small and medium-scale loans (particularly to SMEs) via national and regional intermediary banks Lending decision remains with the financial intermediary

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Stages of Ocean Energy Industry Development

1st and Next Generation Prototype

TRL 1-7: up to 1 MW Market Push: e.g. Capital Grants

1st Wave/ Tidal Farms

TRL 8-9: 2MW to 10MW Market Push and Pull: e.g. Capital Grants (Push) e.g. Multiple ROCs (Pull)

2nd Farms and Beyond

TRL8-9: over 10MW Market Pull: e.g. Multiple ROCs (Pull) Source: RenewableUK

1A – concept development and tank testing (TRL 1-3) 1B – greater scale prototype (TRL4-5) 1C – full-scale grid connected prototype (TRL 6-7)

Stage 1 Stage 2 Stage 3 Critical role for grants and feed-in tariffs

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New H2020 Product Portfolio

RSI: Innovative SMEs

High RISK Low

EIB/EIF MCI

EIB RSFF Individual RDI Loans EIF Equity

Fund of Funds

RSFF GFI

Direct (Co-)Investments Pure RDI Invest. Focus Mid-Caps only SIZE OF SINGLE TRANSACTION Funding

Pre-seed Seed Funding Start-up / Mezzanine/Growth Commercialization / Industrialization Growth / Stability

Phases 1st Valley of Death 2nd Valley of Death EUR 7.5m EUR 25m EUR 300m EUR 25K

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Innovation – NER300 1ST Call Results

• EIB involvement: COM Decision calls on EIB and its expertise in certain

areas

• Allocates 2 advisory tasks to the Bank: a) Due Diligence of Project

Applications; b) Monetisation of EU CO2 allowances

• 1st round: 200 mln EU CO2 allowances ; ~EUR 1.2 billion funding

awarded

• Funding is in principle = 50% of extra investment and operating costs

for demonstration (“Relevant Cost”)

• Funding for 23 RES projects, 6 of 8 RES sub-groups, 16 sub-categories of

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Innovation – NER300 1ST Call Results – OCEAN projects

• 3 NER300 ocean categories: Wave (>= 5MW), Tidal (>=5 MW), OTEC1

(>=10MW)

• 8 Project Applications received in all categories
• 5 projects ranked in all categories
• 3 projects attributed for NER300 funding (wave & tidal),
• 1 withdrawn after Award Decision
• Remaining total NER300 funding amount for ocean projects: ~40 MEUR
• Project 1:

UK, Sound of Islay, 10 MWe array, ten grid-connected tidal current turbines (3-bladed, seabed mounted ), located at the west coast of Scotland.

• Project 2:

UK, Kyle Rhea, 8 MWe tidal turbine array, located in strait between the Isle of Skye and the Scottish mainland, four tidal energy twin rotor turbines each rated at nominal 2 MWe .

1) OTEC = Ocean Thermal Energy Conversion

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Private Investment Activity – who is investing

Industrial players / Conglomerates: active in recent years (Siemens, Alstom, other) Utilities Individuals/ family offices JVs favoured: sharing of competences, risk

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Under-represented investor types

VC and private equity funds: historically cautious given concerns over time-to-market, technology risks, capital intensity/dilution Infrastructure funds: willing to take equity risk but generally

• nly in proven technologies

Banks via PF structures: function of maturity of the sector Role for new partnerships, products, even institutions

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A growing role for VC?

Investment keys: IP, clear milestones to be reached, controlled cash burn, strong management and BP, value-added to exit, existence of buyers Biotech v. marine energy? Investment in supply chain, enabling technologies e.g. IT, new materials

S ingle s teps in drug development – the L ife S ciences value chain

In Vivo P re-clinics

P reclinical P has e to tes t the lead s ubs tance in different model s y s tems

Clinical P has e I Clinical P has e II (a/b) Clinical P has e III (IV)

Tes ting of efficacy and tox icologyin relevant animal models Tes ting of potential tox icologyin (generally ) healthy volunteers , dos e defining s tudies E valuation of the efficacyin a s maller group of patients S tatis tical s ignificant evaluation of the efficacy of the product in a broad group of patients DES CR IP TION

In Vitro P re-clinics

Approval Approval

Marketing S ales

Approval Approval

12 -18 months 6 – 12 months 6 – 60 months TIME FR AME 6 – 18 months

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New types of infrastructure fund?

Renewable Energy Investment Fund Case Study: Green for Growth Investment Test

Is the fund a sound investment proposition? Issuance of different share tranches (A, B, C and later Notes)‏ Offering investors different risk-return profiles

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Moving towards Bankability?

Creating an enabling environment Regulatory Environment: Feed In Tariff, Permitting Public Finance: Government or EU in form of grants or guarantees Grid connections

Main barriers to finance:

• High-risk nature of the project
• Lack of commercial viability
• Lack of coordination between

public funding sources

• Commitment of project promoters
• Insufficient technical and financial

advice to make projects investor-ready