R e n e wa b l e E n e r g y G r o u p
Q3 2007 Renewable Energy Country Attractiveness Indices
Financing a sustainable future Ernst & Young Renewable Energy Group Page 1 Overview of Indices and Glossary Page 1 The Sub-Prime Credit Crunch and Renewables Page 2 Global Highlights Page 4 All Renewables Index at Q3 2007 Page 5 Long-term Wind Index at Q3 2007 Page 6 Near-term Wind Index at Q3 2007 Page 7 Commentary – High-scoring Countries Page 8 Marine and Offshore Issues Page 11 Q3 2007 Webcast Page 12 Euromoney and Ernst & Young Renewable Energy Awards 2007 Page 12 Commentary – Guidance Notes Page 13 & 14 United States Renewable Energy Attractiveness Indices The Ernst & Young Country Attractiveness Indices provide scores Page 14 for national renewable energy markets, renewable energy infrastructures and their suitability for individual technologies. The indices are updated on a regular basis. Ernst & Young Overview of Indices The Ernst & Young Country Attractiveness Wind Index — 75% (Comprising Onshore Renewable Indices provide scores for national renewable Wind Index and Offshore Wind Index) energy markets, renewable energy Solar Index — 10% Energy Group infrastructures, and their suitability for Biomass and Other Resource Index — 15% With a dedicated 50-strong individual technologies. The Indices provide team of international advisors scores out of 100 and are updated on a regular These Technology Indices have been re- operating from our UK member firm, basis. weighted in Q3 2007, as discussed on page 4, supported by a network of over 65 The main Indices (All Renewables and Long- Global Highlights. experienced professionals from our member firms worldwide, Ernst & term Wind) are referred to as the ‘Long-term Individual Technology Indices Indices’. The Near-term Wind Index takes a Young’s Renewable Energy Group These Indices are derived from scoring: helps clients to increase value from two-year view with slightly different parameters renewable energy activity. Members and weightings (see below). General country-specific parameters of the Group provide advice and (the Renewables Infrastructure Index), services in the following areas: The Country Attractiveness Indices take a accounting for 35% generic view and different sponsor/financier Technology-specific parameters (the Financial advisory and valuation requirements will clearly affect how countries Technology Factors), accounting for 65% Financial modeling and are rated. Ernst & Young’s Renewable Energy Renewables Infrastructure Index structuring Group can provide tailor-made studies to meet Taxation specific corporate objectives. It is important This provides an assessment by country of the Finance raising that readers refer to the guidance notes set general regulatory infrastructure for renewable Asset value optimization out on pages 13 and 14 when referring to the energy (see page 13). Market entry strategy Indices. Technology Factors Procurement strategy These provide resource-specific assessments Long-term Indices PPA tendering for each country (see page 13). Feedstock strategy The Long-term Indices are forward looking Transaction support and take a long-term view, hence the UK’s high Long-term Wind Index PE advice ranking in the Wind Index, explained by the These Indices are derived from scoring: large amount of unexploited wind resource, IPO advice The Onshore Wind Index - 74% strong offshore regime and attractive tariffs JI/CDM financing The Offshore Wind Index - 26% available under the ROC system. Conversely, Strategic partnering Near-term Wind Index Strategy review although Denmark has the highest proportion of installed wind capacity to population level, it Near-term Wind Index takes a forward-looking Technologies scores relatively low because of its restricted two-year view based on the parameters of Onshore and offshore wind grid capacity and reduced tariff incentives. most concern to a typical investor looking Biomass to make an investment in the near term. The Biofuels All Renewables Index Index gives scores for onshore and offshore Energy from waste This Index provides an overall score for all separately. For parameters and weightings see Wave and tidal renewable energy technologies. It combines page 14. Solar Individual Technology Indices as follows: Fuel cells CHP Comments and Suggestions Landfill gas We would welcome your comments or Please contact the Renewable Energy Group Hydro suggestions on any aspect of the Indices. for further details. Contact Tailor-made attractiveness surveys and market For further information on our reports can be provided taking account of services, and for future copies specific corporate objectives. of the Indices, please contact Jonathan Johns, Andrew Perkins, or Ben Warren: Glossary M&A Mergers & Acquisitions AET Average Energy Tariff (Spain) Tel: +44 [0]1392 284 300 MW Mega Watt (1,000kW) BWEA British Wind Energy Association MWh Mega Watt hour (1,000,000Wh) E-mail: [email protected] CHP Combined Heat and Power PE Private Equity Web: www.ey.com/renewables CDM Clean Development Mechanism PPA Power Purchase Agreement EEG Erneuerbare Energien Gesetz PTC Production Tax Credit (US) GC Green Certificate PV Photovoltaic GW Giga Watt (1,000MW) ROC Renewables Obligation Certificate (UK) IPO Initial Public Offer RPS Renewables Portfolio Standard (US) JI Joint Implementation SEZ Special Economic Zone Long-term Indices Refers to both All Renewable Index and Long-term Wind Index
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s The Sub-Prime Credit Crunch and Renewables
The turmoil affecting the credit markets over the In this survey 85% of project finance respondents summer has left many investors reeling from over- regarded the credit crisis as having no or little impact exposure to certain sectors, such as the sub-prime on their lending decisions for renewable energy mortgage market. At the time, many feared that banks projects. would close to new business, that private equity would Does the credit crunch improve renewable energy as take a downturn and that monies flowing into clean an area to lend into due to tariff support? energy could dry up as a result. Improve 15% Impact on debt No impact 85% Debt often plays a key role in funding expansion, M&A According to the survey, all lenders believed that and infrastructure activities, and as soon as credit pricing could be affected. Some lenders also indicated liquidity suffers there is a direct knock-on effect on that their appetite for merchant financing was lower securing much needed financing. as a result of the turmoil, while others would have less In regions with strong regulatory support and proven capital available to underwrite projects and that the resource (e.g., wind, biomass or solar), renewable volume of business could decline overall. energy offers a relatively low-risk option for investors Which of the following are most affected by the credit and debt financers. In addition, global demand for crunch? renewable energy assets is such that major utilities, oil Volume 50% and gas companies and corporates are competing for Cover ratios 15% position in the development and operation of projects, as well as for supply chain capabilities. Appetite for merchant financing 30% Pricing 100% This security is not afforded to all renewable technologies. Biomass, biogas and biofuels are highly “Banks have been struggling to get things through their credit committees” exposed to variations in commodity and feedstock “The ability to syndicate is key” prices, wave and tidal technologies are still competing for development capital, while technologies such as Impact on Equity geothermal rely on public markets to raise equity for Clean energy companies have seen impressive growth new and often speculative exploration. These stocks over the last two years, with an average of around 110% will inevitably be more volatile until a particular growth since October 2005, according to Wilderhill technology (in the case of marine) or site-specific Clean Energy Index (NEX). resource (in the case of geothermal) is proven at scale and in the long term. Data collated by Ernst & Young on selected renewable energy stocks, including manufacturers and developers, To assess the impact of the credit crunch, we asked a shows that wind and solar companies have fared better number of lenders whether their appetite for lending to over the past two years than other major world indices renewable energy projects had been affected. (see chart on page 3). (continued on page 3)
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s The Sub-Prime Credit Crunch and Renewables Renewable Energy and Other Indices Performance 2005 - 2007 Renewable Energy and Other Indices Performance 2005 - 2007
4 FTSE (All Share)
NEX (Wilderhill) 3.5 Wind (E&Y)
Solar (E&Y)
3 Biomass (E&Y)
2.5 x e d n I 2
1.5
1
0.5 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07
Source: Ernst & Young – Rebasing of FTSE All Share Index plus data collected by Ernst & Young on over 30 listed renewable energy companies (developers and manufacturers but excluding marine, geothermal and biofuels)
Since a downturn during mid-2006, solar companies Despite the bullish attitudes of investors, a continued have seen share prices continue to rise, with only a squeeze on the credit markets is likely to have some brief correction during the credit crisis in July this impact on high-volume syndicated deals and projects year. Wind and biomass companies, on the other hand, involving less mature technologies. It will be interesting appear to have suffered more from this summer’s credit to see the effects in M&A values. Paradoxically, the crunch, which is perhaps because these companies are sub-prime credit crisis could well reinforce the growing project finance-led, rather than solar companies which appreciation of renewables as the hot investment tend to raise funding for manufacturing and technology sector with real cash flows and strong long-term growth development. Since July 2007, wind companies have prospects. seen their share prices recover slightly, while biomass Jonathan Johns stocks have not. Ernst & Young Renewable Energy Group, Average P/E by sector Exeter, UK Price-earnings (P/E) data of solar companies shows values of Internet company levels, although many of these companies are at an early stage and hence their valuations may be exaggerated.
Sector Average P/E Solar 312 Wind 77 Biomass/biogas 33
Source: Ernst & Young – average of P/E data obtained from Company InfoGator.
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s Global Highlights
The Technology Parameters have been re-weighted in Q3 from Goldman Sachs for US$2.7b, financed through a 2007, giving more emphasis to biomass (increased from US$3b syndicated loan. Following the two transactions, 5% to 10%) and solar (increased from 5% to 10%), while International Power will have 1GW of operational reducing the contribution of onshore wind (decreased capacity and 117MW under development, whereas EDP from 60% to 55%) and offshore wind (decreased from will have almost 3.8GW of wind power in operation. 25% to 20%). Other renewables remain unchanged at E.ON AG is to increase its onshore wind market presence 5% of the total. This has had an impact on the scoring, through a US$1.4b acquisition of Airtricity’s North particularly in countries with a high reliance on wind American wind business, which includes around 210MW power within their renewable energy mix. onshore wind in operation, 880MW in construction, over 1GW in advanced development and a further 5GW in All Renewables Index early stage development across the US and Canada. The The US retains top position following another quarter of deal follows E.ON AG’s acquisition in July of Energi E2 high legislative activity at state level. Renovables Ibéricas from Danish utility DONG Energy for As anticipated, Germany’s position improves, climbing EUR722m (US$1.0b), which included 260MW onshore to second, after proposed increases to its renewable wind and other renewables in Spain and Portugal energy targets and amendments to the Renewable plus around 560MW wind farms in development. The Energy Act. transactions are part of E.ON AG’s plans to invest EUR3b (US$4.3b) in renewable energy by 2010. India is displaced to third, despite gaining a point, and Spain moves to fourth place. BBW acquired offshore wind power developer Bluewater Wind for an undisclosed amount. The terms of the The UK is relegated to fifth position due to industry acquisition have not been disclosed; however the criticism of proposed changes to the planning regime. Bluewater development team will stay intact under China loses a point but remains at sixth position. new ownership and continue with its offshore plans. Bluewater has projects in various stages of development Near-term Wind Index in Rhode Island, New York and New Jersey and is The US increases its lead at the top of the Near-term planning a 150 turbine, 450MW wind farm off the coast Wind Index with 2007 expected to be a record year for of Delaware which is expected to cost about US$1.6b. onshore wind. India takes second place from Spain German renewables developer Epuron has acquired with expectations of strong growth to continue over the Panergia, a Spanish developer of solar thermal next two years. The UK falls a place in the Near-term electricity generation (STEG), PV and small wind Wind Index due to continued delays and red tape in the projects. Following this deal, Epuron’s pipeline for large planning process. scale solar power plants will stand at 150MW. Epuron has also announced plans to develop a 1GW wind Market Activity, Q3 2007 farm in New South Wales, Australia and will submit As part of the Spanish Framework Agreement in which a development application for the project in March Gamesa is expected to provide 450MW of operating wind 2008. The project is estimated to cost US$1.8b and energy projects, Babcock & Brown Wind Partners (BBW) construction is expected to start in 2009. acquired a 70% stake in the Conjuro wind farm (total capacity 17MW) in July for US$25.7m followed by the BT, the UK-based telecoms group, has revealed plans to acquisition of the remaining 30% in August. In a related develop up to 250MW of wind power at a cost of up to transaction, BBW acquired from Gamesa a 96% stake GBP250m; the largest wind project outside the energy in the Valdeconejos 32.3MW wind farm for US$68m. sector. The company has a provisional target of 100MW Gamesa has also signed a US$609m deal with Endesa by 2012 and has applied for planning permission for test for the supply and installation of wind turbines totalling masts at three sites in the UK. 500MW which it intends to use in Spain. Statkraft and global consumer goods and paper In two of the largest renewables deals of the year, company Svenska Cellulosa Aktiebolaget (SCA), have International Power paid US$2.5b for the 648MW formed a joint venture for the development of seven Trinergy wind portfolio in Italy and Germany, comprising wind farms in Sweden which would be capable of 495MW in operation and 67MW under construction in producing around 2.8TWh of renewable energy per year. Italy and 86MW in operation in Germany. Meanwhile Approximately US$2.4b is expected to be invested in the Energias de Portugal (EDP) completed the acquisition wind farms. of US onshore wind developer Horizon Wind Energy
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s All Renewables Index at Q3 2007
All Wind Onshore Offshore Biomass/ Ranking* Country Renewable index Wind Wind Solar Other Infrastructure*** 1 (1) US** 73 74 80 58 75 66 75 2 (5) Germany 66 64 64 66 74 67 64 3 (2) India 65 66 75 44 61 60 66 4 (2) Spain 64 64 70 49 71 57 73 5 (2) UK 62 64 63 67 50 58 64 6 (6) China 60 65 68 56 45 49 63 7 (8) Italy 59 58 63 44 68 56 64 8 (7) Canada 58 61 66 48 42 50 64 8 (8) France 58 59 60 54 60 56 61 10 (8) Portugal 57 58 63 46 62 49 64 10 (8) Greece 57 59 63 49 59 44 60 12 (12) Ireland 53 57 58 55 36 46 61 13 (13) Sweden 52 52 52 52 44 53 53 14 (14) Australia 51 51 47 60 44 47 61 15 (14) Denmark 49 51 47 60 44 46 61 16 (14) Belgium 48 52 50 57 36 36 53 16 (17) Norway 48 50 50 50 32 48 53 16 (17) Netherlands 48 50 48 56 45 40 49 19 (19) Poland 47 50 52 45 42 35 46 20 (20) Japan 45 46 48 40 48 34 51 20 (21) Brazil 45 45 49 35 45 41 44 22 (21) New Zealand 43 47 50 38 33 32 45 23 (23) Finland 38 36 36 37 27 56 41 24 (24) Turkey 36 37 38 33 38 27 35 25 (25) Austria 35 30 41 N/A 48 48 49 Source: Ernst & Young * Ranking in Q2 2007 All Renewables Index in brackets. ** This indicates US states with Renewable Portfolio Standards (RPS) and favorable renewable energy regimes. *** Combines with each set of technology factors to generate the individual technology indices.
The US stays at pole position and gains a point in the All UK is to meet its 2010 renewable energy target. The UK Renewables Index due to several states signing up to ‘25 would have fallen further had the proposed changes to by 25’ energy plans (see High-scoring Countries, page 8). planning not been made. Germany has jumped from fifth to second place following China retains its position following the announcement the announcement of proposed new renewable energy of new penalties on grid operators that do not purchase targets of 27% by 2020 and 45% by 2030. It is expected electricity from grid connected renewable energy that the current EU ‘20% by 2020’ target will be exceeded projects. under the EEG. Italy moves up from eighth to seventh, displacing Canada India and Spain are displaced by Germany, although due to proposed amendments to the green certificate India gains an index point, moving ahead of Spain, due scheme. The period for projects to sell green certificates to national capital subsidies and tax benefits for solar has been extended from 12 to 15 years and a proposal investors as well as revised state policies and tariffs in has been made to increase the renewable energy supply Tamil, West Bengal and Andhra Pradesh states (see High- obligation by 0.5% every year between 2007 and 2012 (it scoring Countries, page 9). currently rises by 0.35% each year). The UK falls to fifth place as industry criticized the recent Finland has announced plans for a feed-in tariff for Planning Bill issued by the UK government. According to biogas plants under 20MW, with further details to be the BWEA, at least 1.3GW of projects currently awaiting released later in 2007. The scheme is likely to come into planning need to be consented by the end of 2007 if the effect in 2008.
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s Long-term Wind Index at Q3 2007
Wind Onshore Offshore Ranking* Country Index Wind Wind 1 (1) US** 74 80 58 2 (2) India 66 75 44 3 (4) China 65 68 56 4 (2) UK 64 63 67 4 (4) Spain 64 70 49 4 (6) Germany 64 64 66 7 (7) Canada 61 66 48 8 (8) Greece 59 63 49 8 (10) France 59 60 54 10 (9) Portugal 58 63 46 10 (10) Italy 58 63 44 12 (10) Ireland 57 58 55 13 (13) Sweden 52 52 52 13 (13) Belgium 52 50 57 15 (15) Denmark 51 47 60 15 (17) Australia 51 54 56 17 (15) Netherlands 50 48 56 17 (17) Norway 50 50 50 17 (17) Poland 50 52 45 20 (20) New Zealand 47 50 38 21 (20) Japan 46 48 40 22 (22) Brazil 45 49 35 23 (23) Turkey 37 38 33 24 (24) Finland 36 36 37 25 (25) Austria 29 41 N/A Source: Ernst & Young * Ranking in Q2 2007 Long-term Wind Index in brackets. ** This indicates US states with Renewable Portfolio Standards (RPS) and favorable wind regimes. The US and India once again hold the top two spots. The Australia gains a point as a result of a tripling of the UK loses a point and drops from joint second to joint country’s clean energy target to 15% by 2020. The fourth place. proposed changes will increase the Mandated Renewable China moves into third position, gaining a point as a Energy Target (MRET) from 9,500GWh by 2010 to result of increased penalties on non-compliant grid 30,000GWh by 2020, but more importantly broadens the operators. Germany gains one point and settles at joint eligible mix of technologies to include non-renewable fourth with Spain after positive amendments to the ‘low carbon’ sources. The new targets make a small German Renewable Energy Sources Act (see High-scoring impact in the All Renewables and Long-term Wind Indices Countries, page 10). as it is not yet known how big a part renewables is likely to play in meeting these goals. Increased local support for onshore wind farms means France gains two points and moves up two places, New Zealand gains a point in both the All Renewables displacing Portugal and Ireland. Recent transactions Index and Long-term Wind Index following an show that successful developers are those that can work announcement by the Prime Minister Helen Clarke of with local government to locate and define the wind a commitment to achieve 90% renewable electricity power development zones (ZDEs) within which onshore by 2025 (it currently stands at 70%). Renewables are wind projects have access to the fixed feed-in tariff of also likely to benefit from the proposed new emissions up to EUR82/MWh for the first 10 years and between trading scheme, which is to be implemented by 2012. EUR28/MWh and EUR82/MWh for the following five years.
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s Near-term Wind Index at Q3 2007
Wind Onshore Offshore Ranking* Country Index Wind Wind+ 1 (1) US** 91 91 40 2 (3) India 73 74 N/A 3 (2) Spain 68 68 36 4 (5) Germany 61 56 70 5 (7) Canada 56 56 N/A 5 (8) France 56 55 46 7 (6) UK 55 47 84 8 (4) China 54 55 34 9 (9) Italy 49 49 N/A 10 (10) Portugal 47 47 N/A 11 (11) Ireland 42 41 50 12 (12) Greece 41 41 N/A 12 (12) Australia 41 41 N/A 14 (14) Brazil 39 34 N/A 14 (16) Denmark 39 26 52 14 (15) Belgium 39 36 45 17 (18) Netherlands 37 30 47 18 (16) Poland 36 37 27 19 (19) Sweden 35 34 39 19 (19) Norway 35 35 N/A 21 (21) Turkey 32 32 N/A 21 (21) New Zealand 32 32 N/A 23 (23) Japan 30 30 N/A 24 (25) Austria 24 24 N/A 24 (24) Finland 24 24 N/A Source: Ernst & Young * Ranking in Q2 2007 Near-term Wind Index in brackets. ** This indicates US states with Renewable Portfolio Standards (RPS) and favorable wind regimes. + Countries with no offshore development expected to reach construction in the next two years have been excluded from the Near-term Offshore Wind Index.
The Near-term Wind Index takes the perspective of an France increases its score by four points and moves investor looking to make a commitment within the next from eighth to fifth place as a result of the level of two years. The methodology and weightings used are activity and interest in the country, which could see given in the Guidance Notes on page 14. significant levels of deployment from consented projects The US remains top of the Index, its score increasing over the next two years. by one point following a report by the American Wind The UK drops one point and a place from sixth to Energy Association estimating installed wind capacity seventh as expectations are for a slowdown in the level to top 3GW in 2007. Figures analyzed by Ernst & Young of projects being consented and built as a result of show that the US could install in excess of 2.5GW in the time-consuming planning process and concerns 2008 and nearly the same again in 2009. that changes proposed by government will not address India has overtaken Spain to take second place in sufficiently the key issue of sub-50MW wind farms. the Index as India is expected to put on nearly 2GW of There are also residual concerns over grid pricing and onshore wind power in 2008 and 2009, compared to the ability to gain connections. The UK also has the around 3GW over the same two years in Spain. greatest short-term offshore potential, with five farms in operation, six projects currently under construction and China loses four points and is displaced by Germany in seven projects with sites awarded. fourth place on the back of continued expectations of installed capacity in the near term. Finland drops to the bottom of the Index following the government’s support for biogas as the preferred renewable energy source.
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s Commentary — High-scoring Countries
US – Production Tax Credit Illinois signed the state’s renewable portfolio standard into law which would require 25% of the state’s power to Ranking Q3 07 Q2 07 come from renewables sources by 2025. Ohio presented All Renewables Index 1 1 an energy plan that includes a new energy portfolio Long-term Wind Index 1 1 standard requiring 25% of power to come from advanced Near-term Wind Index 1 1 energy sources by 2025, energy efficiency benchmarks Source: Ernst & Young and policies to encourage financing and development of renewable energy projects within the state. New Mexico The Senate and the House of Representatives have regulators have passed rules mandating solar and wind both passed versions of the Energy Bill; however resource levels as the state implements the renewable there appears to be little overlap on key issues energy portfolio standard it passed in early 2007. such as the Federal Renewable Portfolio Standard New funding legislation in California, in the form of (FRPS), Production Tax Credit (PTC), Renewable Fuels the Solar Water Heating and Efficiency Act has been Standard (RFS) and fuel economy standards, and signed into law. The 10 year funding program will as such the Energy Bill is some way from becoming provide US$250m of investment subsidies to support law. In two separate bills which were subsequently solar thermal energy systems, with the aim of achieving merged, the House of Representatives approved both 200,000 installations by 2017. a federal standard mandating 15% renewable energy Texas has approved plans for eight ‘competitive zones’ consumption and the four year extension of a federal for wind energy which are expected to encourage the production tax credit which had been rejected by the financing and building of new transmission lines, which Senate. The 15% mandate would require investor-owned has been a key issue for the state. utilities to source 15% of their energy from wind, solar, geothermal or other renewable projects by 2020. Similarly, Senator Harry Reid of Nevada has introduced Renewable energy production tax credits would be the Clean Renewable Energy and Economic Development extended from 2008 to 2012 and a 30% tax credit for Act. This new legislation calls for the provision of solar energy and fuel cell investment to 2016. additional financing options for the building of new grid lines and connections which would enable the The Internal Revenue Service (IRS) has released out a transmission of renewable energy, especially from Revenue Procedure stating that the commonly used remote areas of the country where renewable energy PTC ‘flip’ structure will not be challenged for wind resources could generate at least 1,000MW of transactions (ie. partnerships or Limited Liability electricity, to those with growing electricity demand. Corporations in which the partners’ interests change significantly) so long as the structure falls within the Q3 has also been a strong quarter for US-based wind ‘safe harbor’ guidelines. Typically a flip occurs once the turbine manufacturers, with Clipper Windpower signing equity investor has achieved its desired yield through a contract with BP Alternative Energy for the supply of its receipt of tax benefits, including tax credits and 300MW of the 2.5MW Liberty turbines, and GE winning depreciation, and cash. The IRS Revenue Procedure a US$330m order from Airtricity for 250MW of 1.5MW explicitly applies to wind and not to geothermal, biomass turbines, scheduled for delivery in 2009. Meanwhile, or solar projects. Airtricity’s North American wind development business has been sold to E.ON AG for US$1.4b (see Market In terms of individual state policies, Oregon legislature Activity, page 4). approved an expansion of the state’s tax credit for renewable energy projects to 50% of build costs and an increase in the size of renewables projects eligible for credit to US$20m.
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s Germany – Feed in Tariff was also recommended that the current specification that grid costs will be suffered by the grid operators if Ranking Q3 07 Q2 07 construction begins before 2012 is to be scrapped. All Renewables Index 2 5 In solar, a booming international market for silicon Long-term Index 4 6 wafers has led to a doubling of revenues for PV systems Near-term Index 5 5 integrators, including Conergy and Phoenix Solar, both of Source: Ernst & Young which have reported almost doubled sales year on year. Germany has exceeded the government’s target of Over half of their orders are from international countries, generating 12.5% of electricity from renewables by with the US and South Korea bringing the highest 2010. Environment Minister Sigmar Gabriel has stated growth. In addition, PV module maker Solon is expanding that Germany will aim to provide 45% of total power its production capacity to 500MW by the end of 2008. generation from renewable energy by 2030 with the Centrotherm Photovoltaics AG, German PV intermediate target for 2020 being raised from 20% to manufacturing equipment supplier, made its debut on 27%. the Prime Standard of the Frankfurt Stock Exchange. The Q3 2007 saw amendments being made to the proceeds of the IPO amounted to US$263m. Renewable Energy Sources Act, which are expected German wind turbine manufacturer REpower Systems to take effect as of 2009. The report outlined the has formed a joint venture with Abeking & Rasmussen government’s intention to amend the subsidy, calling for Rotec to manufacture offshore rotor blades for wind a reduction in the solar power tariff in favor of greater energy turbines. support for the offshore wind industry. The point at E.ON AG has announced a commitment to invest which premium tariffs for offshore wind are reduced US$4.1b in renewable energy, in particular offshore wind has consequently been pushed back from 2008 to power, by 2010 and plans to increase its wind power 2014 and the environment minister proposed that the capacity by more than 500MW. annual decline in wind tariffs be cut to 1% from 2%. It
India – Feed in Tariff In Tamil state, the Electricity Regulatory Commission Ranking Q2 07 Q1 07 has set 10% as the minimum proportion of renewable All Renewables Index 2 2 energy that each power distributor needs to purchase. Long-term Wind Index 2 2 In addition, the Tamil Nadu Electricity Board is also attempting to boost wind energy by setting up additional Near-term Wind Index 3 3 infrastructure aimed to drive 100% wind evacuation in Source: Ernst & Young the state. The Indian government announced plans to introduce In solar, the West Bengal Electricity Regulatory new clean energy measures, stating that it expects to Commission is developing a solar PV feed-in tariff adopt a feed-in tariff for solar energy, similar to those scheme for the state which is likely to be announced implemented in many countries in Europe, by early 2008. within six months although no details of the scheme are A new policy unveiled by the government in September known as yet. entitles investors in solar power projects to capital Industry lobby ASSOCHAM and Ernst & Young have subsidies and tax benefits. carried out a study into India’s unexploited biomass At the Solar India conference in July, the Indian Minister potential. The study, entitled Mitigating Climate Change: of State for Renewable Energy announced that a fund The Indian Perspective, revealed that India could of US$130k will be made available for the development generate 2.5GW of power from urban, municipal and of renewable energies as part of the five-year plan from industrial wastes in Indian cities by 2010. 2007 to 2012. Indian wind turbine manufacturer Suzlon has unveiled The Andhra Pradesh state government plans to launch a three-year expansion plan to invest nearly US$1.4b to a policy for harnessing wind energy providing incentives almost triple its production capacity by 2009. to the private developers. This new wind policy will offer India’s Indowind Energy has listed on the Mumbai Stock incentives to encourage investment. Exchange securing a 25% premium over the issue price.
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s Spain – Fixed Premium The whole renewables business is valued at between EUR16b (US$21.5b) and EUR20b, with a renewable Ranking Q3 07 Q2 07 energy capacity of over 6.5GW and a development All Renewables Index 2 2 portfolio of approximately 38GW. Long-term Wind Index 4 4 Eolia Renovables has announced its intention to launch Near-term Wind Index 3 2 an IPO in November 2007 with the aim of raising money for acquisitions in Europe, India and the US. Source: Ernst & Young One of the most significant transactions this quarter The major development in Spain this quarter was involved the acquisition by E.ON AG of Energi E2 the legislation approved by the government to allow Renovables Ibéricas from DONG Energy for EUR722m offshore wind parks to be built off the Spanish coast; (US$1.0b) (see Market Activity, page 4), significantly however the government will first need to conduct a increasing E.ON AG’s presence in Spain’s onshore wind study to identify where the wind farms can be set up. market. Concerns about the visual impact of offshore turbines and the potential effect on the not insignificant tourism Spain’s largest grid connected solar plant has begun industry in Spain have prevented offshore wind farms operating in Salamanca and is expected to generate from being constructed in the past. As a consequence, 13.8MW. Solar, wind and biogas project developer the government has stated that environment ministry Epuron has acquired Panergia, a Spanish developer of clearance will be required for all offshore wind farms. solar thermal electricity generation (STEG) projects. Iberdrola’s renewables business, Iberenova, plans to list Two Spanish companies, property developer Grupovi and in December 2007, a move that is expected to see about project developer Ecotecnia, signed a JV agreement to 20% of Iberenova go public. develop 25MW of solar farms in Spain in 2008.
UK – Obligation and Traded Reform has ordered an immediate study into the Green Certificate feasibility of a barrage to generate electricity in the Severn Estuary. The Severn Estuary’s funnel shape gives Ranking Q3 07 Q2 07 it the second highest tidal range in the world at more All Renewables Index 5 2 than 14 metres. Long-term Wind Index 4 2 In company news, the EDF Energy Northern Offshore Near-term Wind Index 7 6 Wind Scheme has been given the go-ahead to build a Source: Ernst & Young 90MW offshore wind farm off Cleveland on the north- Wind energy executives have advised that the east coast of England. The farm will consist of 30 government’s proposals for changes to the planning turbines and will generate enough electricity for around permission process for renewables projects are unlikely 60,000 households. to ensure that the industry meets its 2010 target. At the UK- and US-based investment manager, Christofferson moment nearly 8GW of wind projects are in the planning Robb & Company has acquired 100% of the 300MW stage, unable to begin construction until consent Thanet offshore wind farm project from Warwick is given. Energy Limited (WEL). WEL will continue to manage the The proposed changes to the planning regime, construction and operation of the project. announced in the Queen's speech and contained in A proposed 66MW Devon Wind Power wind farm in the Planning Bill, are likely to have a positive impact north Devon has been given the go-ahead by UK Energy on projects over 50MW in size, but do not address the Minister Malcolm Wicks. The project would be capable significant issue of sub-50MW renewable generation. of providing approximately 30% of the area’s electricity The UK government has given planning approval for the consumption. Wave Hub project off the coast of Cornwall in South West England. This represents the final regulatory hurdle for the GBP28m (US$55.8m) project. In tidal, the Department for Business, Enterprise and Regulatory
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s 10 Marine and Offshore Issues
North Sea Atlantic Ocean Clipper Windpower has unveiled plans to develop its Babcock & Brown acquired offshore wind power 7.5MW Britannia offshore wind turbine at the New and developer Bluewater Wind for an undisclosed amount. Renewable Energy Centre in Blyth, Northumberland, The terms of the acquisition have not been disclosed UK. The company has negotiated a GBP5m (US$10m) however the Bluewater development team will stay intact investment package from the regional development under new ownership and continue with its offshore agency One North East over a two-year period. plans. Bluewater has projects in various stages of Greater Gabbard Offshore Winds Ltd has secured a development in Rhode Island, New York and New Jersey contract for offshore wind turbines from Siemens, and is planning a 150 turbine, 450MW wind farm off estimated to be worth over US$750m. The offshore wind the coast of Delaware which is expected to cost about farm is to feature 140 3.6MW wind turbines, located off US$1.6b. the coast of Suffolk, UK in the outer Thames Estuary with a maximum power generating capacity of 500MW. Pacific Ocean Canadian wind project developer NaiKun has signed a German grid operator E.ON Netz has said it plans to professional services agreement with energy distribution spend EUR300m (US$420m) on new undersea cabling company Enmax, to develop the 320MW Hecate in the North Sea to link commercial offshore wind farms offshore wind farm that represents the first phase of to the onshore transmission grid. The company has contracted ABB Ltd to supply the power equipment. the proposed 1,750MW offshore wind farm near Prince Meanwhile E.ON AG announced its plans to build the Rupert, British Columbia, Canada. proposed Humber Gateway offshore wind farm, with up to Canadian wave energy company Finavera Renewables 83 turbines and 300MW. has completed construction and successfully Norwegian energy group Norsk Hydro and German commissioned its AquaBuoy 2.0 wave energy converter engineering firm Siemens recently announced that they 3.2km off the coast of Newport, Oregon, USA. The have joined forces in a partnership to research and build AquaBuoy will remain on location until early November a floating wind turbine, hoping to have the first turbine after which work will begin on a next-generation wave generating in the North Sea by 2009. converter. Vestas suspended the sale of its V90 turbine for Investment vehicle REH has entered into an agreement offshore projects due to recurring faults with the with wave energy system developer Carnegie to work gearboxes. The turbine is still being sold onshore. together on the development of offshore projects in the Southern Hemisphere. Australia-based Carnegie Floating wind turbine technology developer Sway has has held talks with the Victorian Government about a completed a US$26m private placement, representing a potential 50MW, US$450m wave energy project off the 50% stake in the company with Statoil holding 25%. coast of Portland, Victoria. Irish Sea Indian Ocean RWE npower has begun construction of its 90MW wind EDF and Renewable Energy Holdings have signed a farm on the Rhyl Flats off the coast of north Wales. Memorandum of Understanding to develop offshore wave Siemens will supply and install 25 of its 3.6MW turbines energy projects. This also gives EDF exclusive rights to with construction planned to begin in 2008. The wind use REH’s CETO technology for offshore wave energy farm is expected to be operational by 2010. schemes in the Northern Hemisphere and on Reunion Denmark's DONG Energy has been given the go-ahead Island in the Indian Ocean. EDF will develop each project by the UK government to build the 450MW Walney Island through special purpose companies but REH retains first project off the coast of Cumbria, UK. option to participate in any of the projects. Lunar Energy and E.ON AG have announced a proposal to build one of the world's largest tidal stream power Yellow Sea projects off the Welsh coast in the UK. Construction is Chinese state-owned power companies, China expected to start in 2008 and the proposed scheme is Guangdong Nuclear Power and China Longyuan to be operational by 2010. Electricity Power are to develop a 300MW offshore demonstration wind farm in Rudong, Jiangsu Province, China.
11 R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s Q3 2007 Webcast
Renewable energy generation is developing and evolving Also featured for Q3 2007 will be the Biofuels Country at a rapid pace worldwide. Wind and solar energy have Attractiveness Indices, which rank the attractiveness experienced double-digit annual growth for the past 10 of individual markets for biologically derived renewable years, and global investment in the renewable energy fuels incorporating both ethanol and biodiesel. sector reached an estimated US$100b last year alone. You are invited to join the Ernst & Young Webcast in Renewable energy markets are highly complex, being December 2007 to hear our panellists discuss: dependent on diverse and often changing government The Sub-Prime Credit Crunch and Renewable Energy support mechanisms. Different renewable energy Key movements in the Renewable Energy Country technologies have achieved various degrees of maturity, Attractiveness Indices and the economic attractiveness of a given technology Overview of Ernst & Young’s new United States will vary depending on the markets in which it is Renewable Energy Attractiveness Indices deployed and the support it is given. Marine energy and offshore wind issues The Renewable Energy Country Attractiveness Indices Movements in the Biofuels Country Attractiveness Indices have been running since the beginning of 2003 and are distributed exclusively to over 3,000 industry You will have the opportunity to raise issues and participants each quarter. It provides scores for 25 questions and vote on key issues. national renewable energy markets, renewable energy Please contact Mandy Toy on +44 [0]1392 284395 or infrastructures and their suitability for individual e-mail [email protected] for further details. technologies, and have been widely quoted by both the To listen to last quarter’s Webcast or register for the next industry and national press Webcast click here or go to www.ey.com/webcasts.
Euromoney and Ernst & Young Global Renewable Energy Awards 2007 The 4th Euromoney and Ernst & Young Global Renewable The Euromoney and Ernst & Young Global Renewable Energy Awards were held at Riverbank Plaza in London Energy Awards 2007 Winners were: on the evening of 24 September 2007, attended by over IPO of the Year 250 industry professionals. – First Solar, Inc Established in 2004, the Awards endeavor to recognize M&A of the Year the projects, companies and individuals that make a – Suzlon Energy Ltd & REpower Systems AG significant contribution to the renewable energy sector. Equity Deal of the Year - Infrastructure The Awards take place alongside the Renewable Energy – Schmack Biogas AG Finance Forum, Europe’s leading renewable energy Equity Deal of the Year - Technology finance conference, and provide an opportunity to – Energy Photovoltaics Inc celebrate the achievements in the private sector that Senior Debt Deal of the Year - Breeze Three drive continued growth in the renewable energy industry – UniCredit HypoVereinsbank worldwide. Entrepreneurial Developer of the Year – Airtricity This year two new categories were introduced to the Corporate Developer of the Year Awards: the Legal Advisor of the Year and Climate – Acciona Energia Change Investment Programme of the Year. These Emerging Technology Promoter of the Year additions reflect both the growing importance of climate – Grupo Ibereolica change initiatives and also the significant role of legal Most Enterprising New Market Entrant of the Year advisors in the renewable energy sector. – Dongyang & SunTechnics Nominations for 2007/2008 open early next year, Legal Advisor of the Year therefore now is the time to start considering those – Skadden, Arps, Slate, Meagher & Flom LLP & most active companies deserving recognition at next Affiliates year’s Awards. Climate Change Investment Programme of the Year – Tesco Plc
R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s 12 Commentary — Guidance Notes
Long-term Index ‘Other’ renewable energy (RE) resources include As stated on page 1, the Individual Technology small hydro, landfill gas, wave, tidal, and geothermal Indices, which combine to generate the All technologies. Energy from waste is not considered. Renewables Index, are made up as follows: Each of the Indices consider, on a weighted basis, the Renewables Infrastructure Index — 35% following: Technology Factors — 65% Power offtake attractiveness — 19%: This includes These Guidance Notes provide further details on the the price received, the potential price variation, Renewables Infrastructure Index and the Technology and length of PPAs granted. Higher scores are also Factors. achievable if a government guarantees the power offtake rather than merchant offtakers. As noted on pages 1 and 4, the Technology Indices have Tax climate — 11%: Favorable, high-scoring been reweighted to take into account the increasing tax climates that incentivize renewable energy contribution of biomass and solar. generation can exist in a variety of forms and/or structures. The most successful incentives and structures have been direct RE tax breaks or brown Renewables Infrastructure Index energy penalties, accelerated tax depreciation The Renewables Infrastructure Index is an assessment on RE assets, and tax-efficient equity investment by country of the general regulatory infrastructure vehicles for individuals. for renewable energy. On a weighted basis, the Index Grant/soft loan availability — 9%: Grants can considers: be available at local, regional, national, and international levels; and may depend on the Electricity market regulatory risk — 29%: Markets maturity of a technology as well as the geographical that are fully deregulated score higher, as they location of the generating capacity. Soft loans have have experienced the ‘market shock’ on underlying historically been used in pioneering countries of RE wholesale prices that this transition may exert. technologies to kick-start the industry. High scores While this may not affect current projects, these are achieved through an array of grants and soft effects are particularly important when considering loans. long-term investment prospects. Market growth potential — 18.5%: This considers Planning and grid connection issues — 42%: current capacity compared to published targets. Favorable planning environments (low failure rates Higher scores are given if ambitious targets have and strong adherence to national targets) score been made and policy framework is in place to highly. Grid connection scoring is based on the ease accelerate development. The realism of targets are of obtaining a grid connection in a cost-effective also taken into account as well as the seriousness manner. The score also takes account of the degree with which they are being pursued (e.g., penalties in of grid saturation for intermittent technologies. place for non-compliance). Access to Finance — 29%: A market with a Current installed base — 8%: High installed bases mature renewable energy financing environment, demonstrate that the country has an established characterized by cheap access to equity and good infrastructure and supply chain in place, which lending terms, will score higher. will facilitate continued growth and in particular This generic Renewables Infrastructure Index is encourage the re-powering of older projects. combined with each set of technology factors to provide Resource quality — 19%: For example wind speeds the Individual Technology Indices. and solar intensity. Project size — 15.5%: Large projects provide economies of scale and a generally favorable planning environment, which facilitates project Technology Factors development financing. These comprise four Indices providing resource-specific assessments for each country, namely: Onshore Wind Index Offshore Wind Index Solar Index Biomass and Other Resources Index
13 R e n e wa b l e E n e r g y C o u n t ry A t t r a c t i v e n e s s I n d i ce s Commentary — Guidance Notes (continued)
Near-term Wind Index In the Offshore Wind Near-term Index, countries with no As stated on page 1, the Near-term Wind Index focuses projects estimated to reach construction in the next two on factors of most immediate concern to near-term years (to end-2009) are excluded. investment in wind energy. The scoring follows the It should be noted that the market growth potential same methodology as for the Long-term Wind Index, but score is based on a view taken on the basis of a range with a more focused set of parameters and a tailored of business analysts’ forecasts and Ernst & Young’s weighting. Therefore the Indices consider on a weighted own market knowledge. There is significant variation basis the following for both onshore and offshore wind between analysts’ views on each market, and within separately: some markets the variation is greater than in others. The Power offtake attractiveness – 27% forecasts used are a market view only and the scores in Tax climate – 8% no way guarantee that the forecasted capacity will be Resource quality – 14% built. Market growth potential (mid-2007 to mid-2009) While comparisons have been made between scores – 40% in the Long-term and Near-term Wind Indices, it should Project size – 11% be emphasized that, due to the different weightings and parameters used, these cross-comparisons are of a narrative nature only and by no means indicate any quantitative valuation.
New for 2007 – United States Country Attractiveness Indices Extract from United States All Renewables Index at Q3 2007
All Renewables Geothermal Infrastruture Rank State Index Wind index Solar Index* Biomass Index Index Index** 1 Texas 74 77 71 64 67 67 2 California 71 68 77 77 77 60 3 New Mexico 70 72 74 54 69 71 4 Oregon 69 68 71 67 76 73 5 Iowa 69 72 57 66 55 67 Source: Ernst & Young * Solar Index represents the index scores for both large- and small-scale solar ** Combines with each set of technology factors to generate the individual technology indices
This table represents an excerpt from the first issue renewable energy infrastructures and suitability for of the United States Renewable Energy Attractiveness individual technologies. Note that while the basic Indices. Up to now, the Ernst & Young Country methodology for constructing the Indices is the same, Attractiveness Indices have included reporting on the the weighting of certain data points is not the same. US as a single renewable energy market. The US Indices As a result, the results of the Country Attractiveness provide a quantitative rating for all 50 of the US states Indices and the United States Attractiveness Indices are based on their respective renewable energy markets, not directly comparable.
To receive the new United States Country Attractiveness Indices, please contact Michael Bernier or Roshni Patel: Michael Bernier, +1 (617) 859 6022, [email protected] Roshni Patel, +1 (617) 723 1053, [email protected]
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With a dedicated 50-strong team of international advisors operating from our UK firm, supported by a network of over 65 experienced professionals from our member firms worldwide, Ernst & Young’s Renewable Energy Group helps clients to maximize value from renewable energy activity. Members of the Group provide advice and services in the following areas: Financial advisory and valuation Financial modelling and structuring Taxation Finance raising Asset value optimization M&A Market entry strategy Procurement strategy PPA tendering Feedstock strategy Transaction support PE advice IPO advice Carbon economy advice Strategic partnering Strategy review
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