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ASIA CLEAN ENERGY FORUM 2012
Levelizing Expectations
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2 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012Table of Contents
Global shift of investors [ 03 ]
Major risks concerned[ 11 ]
Howto meet investors expectations [ 14 ]
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Global shift of investors
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4 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012Global shift of investors
Business opportunities with Korean investors
In the midst of the current global financial crisis, Koreas economy has remained robust.
- Korea shows positive GDP growth rate despite the global economic downturn.
-1.5
-1-0.5
0
0.5
1
1.5
2
2.5
3
3.5
Average annual percentage of GDP growth rate during the period of 2008 to 2010
Korea United States Germany Japan Australia
Source: World Bank
2.9%
-0.2% -0.1% -1.2%
2.5%
Growthrate(%perannum)
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5 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012Global shift of investors
Business opportunities with Korean investors
In the midst of the current global financial crisis, Koreas economy has remained robust.
- Since 2000, Korea has been increasing its FDI which reached USD 25 billion in 2011.
- Based on its national vision of Green Growth, the Korean government encourages green
investment at home and abroad.
0
5,000
10,000
15,000
20,000
25,000
30,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Annual Foreign Direct Investment during period of 2000 to 2010
Source: KEXIM Overseas Economic Research Institute
USDMillion
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6 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012Global shift of investors
Business opportunities with Korean investors
Korean investors have:
- good understanding of Asias business practices(40.8% (10.5 billion) of Koreas total FDI in 2011 was injected into the Asian market)
- emerging needs of off-shore carbon credits following the introduction of the national
Emission Trading Scheme (2015)
Korean investors pursue long-term partnerships rather than project-based approaches.- higher possibility for scaling up the business
Obstacles to overcome
- very conservative approach, last minute joiner(Investment withdrawal due to lack of clarity on the FIT policy in the Philippines)
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7 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012Global shift of investors
Possible investment from Korean investors
EquityInvestment
Strategic Investors (SIs)
- are power companies and equipment manufacturers
- have longstanding experience and expertise in the power industry as well as strong funding
power
- are new to the renewables industry
- have the desire to participate in both funding and EPC/O&M of projects
- may have possibly lower investment criteria to build track records
- mayprovide stronger warranties to cover their limited experience
KOESP(power company) and DSME(manufacturer) jointly developed a 40 MW wind farm in
the US, scheduled to commence construction in May, 2012.
Financial Investors (FIs)
- are private funds, financial institutions and conglomerates
- have high interest in renewable projects in Asia and reasonable hurdle rates
- have the desire to work jointly with SIs
- preferexperienced EPC/O&M contractors
In 2010, Korea Carbon Fund and LG International invested in a 60 MW biomass project in
China. (currently under construction)
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8 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012Global shift of investors
Possible investment from Korean investors
Debt
Financing
Korean ECAs (KOREA EXIM BANK, KOREA TRADE INSURANCE)
-Are multi-billion dollar financing is possible
- Offer services only when Korean parties participate in EPC and/or O&M contracts
-prefera syndicated loan structure with local banks
In 2011, KOREA EXIM BANK committed USD 100 million debt financing to a 100 MW wind
farm project in the US
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9 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012Global shift of investors
Example of investment structure
Local developer Korean FI Korean SI
Korea consortium
Deal arranger
Korea ECA
Local bank
syndication
Local
government
Equity Funding
Debt
Financing
Target
project
EPC provider
O&M
provider
technology
Tech.Service
Permits
Incentives
Interaction
Financial
arranger
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10 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012Global shift of investors
Case study 60MW biomass project in China
Local developer
C-company
Korean FI
A-fund
Korean SI
B-company
Korea consortium
Korea ECA
K-sure
Korean bank
E-bank
syndication
Local
government
Equity Funding
Debt
Financing
Tech. provider
D-company
Shareholders
Tech.Service
Permits
Incentives
Interaction
Financial
arranger
USD 20 Million
USD 40 Million
Biomass
project
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Major risks concerned
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12 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012Major risks concerned
Deal breakers Risks at first sight
Major risks
Country
Risks
Technical
Risks
Government permits and policies
- The process of obtaining necessary permits may be delayed or fail.
- lack of transparency in the process of obtaining permits
- unstable or ineffective incentive policies
Local partners
- insufficient financial resources (in general, a minimum investment of 30% of the total equity
is required)
- credit insufficient to provide recourse to lender
Wind source evaluation
- inaccurate forecast of long-term trends due to insufficient data
- doubt in credibility and expertise of evaluation companies.
EPC and O&M
- Price over-run
- insufficient security package of contractors
- argument on performance default between EPC and O&M contractors
j i k d
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13 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012Major risks concerned
Deal breakers Risks at first sight
Major risks
Financial
Risks
Identifying solutions for all these concerns and developing projects that meet
investors expectations are key to attracting successful investment.
Revenue plan
- absence of long term off-take agreement
- lack of predictability of policies, in particular pending status of incentive (e.g. FIT, REC)
policies
Sunk cost
- expenses for initial coordination, data gathering & analysis, preliminary due diligence and
etc.
- Investors are reluctant to spend any expenses before a firm decision is made.
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How to meet investors
expectations
How to meet investors expectations
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15 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012How to meet investors expectations
Levelizing expectations
When am I ready?
- When initial milestones such as clearance of all permits and execution of major contractsbefore disclosing projects for sale have been achieved.
- Or, at least, should have solid plans for the milestones backed by clear timelines and
sufficient information.
How do I become ready?- By preparing a comprehensive solution package from investors perspective.
- And, in addition, utilizing outside expertise can be an efficient way.
Gap between sellers and buyers
- Many projects are released into the market despite their immaturity in development.- Further development is needed to meet investors expectations: the aforementioned
concerns should be addressed.
How to meet investors expectations
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16 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012How to meet investors expectations
Case study managing and minimizing the risks
CountryRisks
Government permits and policies
- The process of obtaining necessary permits may be delayed or fail.
- lack of transparency in the process of obtaining permits- unstable or ineffective incentive policies
Local partners
- insufficient financial resources (in general, a minimum investment of 30% of the total equity
is required)
- credit insufficient to provide recourse to lender
Important permits such as Environmental Impact Assessment should be completed or in
progress before presenting the project to investors.
Developers relationship building with government officials should come first.
Diverse financial instruments should be considered to comply with local regulations as well
as to meet stakeholders needs.
[case study - biomass project in the Philippines]
The developer contributed 60% of common stocks with corresponding security in the form of
parent company guarantee and invited preferred stock investors. (ratio of the common to the
preferred 3:7)
How to meet investors expectations
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17 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012How to meet investors expectations
Case study managing and minimizing the risks
TechnicalRisks
Wind source evaluation
- inaccurate forecast of a long-term trend due to insufficient data
- doubt in credibility and expertise of evaluationcompanies
EPC and O&M
- Price over-run
- insufficient security package of contractors
- argument on performance default between EPC and O&M contractors
Quality of data should be enhanced through diverse methods such as third party
verification, standardized methodology application and named companys participation.
[case study Wind farm project in Australia]
+4 years of on-site wind measurement from 3 wind monitoring masts was undertaken by
Garrad Hassan.
Nearby long-term (+15 years) reference station exists.
Technical risks should be managed through safety harbour clauses in contracts.
[case study Wind farm project in Australia]
A fixed price/time turn-key EPC contract and a 10 year O&M contract covering both scheduled
and unscheduled maintenance (to a cap) were executed with one contractor backed by a
resource utilisation guarantee.
How to meet investors expectations
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18 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
ASIA CLEAN ENERGY FORUM 2012How to meet investors expectations
Case study managing and minimizing the risks
FinancialRisks
Revenue plan
- absence of long term off-take agreement
- lack of predictability of policies, in particular pending status of incentive (e.g. FIT, REC)policies
Sunk cost
- expenses for initial coordination, data gathering & analysis, preliminary due diligence and
etc.
- Investors are reluctant to spend any expenses before a firm decision is made.
Legal instruments to secure solid revenue stream such as off-take contracts or local policies
should be present.
[case study - Wind farm project in Australia]
A 15 year fixed price off-take agreement was executed with a government (AAA- rated) owned
utility company.
Developers need to treat such expenses as marketing costs or investment.
[case study Biomass project in China]
The local developer made a solid information memorandum in consultation with a project
advisor. The developer was compensated with high premium (paid 10% of total equity but
acquired 40% of shareholding).
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19 2012 Samjong KPMG Advisory Inc., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
End of DocumentQuestions or Inquiries,
Youngsuk Seo
Samjong KPMG (KPMG Korea)
Senior Consultant of Climate Change &
Sustainability
Office +82 (2) 2112 3200
fax +82 (2) 2112 7670
email [email protected]