Investinginrenewableenergyinemergingmarkets–trendsandrisksOctober2023Forprofessionalinvestorsonly.Whoarewe?Gerrit-JanBruninkGreigBlackie,CFA2PrincipalInvestmentManagerFundManagerEnergy&ClimateTriodosemergingmarketrenewableenergyfund•FounderoftheEnergy&Climate–EmergingMarketsactivitiesatTriodos•FundmanageroftheTriodosemergingInvestmentManagement.FocusonmarketrenewableenergyfundandTriodosorigination,duediligenceandGreenfundsince2020executionsince2007•Priorexperience:MercerInvestment•Priorexperience:ABNAMROGlobalClientsConsultingdevelopinginvestmentsolutions&FMODutchDevelopmentBankasaforinstitutionalinvestorsSeniorInvestmentOfficerandManageroftheLeastDevelopedCountriesInfrastructureFundI–UrgencyII–Triodos&EnergytransitionIII–Investmentexamples-risks&mitigantsIV–Portfoliosolutions3Thiswaslastyear:reportscouldn’tbeclearerGuterres:“I’veseenmanyscientificreportsinmytime,butnothinglikethis”4Andthisis2023:“we’rereallystartingtofeelit”5ThefossilfuelsectorproppedupbysubsidiesThereare3kindsofpeople1.Peoplewhomakethingshappen2.Peoplewhowatchthingshappen3.Peoplewhowonderwhathappened7Quiteawhileago…Society’sbiggestchallengepresentsahugeinvestmentopportunity800millionpeoplehavenoaccesstoelectricitypredominantlyinAfricaandAsia+1.1billionpeoplepopulationgrowthinChina,IndiaandespeciallyAfricaby204090%ofglobalelectricitydemandgrowthupto2040comesfromemergingmarketsTheshareofrenewablesinEMisstilllowintotalpowerproductionmixdespiteamplenaturalsources9I–UrgencyII–Triodos&EnergytransitionIII–Investmentexamples-risks&mitigantsIV–Portfoliosolutions10userid:246491,docid:143672,date:2023-10-24,sgpjbg.comTriodosWorldwidepioneerinrenewableenergy#135+40+140+2.5+10+150+leadarrangerbyyearsofexperiencededicatedrenewablerenewablesbilliondollarsyearsinvestinginUSDdeployedinEMnumberofdealsininrenewableenergyenergyprofessionalstransactionsperyearinvestedinrenewableenergyREprojectseightconsecutiverenewableenergyprojectsinEMyearsSource:CleanEnergyPipeline.RenewableenergyinvestmentsinemergingmarketsSolarGreencreditlineCombinationofdirectandindirectinvestmentsWindGeothermalHydroWastetoEnergye-MobilityArmeniaGeorgiaKyrgyzstanUkraineEgyptIndiaGhanaIndonesiaMoroccoNepalNigeriaPakistanSierraLeoneVietnamHondurasDjiboutiMozambiqueTanzaniaNicaraguaKenyaRwandaUgandaCostaRicaMadagascarSomaliaZambiaDominicanRepublicMalawiSouthAfricaZimbabweEcuadorSource:TriodosInvestmentManagement,dataperQ22023Triodos’emergingmarketpartners:Investmentorigination,localpresenceandexpertiseTriodosDevelopmentMultilateralLikemindedInvesteeprojectNetworkFinancialDevelopmentImpactdeveloperEuropeInvestorsfundsInstitutionsBanks13Forillustrativepurposesonly.CentralisedsolutionsHydropowerSolarPVOn-andnear-shorewindDecentralisedsolutionsCommercial&IndustrialDistributedgenerationMini-grid1bnpeoplegloballyforwhomdecentralisedsolutionsarethelowest-costoptionI–UrgencyII–Triodos&EnergytransitionIII–Investmentexamples-risks&mitigantsIV–Portfoliosolutions16LakeTurkanaKenyaInstrumentSeniordebt(B-loan)PartnerAfricanDevelopmentBankTriodosamountEUR5.5mTenor10yearsProjectphaseOperationalCapacity310MWOperating365Vestaswindturbineswithacapacityofaround310MW,thiswindfarmaddedapprox.17%ofthetotalcapacityofthenationalgridinKenyaatthetimeitwasbuilt.TheAfricanDevelopmentBank(AfDB)isakeypartnerandourlenderofrecord.17LakeTurkanaWindPower,NorthernKenyaCentralisedsolutionLakeTurkanaWindPower,NorthernKenyaCentralisedsolutionLakeTurkana:Risks&mitigantsStatus&mitigantsZoominginononethekeyrisks❑Projectisoperationalsince2019❑Constructionrisk❑Complex,remote,multicontract.Still:builtintime&withinbudgetwhichwasamajor20achievement❑Strongcontractualarrangementsaroundcompletion❑Processes&monitoring:interfaceriskswellmappedandmonitoredsharplybyOwnersEngineer&LendersTechnicalAdvisor❑People-strong&determinedsponsorgroupthatappointedahighlyprofessionalprojectmanagementteam;reputedexternaladvisorexperiencedinlarge&complexinfraprojectsontheAfricancontinent4PELIndiaInstrumentSeniordebtPartnerSymbiotics&TriodosGroenfondsTriodosamountINR400m(c.USD5m)Tenor4yearsProjectphaseOperationalCapacity175MWCreatedin2010,FourthPartnerEnergy(4PEL)providesaffordable,cleanandsustainableenergysolutionstocommercialandindustrial(C&I)clientsthroughtheconstructionofsmallandmediumscalesolarsystems.Thecompanymanagesapproximately400MWacrossitsdistributedandopen-accessportfoliosforover150clients.Findoutmoreabout4PEL’sstrategyhereorwatchtheirtestimonial.214PEL,IndiaDecentralisedsolution–Captivepowerplants224PEL,IndiaDecentralisedsolution–Captivepowerplants4PEL:Risks&mitigantsStatus&mitigantsZoominginononekeyrisk❑Diversifiedgroupofofftakers,combinationofprivate(corporates,both❑Offtakerriskinternational&tier1localcompanies)andpublic(Indianrailways,airportsetc)24❑Electricitypricesattractive(20%belowalternative),soundincentivetotakethepower(apartevenfromthecontractualobligations)❑Sophisticatedapproachtocheckcreditworthinessofprospects/thoroughscreeningandmonitoringonceonboardDistributedGeneration–oEnergyChileInstrumentSeniorDebtPartnersoEnergyandCifiTriodosamountUSD5mTenor17yearsProjectphaseConstruction&OperationalFinancingof20+small-scalepowergenerators(PMGDs)aroundthemetropolitanregionsandruralareasofChile.Thesesmallersolarstations(1–2MWs):•arefastertoconstruct,•canavoid(outdated)nationaltransmissiongridproblems,and•helpsupplythelocalshortageofreliable&affordableelectricity.25DistributedGeneration-oEnergyDecentralisedsolutionDistributedGeneration-oEnergyDecentralisedsolutionoEnergyDistributedGeneration:Risks&mitigantsZoominginononekeyriskStatus&mitigants❑Energyprice/marketrisk❑ChileansystemforDistributedGenerationbenefitsfroma“Stabilizedenergypricingscheme”incorporatedinthelaw❑Systemincludescaps&floorsthatsignificantlydiminishesvolatility❑Properenergymarketadviceobtainedandconservativesizingofdebttoreflecthybridmerchantrisk28LotusWindPowerVietnamInstrumentSeniorDebt(B-loan)PartnerAsianDevelopmentTriodosamountUSD17mTenor15yearsProjectphaseConstruction&OperationalCapacity144MWWithaninstalledcapacityof144MW,theLotusWindPowerProjectisthelargestofitskindinVietnam,comprisingthreeseparate48MWfarms,eachwith12Vestaswindturbines.Constructionoftheparksstartedin2020andisoperationalsinceNovember2021.TheprojectincreasedVietnam'swindenergycapacityatthetimeby30%.Formoredetailsreadthearticle29LotusWindPower,VietnamCentralisedsolution30LotusWindPower,VietnamConstructionofcleanwaterwellsInstallationofvillagelibrariesCentralisedsolutionRefurbishmentofschoolsSustainablefarmingsupport31GenderactionplanLotus:Risks&mitigantsStatus&mitigantsZoominginonekeyrisk❑ElaborateE&SImpactAssessment(ESIA)andE&Sactionplan,mappingthe❑Environmental&Social(E&S)elementsmetaswellasthefollowupactions&specifictimelinestobeinsync32withrequirements❑Activeengagementwithlocalstakeholders.❑Specificcommunitydevelopmentprograms,processguidedbylocalsocialexperts(AFRY)I–UrgencyII–Triodos&EnergytransitionIII–Investmentexamples-risks&mitigantsIV–Portfoliosolutions33ExampleofpoolingofassetsintoportfoliosolutionsAssetclassRegionsSegmentsSeniordebt70%Africa25%Gridconnected50%EasternEurope&CentralAsia25%Mezzaninedebt10%SouthEastAsia25%UtilityscaleLatinAmerica25%Equity20%DistributedgenerationgridsStorageOff-grid50%Commercial&industrialcaptivepowerSmall&MediumEnterprisesMinigridsSolarWindHydroOtherproventechTechnologies:34Hybrids:Energy+StorageDeliveringattractivecharacteristicsforinvestorsPredictableCompetitiverisk-LowcorrelationtocashflowsadjustedreturnstraditionalassetclassesNaturalinterestratePartialinflationStableperformancehedgeviafloatingprotectionindownmarketsrateloansInelasticdemandPositiveAccesstohighlyforenergyenvironmental&skilleddeveloperssocio-economicanddevelopmentimpactfinancecapital35LotusWind,VietnamContactVukSrdanovicFollowusTriodosInvestmentManagementTriodosIMImpactInvestingInvestorRelationsNordicsT+4528962181Evuk.srdanovic@triodos.nlTriodosInvestmentManagementWtriodos-im.comT+31(0)306942400LandgoeddeReehorst,Hoofdstraat103972LADriebergen,TheNetherlands36DisclaimerThispresentationbyTriodosInvestmentManagementiscopyrightedandproprietary,andallrightsarereserved.Anyrecording,rebroadcastorotheruseofthispresentation,inwholeorinpart,withoutthepriorwrittenconsentofTriodosInvestmentManagementisprohibited.Thispresentationisbasedoninformationgenerallyavailabletothepublicanddoesnotcontainanymaterial,nonpublicinformation.Thepresentationhasbeenpreparedsolelyforinformationpurposes,itdoesnotconstituteadviceofanykind,anofferorarecommendationtobuyorsellsecuritiesorfinancialinstruments.Thispresentationisexclusivelyforthebenefitandinternaluseofprofessionalinvestors(assuchtermisdefinedintheAIFMDirective).Financialintermediariesarerequiredtosatisfythemselvesthattheinformationinthispresentationandaninvestmentinsharesorunitsofafundissuitableforanypersoninviewofthatperson’scircumstancesandpurposeinaccordancewithapplicablelawsandregulations.Pastperformanceisnotaguaranteeforfutureperformance.Figuresshownareintendedtodemonstrateperformancehistoryofafund.Theinvestmentvaluemayincreaseaswellasdecrease.Thecapitalandincomearenotguaranteedandaninvestorinafundmaygetbacklessthanhis/heroriginalinvestment.TriodosInvestmentManagementanditssourceswillusereasonablecareandskilltoensurethatinformationcontainedinthispresentationisaccurateatthedateofpublicationbutdonotguaranteetheaccuracy,adequacyorcompletenessofthisinformationandnoliabilityforanyerrororomissionisacceptedbyTriodosInvestmentManagementoranyoftheirdirectorsoremployees.TriodosInvestmentManagementisestablishedintheNetherlandsasaprivatelimitedliabilitycompany.TheregisteredofficeofTriodosInvestmentManagementisLandgoedDeReehorst,Hoofdstraat10,3972LADriebergen-Rijsenburg,theNetherlands.TriodosInvestmentManagementisauthorizedandregulatedbytheAutoriteitFinanciëleMarkten(AFM).37Investinginrenewableenergyinemergingmarkets–trendsandrisksWebinarbyTriodosInvestmentManagement&Bech-BruunlawfirmOctober2023Foto:Colourbox38IntroductiontoyourspeakerMathiasRoseSvendsenHeadofOffshoreWindatBech-Bruunlawfirm8yearsofexperiencewithprojectdevelopmentofrenewableenergyExperiencedwithindevelopmentofrenewableenergyinfrastructure39IntroductiontoProjectDevelopmentAnemergingmarketsisacountrytransitioningfromalow-incomeeconomy,toamodernindustrialeconomyProjectdevelopmentinemergingmarketsmaybemoredifficultdueto:•Inadequateinfrastructure•Immatureregulationandlegaluncertainty•Politicalrisk•Stronglocalstakeholders•Etc.Foto:Colourbox40DEVEX,CAPEX,OPEXDEVEXCAPEXOPEXFoto:Colourbox41Keyaspectsofprojectdevelopment•Contracting•BankabilityandprojectfinancingFoto:Colourbox42ContractingDevelopersshouldconsiderpreferredcontractingstrategy:Foto:Colourbox•MultipartyContracting•Interface-riskiswithdeveloper•Preferredindevelopedmarketsanddevelopedtechnology•Offers(generally)flexibilityandcompetitivepricing•Requiresorganizationalsizeandpersonnel•EPCContracting•Interface-riskiswithcontractor•Preferredwithnoveltechnologies•Suitableforslimorganisations•Offers(generally)lessflexibilityanduncompetitivepricing43InterfaceriskAninterfaceisacircumstancebetweentwoormorescopeofworkspackagesthatareinterrelatedandaffecteach-other’sperformanceHowtomitigate:•Enteringintointerfaceagreements•Bonusschemeforearlycompletionmaybeprovided•Establishinganinterfacecommittee•Decisionmakingmechanisms•Earlywarningnotices•CooperationresponsibilitiesFoto:Colourbox44BankabilityWhy?•Ensuringfinancingofaproject•Limitingrisks•MakingtheprojectfinanciallydesirableandprofitabletolendersHow?•Marketinsight,marketstandards•Understandingrisksandriskinterfaces•Limitationofrisksthroughriskidentification,riskallocationandriskmitigation•Negotiationandalignment•Awell-testedprocedureFoto:Colourbox45BankabilityFocusonbankabilityofcontractsinbothDEVEXandCAPEX-stageofprojectdevelopmentNegotiatelenders’favouriteclausesintokeycontracts:•Sufficientguarantees•Step-inrightsforlenders•Cooperationclauses•ESGstandards•Insurancerequirements•AssignmentclausesFoto:Colourbox46ValueDriversKeyprovisionthatincreasethefinancingappetite(i.e.Whatcandecreasethefinancingappetite(i.e.increasedecreaseinterest)interest)IncreasingPre-NtPflexibilityBroadIPRrightsPaymentRestrictionsonAcceptingmoreobligationsbyi.e.,lowi.e.,accesstoi.e.,PaymentrighttolimitresponsibilityforcontractorIPRperiodshallbelessscopesupplierterminationcap,perpetuallythan60daysi.e.,limitingthedelayi.e.,IncludingWTGdecreaseetc.righttochangei.e.,DelaytoadditionalreportingTaking-OverduetorequirementsfornumberofWTGsEmployer´sdelaysupplierUncappedliabilityInterfacerisksInsuranceIncludingliabilityRestrictiononSerialdefecti.e.pushingthirdrequirementscapsdescopingprovisionmorepartyresponsibilityfavourabletotowardssupplieri.e.,LongerperiodDescopingbyforreachingmeansofVariationSupplierliquidatedOrdershallnotbei.e.,higherdamagescapforthepurposeofthreshold,sharing(highercaporallocatingworkstoofcostsetc.lowerLD’samountathirdpartyperday)PaymentValueofNon-restrictedPaymentPlanLimitingriskSupplierfriendlyprovisionssecuritiesdamagesi.e.,FrontloadedrelatingtoSiteLDmechanismsgenerallyDataandGridTypeCertificatei.e.,notincludingPaymentexclusionsofComplianceDelayLDsandi.e.,RisksrelatedclawbackgeneraldamagestoSiteDataandmechanismGridComplianceandconsequencesFoto:Colourboxoffailurecomply47