Offering investors the opportunity to invest in solar energy assets that capitalise on the trend of governments, corporations and individuals worldwide to reduce the impact of energy generation on the environment by promoting and using solar power as a renewable energy source.
Email
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Direct +442078400304 Mobile +447545533292
Forecast IRRs
The projects will generate a pre-tax IRR of 10% to12.5% assuming a zero terminal value after 25 years and no leverage.
The pre-tax equity IRRs are 15% to 20% after leverage over 25 years with zero terminal value.
The equity IRR will be over 60% with a 2 to 3 year exit providing the investor with a 3x payback.
Fees
The fees received by Solar Energy Partners are negotiated with the investor and may comprise a combination of the following:
- An upfront structuring fee on closing.
- An annual management fee.
- An increasing share of net profit after attaining the hurdle rate for the Investor.
Exit Strategies
As the projects are strongly cash flow positive, with long-term guaranteed income from a major utility company, there is flexibility regarding the type of exit strategy:
An equity IRR of 60% will be achieved assuming the assets are sold in year 3. This IRR is based upon the assets being sold for an IRR of 8%. This forecast assumes a pension fund (or similar) acquires the assets for their long term annuity-style requirements. Pension funds currently require a return similar to that of an A rated corporate bond, which is currently yielding 6%. As such there is an additional 2% risk premium. A number of pension funds have shown interest at the 8% IRR level.
Renewable energy is becoming increasing attractive with larger institutional investors increasing their awareness of and exposure to this sector. As a result the current high returns will compress to become more closely correlated to mainstream infrastructure asset classes that have similar cashflow characteristics where returns and yields are currently much lower.
Investor Returns Assured
- High investor returns with IRRs of 15% to 18% pa.
- Long-term returns for the life of the plant of 35 years.
- Tariffs are guaranteed by Government legislation.
- Revenue is paid by the electricity utility pursuant to a Power Purchase Agreement. Local utilities in Spain are Union Fenoza, Iberdrola and Endesa, all of which are investment grade. The main utility in Italy is Enel.
- Favourable electricity tariffs legislated in regulatory regimes in Spain, other selected EU countries and North America. This is supported by mandated targets for increasing the contribution of renewable energy sources, which provide a long-term framework of support for the renewable energy industry.
- The Spanish projects are entitled to a maximum tariff of €0.4408/KWh or a minimum tariff of €0.4175/KWh for a period of 25 years with inflation indexing from 1 January 2007 provided the solar parks were Inscribed on the Register by 28 September 2008. A reduced tariff of up €0.35/KWh real is provided from 1 January 2032 under the Spanish tariff regime.
- The Governments of Italy, Greece, other EU countries and some US states have introduced similar attractive tariff regimes and/or tax incentives to attract the development and operation of solar PV and solar thermal plants.
Operating Costs
- Long-term operations and maintenace (O&M) contracts are arranged and managed by Solar Energy Partners.
- Total O&M costs are paid as a percentage of the revenue generated by the solar park and vary between 8% and 12% p.a.
- The costs cover all O&M, spare equipment, land lease payments, and insurance.
- O&M costs are fixed for the first five to ten years.
- The land lease payments are agreed for a 25 year period a a percentage of revenue or a fixed amount. options to extend the leases beyond 25 years are common.
- Insurance costs are re-negotiated every 2 to 5 years.
- Administration costs to mange accounting, tax, and regulatory reports cost up to 1% of revenue.
Indicative Term Loan Facility
The following terms are an indicative of the Term Sheet of an international bank to provide non-recourse term debt for the financing of the Initial Investment Assets.
|
Borrowers
|
An SPV or a number of SPVs. In any case, the total financing of the project must be for a minimum of 10MW.
|
|
Term
|
Fully amortising over 20 years
|
|
Base Case debt sizing criteria
|
Minimum & Average DSCR
Years 1 - 6 – 1.20x
Years 7 – 15 – 1.25x
Years 16 – 20 – 1.30x
Minimum LLCR
1.30x
Tariff
As advised by the Lenders Legal Adviser and subject to the date of achievement of REPRE. In any case, the lender is not to take any direct or residual tariff risk.
Solar Irradiation
Nominal vs. peak power as advised by the Lenders TA
Gearing
Up to 85%
Panel Degradation
As opined by the Lenders TA but typically this is in the range of 0.6%-0.9% p.a.
|
|
Upfront fee
|
1.50% to 2.0%
|
|
Interest
|
EURIBOR + Margins (as below)
Construction Margin – 3.50% p.a.
Operations Margins
Year 1 – 6 – 3.0% p.a.
Years 7 – 13 – 3.10% p.a.
Years 14 and onwards – 3.20% p.a.
A reduction in the margin for the next period of 5 bps if the historical DSCR is higher than base case DSCR.
|
|
Commitment Fees
|
1/3rd of the Margin
|
|
Agency Fees
|
€30,000 p.a.
|
|
Reserve Accounts
|
DSRA – 50% of next 12 months debt service
Maintenance Reserve – as opined by the Lenders TA
|
|
Interest Rate Hedging
|
Minimum 85% of total senior debt to be hedged for the duration of the term to be undertaken at Financial Close with the MLA.
The credit spread for the interest rate hedging will be 12 bps.
|
|
Main ratios
|
Distribution Lock up
Historic or forward looking DSCR <= 1.10x (rolling 12-month basis);
LLCR<= 1.15x.
Default Level
DSCR<1.05
|
Risks
|
Key Investment Risks
|
Investment Risk Mitigants
|
|
Construction risk
|
The EPC contractors are reputable and have significant experience and track record. EPC contracts provide fixed-term and fixed-price for Investors and liquidated damages. EPC contractors must be approved by Investor and approved by the lender.
|
|
Completion delays
|
All projects have been completed. Any delays will result in the Investor being able to withdraw
|
|
Equipment failure
|
Performance of the entire operation and energy production of the solar power plant is guaranteed by the EPC contractor for up to two years. The panel manufacturer provides warranties in the supply contract for up to 25 years and other equipment manufacturers provide warranties for lesser periods.
|
|
O&M contractor performance
|
The O&M contractors have significant experience and track record. O&M contracts have damages and warranties clauses to protect Investors interests. The O&M contractors must be approved by the Investor and approved by the lender.
|
|
Energy generation
|
Detailed irradiation studies confirm a high degree of certainty of energy generation levels. Most solar pv parks are operating at production levels exceeding their forecasts.
|
|
Revenue generation
|
The tariff for the sale of electricity is set by the relevant government for a defined period of 15 to 25 years and beyond for the life of the plant.
|
Investment Strategy
Phase 1- Capital Requirement
The total purchase price of the initial assets is €50M representing total capacity of 8.5MW in 3 different plants. The equity component of the Purchase Price is €10M assuming 15% leverage plus costs.
Phase 2- Growth in Spain
A second portfolio of solar PV projects in Spain has been secured which were completed and Inscribed on the Register prior to September 2008. The Purchase Price is €100M making total assets of €150M. LOIs have been signed or are in the final stages of signing. There are further projects in Spain which have been sourced and are in the process of negotiating.
Phase 3- Growth in the EU
Projects in Spain, Italy, France, Germany and Greece will bring total assets to €250M by June 2011.
Phase 4-Growth in the EU and North America
Investments in further solar PV and thermal projects in the EU and North America will bring total assets to €350M by the end of 2011.
Equity investment schedule is as follows:
|
|
June 2010
|
December 2010
|
June 2011
|
December 2011
|
|
Portfolio Size
|
8.5 MW
|
23 MW
|
38 MW
|
54 MW
|
|
Equity € M
|
10
|
25
|
42.5
|
59.5
|
|
Debt € M
|
40
|
125
|
207.5
|
290.5
|
|
Total Portfolio Value € M
|
50
|
150
|
250
|
350
|
Role of Solar Energy Partners
- Manage risk management strategies including hedging debt margins, foreign currency exposures and inflation indexing.
- The Manager will arrange the initial acquisitions for the SPV of newly-constructed Spanish Solar Energy Photovoltaic Plants with a 23-year power purchase agreement at a legislated tariff of €0.4408 or €0.4175 per KWh (with inflation-linked increases) with a major Spanish utility.
- Current debt financing options assume an 85% LVR with current market rates and terms. In accordance with the draft term sheet provided by an international bank it is anticipated the debt will be fixed for a minimum of 20 years. The loan interest base rate and the margin will be fixed for the full term of the loan at 150 basis points over Euribor. The inflation-linked tariff increases can also be fixed for 25 years.
- Arrange and manage all due diligence.
- Arrange transaction structuring.
- Arrange the necessary project financing for the development and construction of each project and a separate VAT loan facility.
- All investment decisions reside with the investor.
The solar parks are either completed and operating or under construction.