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Financing of Renewables: Considerations and Outlook

Financing of Renewables: Considerations and Outlook. Presentation to: FINSOL Workshop Albuquerque, NM. Wind Market $1.3 billion in 1996 Small group of competitors; no one dominant player Costs generally competitive with fuel based power New generation needed and planned worldwide

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Financing of Renewables: Considerations and Outlook

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  1. Financing of Renewables: Considerations and Outlook Presentation to: FINSOL Workshop Albuquerque, NM

  2. Wind Market $1.3 billion in 1996 Small group of competitors; no one dominant player Costs generally competitive with fuel based power New generation needed and planned worldwide Environmental/regulatory factors generally favorable Solar Market $1 billion in 1997 Small group of vertically integrated manufacturers; no one dominant player Remote markets expanding; cost approaching breakeven with retail grid electricity High degree of public support Conditions are Right for Growth

  3. Considerations • In general, renewables are capital intensive • Applications and market diversity drive financing strategy diversity • Keys to economic attractiveness: • First and life cycle costs • Revenues and avoided costs • Financing costs • Cost and revenue risks drive financing costs

  4. Wind resource Power purchase agreement Interconnect agreement Transmission rights Real estate rights Environmental studies Construction and operating permits Construction contract Wind turbine supply contract Wind turbine warranty Project owner Equity Financing Debt financing - construction and term Operations and maintenance contract Predictable legal, regulatory and political environment Principal Elements of Wind Project Financing

  5. Applications (and Avoided Cost) Diversity • Grid-Tied Applications • Central Power (high voltage AC) • Local Grid Support (medium voltage AC) • Grid Supplement at Point of Use (low voltage AC) • Grid-Independent Applications • Rural Electrification (low voltage DC and AC) • Home Power, Village Power, Water Pumping • Industrial Applications (low voltage DC) • Telecommunications, Monitoring Stations

  6. Market Diversity Drivers • Extent and nature of market regulation • Subsidies and barriers • Maturity/stability of national/regional/local economy and banking/credit infrastructure • Local costs, taxes and fees

  7. Wind Project Financing • Financing generally available; need competitive terms • Financing structures vary significantly from country to country • Caveat vendor; warranty terms need to converge on conventional technology • Bonds/Guarantees - usage increasing

  8. Comparison of Wind Project Financing Structures U.S.U.K. Greece Debt 50% 75% 20% Equity 50% 10% 40% Grant 0% 15% 40% 100% 100% 100%

  9. Financing Strategies

  10. Cost and Revenue Risks • Market related • Equipment prices and long term power prices • Tax policy • Currency valuation • Technology related • System performance • Component quality • Resource related

  11. Rooftop PV Economic Sensitivities

  12. Renewables Outlook • Near term: • Continued hardware cost reduction based on technology improvements, volume and experience • Evolution toward “best” financing strategy for rural electrification • Long term: • Continued high growth rates • Major contribution to future energy supply

  13. Breakeven PV System Costs for Market Entry

  14. Renewable Energy Targets and Growth Rates

  15. Wind Industry - Growth Worldwide Source: BTM Consult

  16. PV Capacity and Investment Requirements through 2025

  17. Conclusions • Market Transformation and Eco-Investment Scenarios Are Underway Which Support Renewables • Intermittent Renewables Play a Primary Role in All Scenarios • Major Capital Investment is Required, e.g. $1 Trillion for PV by 2025 • Many Financing Strategies Needed • Risk Management is Key to Successful Strategy

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