FINANCIAL INSTRUMENTS FOR OCEAN POWER Brussels, 4 April 2014 - PowerPoint PPT Presentation

FINANCIAL INSTRUMENTS FOR OCEAN POWER Brussels, 4 April 2014

Overview EIB Group: an introduction Instruments relevant to the ocean energy sector Who is investing? Who is not? Towards bankability 2

EIB Group EIB + EIF = EIB Group EIB = EU's long-term lending institution Established 1958, owned by the 28 EU Member States Policy driven, innovation and climate action as high priorities 3

EIF’s Shareholders EIB: Main shareholder (61%) European Community represented by the European Commission (29%) 30 public and private financial institutions from 17 countries (9%), including: * 1% of EIF’s shares are still to be issued 4

EIF/EIB financing: an overview • Risk Capital • CIP Resources (SME) • RSFF (SME / MidCap) • RSFF / Investment Loans Facility: High Growth Competitiveness and RSFF including RSI and RSFF Innovative SME Innovation Program soon MCI /GFI Scheme (GIF), Ecotech (CIP) Guarantee Investment Loans schemes Innovation financing Purpose: IP financing, RDI financing technology transfer, Growth financing for SMEs/MidCaps, Banks, seed financing, SMEs PE Investors (sub- MidCaps/Large investment readiness investment grade) Corporates/Public VC Funds, CLOs Sector Entities Target Group: VC Loans (incl. Mezzanine), (investment grade) Funds, Business Angels SME guarantees (loans, Funded Risk Sharing microcredit, Facilities with Banks Guarantees EIF Product: Fund-of- equity/mezzanine, (Investors) Funds securitisation) Special Operations Special Operations • Bank Loans and Guarantees • VC Funds • Seed/Early Stage VC Funds • Business Angels • Entrepreneur, friends, family • EIF EIB • Later Stage • Seed / Start-Up Phase • Emerging Growth Phase • Development Phase • Counterparts

EIB Financing Instruments We have an extensive range of instruments to finance public and private sectors at investment and sub-investment grades of risk • Public Sector Financing • EIB lending instrument for Investment Grade • Project Finance operations • Direct Loans Banks • Intermediated Loans Project • Project finance with direct project risk • Special Activities • For low and sub • LGTT/RSFF investment Grade • (Mezzanine) operations • Equity through • Funds 6

Principal Features of an EIB Loan Benefits of low cost of funding passed on to clients: Up to 50% of project costs financed (extended to 75% for eligible environmental projects), at competitive interest rates Broad range of currencies Long maturities Catalyst for participation of other banking or financial partners Two main facilities: Direct Loans - Large-scale projects (more than EUR 25m) Corporate and project finance Risk sharing finance facility (RSFF) may be of particular interest to ocean energy sector: complementary to other sources of debt capital available for low/sub investment grade RDI intensive corporates Intermediated Loans Small and medium-scale loans (particularly to SMEs) via national and regional intermediary banks Lending decision remains with the financial intermediary 7

Stages of Ocean Energy Industry Development Stage 2 Stage 1 Stage 3 1st and Next Generation 2 nd Farms and Beyond 1st Wave/ Tidal Farms Prototype TRL 8-9: 2MW to 10MW TRL8-9: over 10MW TRL 1-7: up to 1 MW Market Push and Pull: Market Pull: Market Push: e.g. Capital Grants (Push) e.g. Multiple ROCs (Pull) e.g. Capital Grants e.g. Multiple ROCs (Pull) 1A – concept development and tank testing (TRL 1-3) 1B – greater scale prototype (TRL4-5) Source: RenewableUK 1C – full-scale grid connected prototype (TRL 6-7) Critical role for grants and feed-in tariffs 8

New H2020 Product Portfolio High RISK Low EIB/EIF MCI EIB RSFF RSI: Innovative SMEs Individual RDI Loans RSFF GFI Direct (Co-)Investments EIF Equity Pure RDI Invest. Focus Fund of Funds Mid-Caps only SIZE OF SINGLE TRANSACTION EUR 25K EUR 7.5m EUR 25m EUR 300m 2 nd Valley of Death Funding 1 st Valley of Death Phases Pre-seed Start-up / Mezzanine/Growth Commercialization / Industrialization Growth / Stability Seed Funding 14/04/2014 9

Innovation – NER300 1 ST Call Results • EIB involvement : COM Decision calls on EIB and its expertise in certain areas • Allocates 2 advisory tasks to the Bank: a) Due Diligence of Project Applications; b) Monetisation of EU CO2 allowances • 1 st round: 200 mln EU CO2 allowances ; ~EUR 1.2 billion funding awarded • Funding is in principle = 50% of extra investment and operating costs for demonstration (“Relevant Cost”) • Funding for 23 RES projects, 6 of 8 RES sub-groups, 16 sub-categories of 34, 14/04/2014 10

Innovation – NER300 1 ST Call Results – OCEAN projects • 3 NER300 ocean categories: Wave (>= 5MW), Tidal (>=5 MW), OTEC 1 (>=10MW) • 8 Project Applications received in all categories • 5 projects ranked in all categories • 3 projects attributed for NER300 funding (wave & tidal), • 1 withdrawn after Award Decision • Remaining total NER300 funding amount for ocean projects: ~40 MEUR • Project 1: UK, Sound of Islay, 10 MWe array, ten grid-connected tidal current turbines (3-bladed, seabed mounted ), located at the west coast of Scotland. • Project 2: UK, Kyle Rhea, 8 MWe tidal turbine array, located in strait between the Isle of Skye and the Scottish mainland, four tidal energy twin rotor turbines each rated at nominal 2 MWe . 1) OTEC = Ocean Thermal Energy Conversion 14/04/2014 11

Private Investment Activity – who is investing Industrial players / Conglomerates : active in recent years (Siemens, Alstom, other) Utilities Individuals/ family offices JVs favoured: sharing of competences, risk 12

Under-represented investor types VC and private equity funds: historically cautious given concerns over time-to-market, technology risks, capital intensity/dilution Infrastructure funds: willing to take equity risk but generally only in proven technologies Banks via PF structures: function of maturity of the sector Role for new partnerships, products, even institutions 13

A growing role for VC? Investment keys: IP, clear milestones to be reached, controlled cash burn, strong management and BP, value-added to exit, existence of buyers Biotech v. marine energy? Investment in supply chain, enabling technologies e.g. IT, new materials in drug development – S ingle s teps the L ife S ciences value chain Approval Approval Approval Approval Clinical Marketing In Vitro In Vivo Clinical Clinical P re-clinics P has e II (a/b) P has e III (IV) S ales P re-clinics P has e I Tes ting of potential S tatis tical s ignificant P reclinical P has e to Tes ting of efficacy tox icologyin E valuation of the evaluation of the tes t the lead and tox icologyin DES CR IP TION (generally ) healthy efficacyin a s maller efficacy of the s ubs tance in different relevant animal volunteers , dos e group of patients product in a broad model s y s tems models defining s tudies group of patients 6 – 12 months 6 – 18 months 6 – 60 months TIME FR AME 12 -18 months 14

New types of infrastructure fund? Renewable Energy Investment Fund Case Study: Green for Growth Issuance of different share tranches (A, B, C and later Notes) ‏ Offering investors different risk-return profiles Investment Test Is the fund a sound investment proposition? 15

Moving towards Bankability? Creating an enabling environment Regulatory Environment: Feed In Tariff, Permitting Main barriers to finance: • High-risk nature of the project • Lack of commercial viability • Lack of coordination between public funding sources • Commitment of project promoters • Insufficient technical and financial advice to make projects investor-ready Public Finance: Grid connections Government or EU in form of grants or guarantees 16