Sustainability in Energy: From CSR to the CFO - … · Trend 2: Netherlands have become a Nirwana...

© UMS Group Inc., All Rights Reserved

Sustainability in Energy: From CSR to the CFO

Energy Summit Presentation 2017

Remco Frenken

© UMS Group Inc., All Rights Reserved 2

Agenda

• Setting the Scene

• Business Case

• Tips & Tricks

• Conclusion


Setting the scene

Sustainability in Energy Consumption is most easily achieved with

“Greening” Electricity

Key figures NL E(lectricity) G(as) H(eat)

Consumption Total

(TWh/y)

120 350

Consumption “Green”

(TWh/y)

40 (33%) 1.3 (0.37%) 10

Commodity Value

(€’m/y)

1800 30 150

• Green Power is a more attractive option than Green Gas (growth, money, and

simpler)

• P.M.: Greening of Steam (industry) and Molecules (feed stock in industry, like for

fertilizer)


Balancing the Sustainability and Cost Equation: CSR v CFO Motives

Head of CSR CFO

Perspective Maximise Energy

Sustainability/€

“Show me the money”

Costs focus or

Revenue

focus?

Challenge Costs Challenge the Business Case

Approval Approve Costs Approve Business Case

Typical risk Lower Priority “CFO asked to

delay 1 year, as no budget”

Low Payback/ROI “Why does it

take so long, it should have been

ready last year”


Agenda


• Business Case

• Tips & Tricks

• Conclusion


Business Case

What does the business case look like ?

…..a puzzle with 7 pieces !


Business Case Components 1/7:

1. Lower Cost of Capital/more attractive for investors

• Many funds want to invest ‘green’

• Few ‘green companies’ to invest in

• => High Fund Availability (capital supply) & low investment opportunity (capital demand) =>

Price (of bond) goes down (or price of shares goes up)

• For example: 0.2% lower interest on 500 mln green bond = 1 mln/y

How do companies show commitment to green energy generation?

i. Larger companies (global): DowJones Sustainability Index, for example

• Unilever

• AkzoNobel

ii. Larger Companies ( global): “Green Bonds”, for example

• TenneT

• Alliander

iii. SME (in NL): projects qualifying for status of “GroenProjecten” (Green Projects)

• Fiscally (Tax advantages for potential investors) very attractive, but funds are closing due to a

lack of investment project opportunities


2. Revenues from Support Systems: E.g. Netherlands

Trend 1: Increasing Amounts, allocated in a technology neutral competitive way

Trend 2: Netherlands have become a Nirwana for green projects (12 bln/y, circa 50% of

Germany in a power market only 20% of the German size)

Trend 3: Increasing risk awareness subsidy providing governmental entities (“in depth feasablity

study, credibality etc.”) and financers (“Floor price risk, value GoO, value off take contract, etc.”)

Conclusion: A Company that makes a project ‘bankable’ deserves a share of revenues

A Favourable risk/reward ratio (but you have to take some risk)



3. Risk Management Sustainability

• For example: ETS-4 (“CO2 prices 2021-2030”)

ETS-3 (now): low CO2 prices (& low E prices)

ETS-4: probability of higher CO2 prices and/or higher E-prices

• Risk assessment: determine impact ETS4 for your company

• Risk mitigation strategies: what is method including cost/benefit analysis to limit risk ?

“green steam, green gas, carbon credits, ACA level (airports), C02 free generation etc.”



4. “Ease of doing business” - Qualifier and/or Bonus in

Purchasing Tenders

• Many companies impose minimum demands related to sustainability

‘qualifier’:

KYC procedure with financial institutions: sustainability criteria

Part of “credit risk assessment”

• High degree of sustainability increases ‘grant you the deal’ factor, resulting in:

Higher probablity of succes (“all things equal, the most sustainable wins”)

Better price (“on price we were #3, but thanks to the 10 points voor sustainability we won”)



5. Customer Loyalty

• Prevent clients going to ‘greener’ competitor

For example: Rail company: we should assures that the train remains ‘greener’ than an

electric car, as some clients choose rail for environmental reasons

• Avoid clients going to a Low Cost Competitor

For example:

Steel supplier provides “sustainable steel” to a major construction firm.

The construction firm will proudly state on their website “we use sustainable steel”.

Sets barrier to revert to low cost producers in subsequent years during periods of low

growth/profitability



6. Robustness

• Green Company has more ‘margin for errors’, before stakeholders lose trust

7. Attractive Employer

• For the same conditions, do you prefer working for WindMillFactory or “Lignite Generation” ?

Business Case Components 6-7/7:


Putting the puzzle together

How does the puzzle look for you ?

Impact “Cost of

Capital”

Subsidy share

Risk Management

Customer Loyalty

Robustness

Att

ractive

Em

plo

ye

r


Agenda


• Business Case

• Tips & Tricks

• Conclusion


• Financing

• Own Money

• Project developers have high ‘out of pocket’ costs

• Long delay till ‘first positive cash flow’

• Uncertainty whether project will materialize

• ‘Bankable contracts’ (required to get bank financing)

• Revenue Guarantee

• Power & Subsidy (90-95%)

• Basis SDE/ECN formulas (in NL)

• Operations (beating the SDE ECN formulas) (5-10%)

• Additional revenues (GoO’s (1-2.5%))

• Credibility

• The more successful projects (past) and the more credible partners, the easier you get a spot

on the table

Tips & Tricks: What does a project developer need?

Certainty of revenues implies lower costs as cheaper financing


• Multi year commitment

More value than a 1 year commitment, due to the contribution to stable cashflows

• Location

Especially the combination of location and licence

Energy-Tax effects

• Flexibility in off take (“supplier may choose from which projects the GoO’s are delivered”)

The more flex, the more value (for supplier)

• Project Type

• Origin

• Time

• Co-financing

Aligned with company risk profile

• Scale

A €60m contract provides more opportunities (and management attention) than a €2m contract

• Combine GoO and Commodity Power

• Long term better than short term

• For some companies: Brand Association

Do you want to link your name to an electric car manufacturer or a tobacco company

Tips & Tricks: How to best spend your € ( or $)


Tips & Tricks: Power Generation using Local Natural Sources

10 wind turbines * 6 MW * 3,300 hours = 200 GWh

Eneco Bio Golden Raand (50 MW @ 4000 hr)25 MW Bio Energie Centrale

Cuijk (@ 4000 hr)

300 ha zonneparken (1.5 ha per GWh)

Five ways to produce 200 GWh green power...

80.000 roof tops


Agenda


• Business Case

• Tips & Tricks

• Conclusion


Conclusion

Sustainability: Push & Pull ?

• Challenge organisation to make a viable business case

Alternatives

Revenues

• Define risk appetite

• Define project organisation

Role “Purchase Department”: support, not ‘drive’

Business case challenge by CFO/COO/CEO

Validation of risk & business case during the project

• For internationally active companies: NL has a favourable

investment environment (€12Bn/Year SDE subsidy support, asset

management knowledge & stakeholder management, financing

etc.), so if you can not make it work here….


UMS Group

Contact

Remco Frenken

Managing Partner

UMS Group Europe B.V.

Amstel Business Park

Joop Geesinkweg 901-999

P.O. Box 94013

1090 GA Amsterdam

The Netherlands

Mobile: +31-6-8397-0398

Office: +31-20-561-7033

Fax: +31-20-561-6666

[email protected]

www.umsgroup.com

UMS Group

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Sustainability in Energy: From CSR to the CFO - … · Trend 2: Netherlands have become a Nirwana...

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