Eric laborde, EPIA Board Bernard Jamet, Finergence Michel Viaud, EPIA

1. PROPOSAL FOR THE SETTING UP OF A PV INVESTMENT FUND Eric laborde, EPIA Board Bernard Jamet, Finergence Michel Viaud, EPIA Michel Viaud, Steering committee meeting, Brussels, 12 September 2005

2. A Growing Demand • The demand for PV products is on the rise in OECD countries; • Although largely subsidised, there is no sign PV investments will slow down in the coming years, due to environmental and regulatory constraints; • The potential for PV projects is even larger in developing countries and remains almost untapped

3. Possible Bottlenecks • The silicon shortage ( in competition with the electronic industry, may result in reduced production capacities; • The need for permanent increase of productioncapacitiesand adaptation to new technologies (may create a financing problem for shareholders and investors, while expected dividends do not materialise) • The financing of the investment: Insufficient ( Even for projects initiated or supported by public organisations)

4. Creation of a Dedicated Resource • The suggestion would be to design a financial mechanism that would be applicable: - to fund both on-grid and off-grid electricity production projects - and to the financing of investment operations within the PV production facilities; • This financial mechanism would be exclusively dedicated to the needs of the PV sector.

5. Advantages and Drawbacks of a Dedicated Resource (1) • Developing a financial resource dedicated to PV projects does not necessarily constitute the best approach from the point of view of potential investors, due to the concentration of risks; • This reluctance should be however easily overcome by the important advantage in terms of reduction of the transaction costs,

6. Advantages and Drawbacks of a Dedicated Resource (2) due to a standardised approach of the projects and the specific expertise of the resource managers; • In order to further mitigate the risks and provide more comfort to potential investors in the facility to be set up, extending its benefits to all solar applications is an option that could be investigated;

7. Advantages and Drawbacks of a Dedicated Resource (3) • Considering this financial mechanism as a temporary tool conceived as a booster of an emerging market, it should have a relatively short term horizon (say 5-7 years), which is also a way to mitigate the risks.

8. The Suggested Tool is an Investment Fund (1) • The proposed financing instrument takes into account the particular characteristics of PV investments that often require Project Companies (PC) are established; • The instrument would then play a major role by being able to provide some sort of seed capital under the form of equity or quasi-equity (mezzanine financing);

9. The Suggested Tool is an Investment Fund (2) • Through the acquisition of minority positions, during a limited period of time, the instrument would attract additional financing and allow the realisation of highly leveraged investments.

10. Targeted Investments • Category 1: extension of production capacities or introduction of new modern technologies, when these investments are susceptible to yield an attractive financial return; • Category 2: participation in the capital of project companies created in order to • (i) manage the implementation and/or the operation of specific large scale projects; • (ii) bundle a series of small-scale investments (ESCOs).

11. Category 1 Projects: Eligibility and Restrictions (1) • The Fund objective is - to help organise the financing of internal investments within the facilities of PV manufacturers (or producers of any element of the PV process), through participating, when needed, in a capital increase susceptible to attract additional loan funding from banks in a project financing framework;

12. Category 1 Projects: Eligibility and Restrictions (3) • It will be decided by the Fund’s governing bodies, on a case by case basis, after thorough analysis of the investor: • company business plan, • the nature of contemplated investment • the exit strategy that can be agreed on (usually a put on other shareholders)

13. Category 2 Projects: Eligibility and Restrictions (1) • To support the creation of project companies set up for the implementation of large projects (>1M€), • the Fund may be able to take a minority position (up to 49%) although in some particular cases, • it might be envisaged that the Fund, as a PV promoter, takes a much higher stake.

14. Category 2 Projects: Eligibility and Restrictions (2) • This will always depend on the project structure and risk analysis, taking also into consideration the necessity to find the best ratio debt/equity; • For smaller projects (< 1M€), due to proportionally higher transaction costs, the Fund will not be able to intervene directly.

15. Category 2 Projects: Eligibility and Restrictions (3) It is therefore suggested to invest in an intermediary entity (ESCO), that would then deal with these small size investments.

16. Fund’s Investments Other Investors Investment Fund PC for large scale projects ESCO for small scale projects Existing PV manufacturer New PV facility Small PV Projects Fund’s participation: always as a stakeholder under the blocking minority with a clearly defined exit strategy. Level of Fund’s participation: to be defined depending on market conditions

17. Fund’s Description (1) • Geographic area: • European Union • and selected emerging countries in Asia, Africa and Central and Latin America. • Size: to be based on the estimated financing needs for both the production capacities and the projects at the end user level. • Location:to be analysed on the basis of fiscal parameters.

18. Fund’s Description (2) • Form: a European public-private partnership (30% public, 70% private) • Investors: - European public investors: EU, EIB, EBRD (only for Eastern Europe), European countries (possible through their development and/or public financial institutions: KFW, AFD, CDC,…);

19. Fund’s Description (3) - private European financial institutions: banks and insurance companies. - possible involvement of large energy utilities not likely but to be further analysed (Shell, BP, RWE, EON, EDF,…); - Possible involvement of other investment funds already established for similar purposes in Europe or abroad.

20. Fund’s Description (4) • Governance: - a Board of Directors composed with representatives of all important investors (above a certain threshold); - an Investment Committee composed with representatives of the lead investors;

21. Fund’s Description (5) - rules, procedures and guidelines of the Fund to be further elaborated at the level of the preparation of a Fund Memorandum to be distributed and discussed with potential investors. • Management: A Fund Manager selected as an independent entity on the basis of its expertise and experience

22. Fund’s Financial Objectives (1) • The Fund’s investments must be carefully selected as to yield sufficiently attractive returns that would convince investors to participate; • These returns are expected to be issued under the form of dividends during the shareholding period and from the value of the shares at exit time;

23. Fund’s Financial Objectives (2) • Because of the high return expectations of private investors that PV projects may hardly meet, it is reasonable to ensure a public sector investment in the Fund that could play the role of a buffer; • The concept could be that the public sector investors would not be pari passu with the private sector ones, which would proportionally increase the financial returns for the latter.

24. Advantages of a PV Investment Fund • A strong political signal; • A dedicated financial resource that would help the PV manufacturers develop technically and commercially their activities; • An attractive investment for the international financial institutions and the investors community.

25. Barriers to Overcome • Demonstrating that there are actually financing needs and identification of a realistic projects pipeline; • Demonstration of the financial returns of PV projects; • Risk analysis and risk mitigation means; • Verification of the profession willingness to move forward; • Verification of investor’s interest.

26. Steps Forward • Preparation of a clear mandate to be provided by the European PV profession; • Preparation of a Memorandum for Investors; • Roadshow launching with the profession support; • Selection of a Fund Manager on the basis of Terms of Reference to be drafted; • Organisation of the first Fund closing

27. PV ESCO (1) • A service company with PV expertise and financial engineering experience; • Composed with staff having a proven track record in project financing and implementation; • Susceptible to take the full risks of financing the projects and be repaid through the proceeds.

28. PV ESCO (2) • Will operate in a way similar to a leasing company but with additional services in terms of installation control, monitoring and maintenance capabilities to ensure the performance and the guarantee of result; • Rents or reimbursements will be tiedto the level of performance.