Understanding the global picture for renewables and opportunities for mine partnerships

June 29-30, 2017 Pan Pacific, Perth

Javier VaquerizoHead of Commercial Office, Business Development

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let us introduce

Enel Green Power

to you

Enel Group today

Global and diversified operator

40 €bn Regulated Asset Base

62 mn distribution end users

#1 in Italy, Spain, Chile, Peru

#2 in Argentina, Colombia

17.5 mn free retail customers

#1 in Italy and Spain

48 GW thermal capacity

Highly flexible and efficient

generation fleet

36 GW renewable capacity

Global leadership in renewables

Enel Group today

Global and diversified operator

countries of presence

Enel Green PowerPositioning and key figures

Expanding and consolidating our footprint

operating capacity

capacity under execution/construction

Latam 48% Africa/Asia 23% America 15%

Iberia 6% Italy 5% Europe 3%

Wind 57% Solar 35%

Hydro 6% Geo 2%

Enel Green Power

Leadership position supported by very strong track record

Consolidated Capacity Additions 2019 3,5GW

6,6 GWWIND

1,2 GWSOLAR

0,8 GWGEO

0,02 GWBIOMASS

27,4 GWHYDRO

Positioning and key figures

Capacity

36 GW

Production

86 TWh

Global transition

to renewables

Expected trends in Energy and Renewables

Renewables will be getting more competitive

Game

changers

2040*

Global power demand grows by 58% between now and 2040Growth

$10.2 trillion to be invested in new power generation and 72% goes to renewablesInvestment

Wind and solar account for 48% of installed capacity and 34% of electricity generationMarket

The levelized cost of new electricity from solar PV drops by 66%Prices

Batteries for energy storage to become a $20 billion per year marketBatteries

Australia’s electricity system becomes one of the most decentralized in the worldAustralia

*Source: BNEF New Energy Out 2017

Australia Power Sector Trends*

Challenges

• 65% Renewables in the matrix with

PV at 72GW and wind at 15GW

• 16GW expected of Storage

• Coal will reach 9GW and gas 10GW

• On-shore Wind costs will fall 42% and

63% Solar PV

• 45% of total power capacity is located

behind-the-meter in 2040

Most diverse matrix in the world by 2040

Cumulative Installed Capacity LCOE projections

*Source: BNEF New Energy Out 2017

How Enel Green Power

can meet your needs

How we view renewable supply partnerships

Local Contexts

• Regulation

• Power and energy markets

• Local resources

• Commodities

Interests & needs

• Increase RES capacity

• Secure future revenues

• Geographical and technological diversification

• Promote and develop new innovative solutions

• Creating shared values (CSV)

Client interests & needs

• Predictable energy pricing

• Cost savings

• Carbon footprint reduction

• Secured supply

• Limited or no upfront capital

• No operating risks

• Corporate image improvement

Designing together tailor-made solutions

according to respective interests

How we view renewable supply partnerships

Designing together tailor-made solutions

according to respective interests

Medium & Long term solutions

Mature RES technologies Innovative value solutions

• No upfront capital

• Off site plant – financial or physical PPA

• Equity Partnerships

• On site plant - physical PPA

• Conventional supply and/or Existing renewable

• Certificates (RECS, GoO,…)

Short term solutions

Existing Portfolio

ENEL main competitive advantages

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multiple solutions from a single provider

Enel Green Power is a reliable and credible partner

Our 6 key levers to value the chain optimization

2. Financing

• Competitive cost of financing

• Hedging and risk control strategy

3. Development

• Strategic partnerships

• Flexible co-development agreements

• High quality pipeline of projects

4. Engineering & Construction

• Economies of scale, global procurement

• Design-to-value to increase reliability

production and minimize costs

5. O&M

• Economies of scale

• Big data and predictive maintenance

• Performance excellence at lower costs

6. Energy management

• “Integrated management” of generation

portfolio with retail operations

• Commercial synergies at Group level

Enel Green Power Business ModelInnovating for value in Mature Technologies

1. Energy sources mix

• 100% renewable energy sources

• Five energy production technologies across the

world to design the best energy solution that

fits corporate needs

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Structuring and

pricing

Solutions for

Mines

Mining + RenewablesBilateral challenges to consider

Mining Partner

Obstacles and needs

DEAL

Lifetime and load profile of the mine

Grid Connection and stability

Electricity and fuel prices, Gensets

Stakeholders. Internal governance

Country risk and interest rates

Transportation costs and logistics

Accounting treatment

Emission reduction

External Factors

Market Price evolutionMarket matching

Regulatory framework Market Rules. Grid Code

Available Projects/Products Available Primary resource

Solution Proposal

Financial Structures.

Sustainability. Certificates

PPA (Physical, Sleeved, Virtual Financial) Role of energy retailer

Stakeholders. Ownership

Risks identification and assessment

On-site/off-site. On-grid/Off-grid Technology. Hybrid. BESS

Contract specifics

Products. Volume. PriceAgreement term

Counterparty Risk Allocation if risks. Flexibilities

Credit Support Breaches and remedies

Operation Change in Law/Tax

Structuring and pricing renewables for mines

On-Grid MineOff-Grid Mine

On-Site--Off-Grid RE plant On-Site--Off-Grid RE plant Off-Site--On-Grid RE plant

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DealDrivers

Structuring Challenges

Savings: avoided Diesel, carbon tax

Other Benefits: CSV, sustainability targets

Risk management: reliable supply, hedge

vs fuel volatility

Savings: vs regulated tariff/market price, carbon tax, network tolls

Other Benefits: CSV, sustainability targets,

Risk Management: reliable supply, hedge vs tariff/market price volatility

Bankability: country risk, volatility of incomes, curtailments, take or pay, termination, credit support

PPA structure: volume, fix vs variable price, price indexation, currency, green certs, accounting treatment

Risk allocation: Construction, operative, credit & counterparty, FX volume&price, out of the money PPA vs stranded asset protection,

Operative: O&M and dispatching rules, intermittency management, integration w/ existing Gensets

Equity partnerships?

Bankable minimum term?

Storage? Optimal size/tech?

Deployable-portable plant approach?

Storage? Optimal size/tech?

Net metering? Behind the meter?

Wheeling rules in place?

Land lease term vs PPA term?

Cost of Off-Grid -> On Grid?

Physical or Financial PPA?

Fix or variable price?

Indexation to commodity/spot/tariff?

FX hedge?

Volume tracking account?

take into account both parties risk aversion through

proper risk allocation always assuring project bankability

Focus on the Off-taker’s incentive to buyUnderstanding value-risk trade off

low high

low

high

low

high

PRICE

Risk Project

is willing to

take

Risk Mine is

willing to

takeMine incentive to

buy zone

Project must fit the Offtaker’s price driver:

- More options, solar, wind, geographically diverse, several partners

- Most competitive one in terms of performance and capex

- Feasibility study. Design to cost

- Economies of scale benefits (Procurement, E&C, O&M value chain)

Project incentive to

sell zone

And always try to match our respective risk aversion levels

- Rappel price installments through PPA term

- Tailor made indexations (metals, diesel, FX, CPI, combination)

- Collar structures (price flexibility between a floor&cap levels)

- Tracking account sharing downsides or upsides at the end of the term

- Basis risk on project side or risk premium sharing

- Flexibilities to meet accounting requirements

Agreement

zone

Working together on best PPA ‘price’ – ‘risk sharing’ structure definition

Focus on the Off-taker’s incentive to buyUnderstanding value-risk trade off

low high

low

high

low

high

PRICE

Risk Project

is willing to

take

Risk Mine is

willing to

takeMine incentive to

buy zone

Project incentive to

sell zone

Agreement

zone

It is key to understand interlinkages between

commercial terms, price and financing cost

- Additionality

- Low price

- Positive Net Present Value

- Simplified contracts

- Flexible terms

• Off-taker demand not enough to find a

competitive project for a standalone PPA

• Contract “out of the money” during term:

• Better future alternatives• Market evolving better than PPA price• Stuck in a “long term agreement”• Project performance

• Project owner default and credit support

• Project bankability:

• Volume take or pay and term

• Remaining merchant exposure• Easy termination by the Off-taker• Buyer default and credit support• Force Majeure• Change in law

• Development and construction risks• Unexpected future costs

• Secure long term revenue

• Lower Merchant exposure

• Reasonable asset profitability

• Create shared value

Project targets

Project concerns

• Additionality

• Low price

• Positive Net Present Value

• Simplified contracts

• Flexible terms

• Reliable output

Off-taker concerns

Off-taker targets

Some practical ideasBankability, term and price-risk trade off

It is worth exploring together in an iterative manner

whether different PPA structures could improve deal feasibility

Credit Support and

Termination amounts

Fear of Long Term

Agreements

Trialogue interaction IPP-Lenders-Mine:

• Higher guarantees and termination amounts lead to lower required returns for

the equity partners and lower financing cost from the lenders

• The price reduction due to better financings could compensate (by far) the

higher guarantee financial cost for the mine

Potential synergies with

tailor made indexations

Squeezing every last drop out of flexibility

• Any of these flexible pricing help the mine to embrace longer PPA terms?:

• Rappel price installments through PPA term

• Collar structures (price flexibility between a floor&cap levels)

• Tracking account sharing downsides or upsides at the end of the term

Exploring potential savings in Mine’s hedging strategy

• Does make sense a partial PPA price indexation to metals or diesel price?:

• Potential synergies with existing mine’s commodity hedging strategy

• Could steady the percentage impact of energy cost on net results

• Could be a good proxy for FX hedging and improve project finance

Project Development

PPA Price

PPA

Commercial Terms

Project Bankability

Credit Support

Termination

Duration

Enel Green Power

microgrids initiatives

Innovation meets sustainability

Enel Green Power is getting the experience

to deploy onsite solutions for Mines

Pilot projects

Alignment with Enel

Commitment to UN global goals

for Sustainable Development

Testing Technology for future

commercial deployments

FORMULA E microgrid55 ‘plug and play’ smart meters,

storage capacity of of 12kWh, a 5kWp

photovoltaic plant and four rapid

charging stations

Ollagüe Chile

200kW PV, 30kW Wind, Diesel

250kW/752kWh (Fiamm)

Cerro Pabellon construction camp

“Plug and Play” micro-grid powered by

solar pv and hydrogen-based storage in

Chile

Re-deployable PV plant proyect

(implementation end 2017)

Energy management optimization

software (BESS+Diesel backup+RES)

Smart metering and mobile biling

(Smartphone prepayment)

Microgrid, Storage and Hybrid

Energy management optimization

software (BESS+Diesel backup+RES)

Alternative Storage hydrogen

power to power system (H2ESS)

09/06/2016 23

Cerro Pabellon CAMP :

Waste-water

purification plant

(TAS)

Offices and accommodation for manpower in charge of Geo Plant construction

In operation (Off-grid) until 2018

Altitude: 3.850 m.a.s.l.

Minimum Ambient temperature: -28 °C

Energy supply by Diesel generators: 2x550 KVA and 2x660 KVA

Waste-water purification plant (TAS Plant) was disconnected from

main supply and feeds 24-7 by Hybrid EPS plant.

TAS Plant Daily LOAD Profile

Innovation meets sustainabilityCerro Pabellon Microgrid (partnership with EPS)

Innovation meets sustainabilityCerro Pabellon Microgrid (partnership with EPS)

Innovation meets sustainability

Case Study: Ollagüe

UN Goal: N.7 Access to electricity

Plant: Hybrid

Technologies:

Isolated town in the border of Bolivia in Chile that now has 24h

Electricity and was a Hybrid pilot project for Enel Green Power

30 kWWIND TURBINE

200 kWSOLAR PV

200 kWSTORAGE

250 kWDIESEL (Back Up)

Energy management system:

• Advanced weather forecast and nowcast technologies

• Real time monitoring of the loads

(for Load forecast)

• Modeling improvements of the genset

management strategy

• Rightsizing equipment modular additions according

to demand increase

• Integrate meters and provide innovative billing system

Ollague Microgrid (partnership with Freeport Mining)

https://www.youtube.com/watch?v=rc_qluCdWPA

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Thank you

Javier Vaquerizo

Head of Commercial Office, Business Development

Enel Green Power

Please contact me for any further inquiries

commercialEGP@enel.com