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affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Overview of Biodiesel Market
Biodiesel has grown exponentially over the years
Biodiesel has grown rapidly on a global basis in spite of having been targeted by various groups (NGO’s, Auto lobbies), as well as a
volatile crude markets, and often unclear or shifting mandates
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pro
du
cti
on
, (
MT
)
Biodiesel Production - 2006 to 2015F, Metric Tonnes
Others
Colombia
Brazil
Singapore
Australia
Philippines
China
Thailand
Argentina
Indonesia
Malaysia
EU
USA
Sources: OECD, F&S estimates, KPMG analysis
19.3% CAGR
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affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Overview of Biodiesel Market
Spurred by mandates across the world
At 6%. Target is 10%
by 2020
Mandates have been a key driver of biofuels growth over the years
At 7%. Target is 10%
by 2016.
At ~7.5%. Target is
20% in 2016, 25% by
2020.
Seeking 10%
mandate by 2020.
Only uses UCO.
2% mandate in
NSW.
Very little to date.
Player by 2020?
RFS requires 2 bn
gallons (7.56 Mn MT)
by 2017.
10% mandate but at
5% in reality
7% pushing for 10%
Brazil
Argentina
US
Canada
EU
Africa
China
Columbia
Currently at 8-10%
(depending on
region)
Australia
Indonesia
Malaysia
Thailand
Currently at 7%
pushing for 10%
2% mandate
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affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Renewable Energy Funding Market
Biofuels have been a key component of funding in renewables
326
244
284
324 330
357
213
0
50
100
150
200
250
300
350
400
2008 2009 2010 2011 2012 2013 2014 YTD
Number and Aggregate Value of Renewable Energy Infrastructure Deals, 2008 - 2014 YTD (As at 6 October 2014)
No. of Deals
Reported Aggregate Deal Value ($bn)
Estimated Aggregate Deal Value ($bn)
2% 2% 3% 2%
46% 49% 53%
46%
37% 31% 27%
38%
10% 13% 10% 10%
0% 2% 1%
1% 5% 3% 6% 3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014YTD
Pro
po
rtio
n o
f D
eals
Breakdown of Renewable Energy Infrastructure Deals by Industry, 2011 - 2014 YTD (As at 6
October 2014)
Diversified Renewable Energy Wind Power
Solar Power Hydro Power
Geothermal Power Biomass/Biofuel Facility
Source: Preqin
Source: Preqin
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Funding biofuels projects
But what makes for a good project?
Fundable
project
Technically Sound – Any USP’s, offtake?
Economic Feasibility – Feedstock, contracts?
Financial Feasibility – Scenarios
Risk – Country, project, legal etc.
Sound management team – track record
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affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Funding biofuels projects
Cost competitive drivers are of paramount importance
Critical Area Key Parameters
• Location
• Feedstock, power, water, labour, geological conditions
• Tax & other concessions
• Robust – production cost versus product price
• Exports in high value/low volume commodity
• Aim for 1st or 2nd quartile of production costs
Cost competitiveness
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affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Funding biofuels projects
Risk management should be a long list with mitigation strategies
Critical Area Key Parameters (probability vs. impact?)
• Completion and Development cost overrun reserve
• Project implementation strategy/ team experience
• Raw materials/inputs security – lowest cost feedstock
• Production and operating predictability – proven technology
• Flexibility in production and product output
• Logistics predictability
• Marketing and sales plans/ contractual arrangements
• Political and legislative agreements/concessions
• Environmental management plans
• Financial and macro-economic assumptions
Risk Management
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affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Funding biofuels projects
What are the potential pitfalls?
Critical Area Key Parameters
• Infrastructure availability & security
• Contracts providing market protection and counterparty strengths
• Completion risks (time and money availability)
• Operational management capabilities
• Environmental conformance capability
• Commodity pricing, marketing & competitive marketing position
• Political support
• Legal & financial structures
• Foreign exchange variability
• Funding and overall financial strength of participants
• And not being aligned to how bankers see projects….!
Potential Pitfalls
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affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
Funding biofuels projects
Banks may also provide restrictions in financing
Critical Area Key Parameters
• All revenues flow into single project account
• Agreements govern allocation of cash flows according to priorities / waterfall
• Debt service reserve account, maintenance reserve account up to 3-6
months P&L
• Negative covenants for shareholders dividends or repayments
• Cash sweep / mandatory prepayment.
• DSCR Covenants set at levels based upon stress testing of the Base Case
Model. Can be forward or backward looking.
Bank Financing
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Funding biofuels projects
In summary, must have a well structured, de-risked value chain
Feedstock Oil production Refining Transport/
Distribution
Retail
Operations
Availability
Security
Quality
Type of CPO/
derivative and balance
Storage/ Location
Sustainability
Biofuels Value Chain and Key Variables
Location choice
Technology Choice
Delivery
Pre-treatment
Plant Design
Manufacturing
Products and By
Products
Waste
Capex and Opex
Integration
Tankage
Distribution
Volume
Price
Distribution
Etc.
Upstream Processing & Downstream
Ke
y V
ari
ab
les
Key Area Key Area Hidden Pitfalls/ Gains
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The KPMG name, logo and ‘cutting through complexity’ are registered
trademarks or trademarks of KPMG International Cooperative (KPMG
International).
Chris de Lavigne
Principal, Global Strategy Group
KPMG Services Pte Ltd
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