5.1. Trends and opportunities
5.1.1. Growth in energy demand
5.1.2. Towards a low carbon economy
5.1.3. Availability of funding sources
5.1. Trends and opportunities
Factors such as increased energy demand, transition to a low-carbon economy and competitive access to funding make renewable technologies the electrical energy generation sources with highest growth expectations.
Extensive experience in the management of renewable assets, adequate strategic positioning as the first European Yieldco and good access to capitals markets make Saeta Yield a company of the future, capable of taking advantage of the opportunities in its surroundings.
5.1.1. Growth in energy demand
Description of the situation
Population growth, along with increased wealth, the consolidation of middle classes in emerging countries and a more urban lifestyle, will lead to a major increase in worldwide energy demand, as well as demand for electricity.
Opportunity for Saeta Yield
Rapid economic and urban growth will have a direct impact on the development of energy infrastructure, such as the assets in which Saeta Yield invests.
Renewable and electricity transmission technologies will see growth as a consequence of increased demand for energy.
Saeta Yield has an ideal strategic position in the electricity market. It is the first Yieldco in Europe and counts with partners, Bow Power and ACS Servicios Industriales that allow it to access new high quality renewable and conventional energy, and transmission line assets.
Saeta Yield is an expert renewable energy operator with capacity to invest in and operate assets involving a range of different technologies, including the solar thermal, particularly
complex due to its industrial nature.
The Group’s financial solidity and an expert investment and corporate development team allows growth to be tackled with guarantees of success.
Additionally, a solid Corporate Governance promotes that the different stakeholders related to Saeta Yield conduct their relationships with the necessary trust.
5. favourable environment for growth
26 United Nations. 2015. World Population Prospects. The 2015 Revision.
27 United Nations. 2014. World Urbanization Prospects. The 2014 Revision.
28 International Energy Agency. 2015. World Energy Outlook 2015.
Figures of interest
The world’s population will be 8.5 billion people in 2030, 9.7 billion in 2050 and 11.2 billion by 210026.
66% of the world’s population will live in cities by the year 205027.
GDP will increase at an average rate of 3.5% by 204028.
Worldwide demand for energy will increase by 1/3 by the year 204028.
An average annual growth of 2% will be experienced in electricity demand until 204028.
5.1.2. Towards a low carbon economy
Descripción de la situación
The world’s energy system is responsible for two thirds of worldwide CO229 emissions, which is why there is a proposed necessity to advance towards a sustainable, low carbon and environmental friendly energy model.
At the Paris Climate Change Conference (COP21) held in December 2015, the governments of 196 countries agreed to take measures to avoid average temperature increases from exceeding 2°C by the end of the century, representing a milestone in the fight against climate change.
Figures of interest
The European Union has set an emissions reduction target of 40% by 2030 (with 1990 as a base)30.
Similarly, many other countries are developing policies to promote reductions in CO2 emissions and promote the development of renewable energies.
An investment of 13.5 billion dollars is required to meet the COP21 targets31.
By 2040, subsidies granted to renewable energies will have totalled 5.9 billion dollars, of which 70% will be channelled into renewable electricity generation28.
Opportunity for Saeta Yield
Saeta Yield is a company committed to the fight against climate change and protecting the environment.
In fact, Saeta Yield is a contributor to change, as it has a renewable generation portfolio of 789 MW that in 2015 generated 1,367 GWh of clean energy and avoided the emission of 940,899 net tonnes of CO2 into the atmosphere.
The Group has the possibility to access new renewable assets through agreements with its partners.
Saeta Yield has potential to promote the transition to an energy model involving the decarbonisation of the economy, due to the renewable nature of its business thanks to its agreements, among other aspects.
Renewable energies are increasingly competitive.
Due to technological progress and reduction in costs, wind and solar energy sources have reached a sufficiently high level of maturity to compete with conventional energy sources with very moderate levels of subsidy, and even without assistance in exceptional cases. Progress is expected with this trend, and subsidies required by each asset will continue to decrease.
29 International Energy Agency. 2015. Energy Technology Perspectives for 2015.
30 International Energy Agency. 2015. Energy and Climate Change. World Energy
Outlook Special Report.
31 International Energy Agency.2015. Energy and Climate Change. World Energy
Outlook Special Briefing for COP21.
32 These figures include the Extresol 2 and Extresol 3 assets, acquired at the
beginning of 2016.
5. favourable environment
for growth
5.1.3. Availability of funding sources
Description of the situation
The current scenario of low interest rates, the appearance of new funding sources aimed at these types of assets, and the aforementioned increased competitiveness of renewable generation sources, have increased interest among major investors in medium- and long-term investments in renewable energy projects that generate attractive profits.
In this context, institutional investors such as pension funds, asset managers and insurance companies are taking on special relevance, as they are increasingly committed to making investments in this sector, either directly or through investment vehicles, such as Saeta Yield itself.
Figures of interest
Investment in renewable energy sources, excluding major hydroelectric power stations, stood at 285.9 billion dollars in 201533.
The six largest renewable energy investment funds obtain profits of between 5.5% and 7.0%34.
41.8 billion dollars were invested in green bonds in 201535.
Socially responsible funds have 4.3 billion dollars under their management.
Opportunity for Saeta Yield
The availability of funding favours the Group’s access to capital, allowing it to maintain a solid financial structure with sufficient liquidity to continue with its growth strategy, through the acquisition of new assets.
Similarly, the diversification of funding sources offers Saeta Yield the opportunity to minimise dependence on banks.
Lastly, greater appetite among investors for renewable vehicles makes Saeta Yield an attractive investment vehicle for many institutional investors.
Saeta Yield offers its shareholders the chance to directly participate in constructing a sustainable energy model, as it invests in and operates renewable assets that produce emission free energy, offering secure profitability supported by favourable remuneration schemes in stable countries.
This stability of generated cash flows and good growth potential allow Saeta Yield to distribute attractive and increasing dividends.
33 Frankfurt School. FS-UNEP Collaborating Centre for Climate & Sustainable
Energy Finance. 2016. Global Trends in Renewable Energy Investment 2016.
34 Financial Times – Generating returns from renewables http://www.ft.com/
cms/s/0/9a547158-bccc-11e4-a917-00144feab7de.html#axzz48Kq7UZoj
35 Climate Bonds Initiative. 2016. 2015 Green Bond Market Roundup.
5. favourable environment
for growth
5.2. Regulatory framework
The regulatory framework of renewable energies presents an attractive environment for investors. This fact, together with other factors such as the maturity of renewable technologies or the increasing number of power purchase agreements (PPA), is a clear competitive advantage that has notably reduced the market risks, making a renewable assets operator such as Saeta Yield a secure source of dividends for investors.
European Union
The regulation developed by the European Union (EU) over recent years reflects its determination in the construction of a new energy model, in which renewable energies take on a greater role to fight against climate change, reduce energy dependency, improve the Union’s competitiveness and guarantee supply security.
The 2030 climate and energy framework establishes, among other targets, a 40% reduction in greenhouse gas emissions36, a 27% increase in energy efficiency and the achievement of a 27% share of the energy proceeding from renewable sources in the total energy consumption of the European Union.
In this context, the European Union is giving a boost to international connections, with the aim of promoting the exchange of energy between neighbouring countries, thus contributing to the security and continuity of the electricity supply. EU countries must achieve an interconnection level of 10% of their installed capacity by 2020, and 15% by 2030. As interconnection capacity increases, the volume of renewable production that it is possible to integrate into a system under safe conditions is maximised, allowing countries to increase installed capacity of a renewable nature.
36 Compared to 1990 levels.
5. favourable environment
for growth
Spain (BBB+/Baa2/BBB+) 37
In 2014 the Spanish government completed regulatory reforms, which has allowed it to resolve the structural tariff deficit suffered by the electricity system, which compromised its future economic sustainability.
Royal Decree 413/2014 regulates the production of electrical energy from renewable energy sources. It establishes a remuneration regimen methodology that guarantees reasonable profitability. This profitability has been fixed at 7.4% before tax for the next six years.
During their entire regulatory life, fixed at 20 years for wind power assets and 25 for solar thermal assets, assets will earn revenue for selling their energy to the market, as a return on investment. In addition, solar thermal plants will receive operation remuneration, as they have higher production costs.
The new regulatory scenario is very favourable for Saeta Yield, as it provides greater visibility and guarantees the future solvency and sustainability of the Spanish electricity system, and therefore the remuneration associated with regulated activities, favouring a stable environment in which it has been possible to overcome the tariff deficit.
37 Sovereign debt rating by Standards & Poors, Moody’s and Fitch respectively.