Renewable Energy Investment, Acquisitions and Business Development

What are the best practices to fund a cleantech company or developer’s pipeline?

The cleantech revolution has many similarities with other high-tech revolutions such as the IT and telecommunications markets and many lessons can be learned by the experiences gained here. Getting from the pilot plant or first few permitted projects into the mainstream can be just as fast changing, painful and risky as it was for hard disk drive technology, the quest of the “Holy Grail” in the internet killer application (which ended up being the web browsers and search engines and not a traditional application at all) or ADSL emerging technologies over other telecommunication access technologies like broadband coax or two way satellite were.

Time and time again we have seen that not always does the best technology in a given field become the market leader such as VHS over Betamax in video recording tapes, Thin Film over Ferrite/Oxide technologies in disk drives, and even others managed to leap frog over much larger and established industry players for example like Google over Yahoo. The world keeps changing at an ever increasing rate and the life cycle of cleantech businesses and technologies are no exception.

So what are the lessons learned by these industries where the, all too common it seems, Black Swan shows up (personal computers, IT and internet just to name a few) and what are the proven methods that we can take to practice in the cleantech markets? First we have to understand what the two basic principles that make success possible in the war to market entry:

1.    Speed to market
2.    Proper and timely funding

Being one of the first to successfully make the jump from an early adopter stage to the high growth mainstream market almost guarantees success in cleantech just as much as any other technology driven business. Early entry drives high market share and therefore high margins and market leadership. You don’t really even need the best technology and it doesn’t even need to work to perfection – you just need to get in there. How to get in there requires not only talent, hard work etc., it is fueled by proper and timely funding. You must raise only the amount of funds of the size and maturity of your business and market, learn how to keep lean and mean and avoid unnecessary dilution. How to achieve this is developed further below with some concrete examples but also very important is to keep your eyes peeled for the dreaded Black Swan because there are ways to roast this bird.

Speed to market

Leadership in disruptive technologies creates enormous value. In contrast to the evidence that leadership in sustaining technologies has historically conferred little advantage on emerging markets such as the pioneering disk drive firms, there is strong evidence that leadership in disruptive technology has been very important. The companies that entered the new value networks enabled by disruptive generations of disk drives within the first two years after those drives appeared were six times more likely to succeed than those that entered later.

Eighty-three companies entered the U.S. disk drive industry between 1976 and 1993. Thirty-five of these were diversified concerns, such as Memorex, Ampex, 3M, and Xerox, that made other computer peripheral equipment or other magnetic recording products. Forty-eight were independent startup companies, many being financed by venture capital and headed by people who previously had worked for other firms in the industry. These numbers represent the complete census of all firms that ever were incorporated and/or were known to have announced the design of a hard drive, whether or not they actually sold any. It is not a statistical sample of firms that might be biased in favor or against any type of firm.

The numbers beneath the matrix show that only three of the fifty-one firms (6 percent) that entered established markets ever reached the $100 million revenue benchmark. In contrast, 37 percent of the firms that led in disruptive technological innovation-those entering markets that were less than two years old-surpassed the $100 million level, as shown on the right side of the Table. Whether a firm was a start-up or a diversified firm had little impact on its success ratio. What mattered appears not to have been its organizational form, but whether it was a leader in introducing disruptive products and creating the markets in which they were sold. Only 13 percent of the firms that entered attempting to lead in sustaining component technologies (the top half of the matrix) succeeded, while 20 percent of the firms that followed were successful. Clearly, the lower-right quadrant offered the most fertile ground for success.

It is clear that early entry into a new technology or project development strategy is key for the cleantech industry just as it has been for others in the past.

Proper and timely funding

We have addressed in previous posts the need to understand the current financial and strategic position of the company, the business plan, the risks involved and their management, valuation, industry comparable performance, the forecast and a go-forward strategy and finally a clear exit or hold strategy for the incoming investors. Without a clear strategic vision (especially in such a fast changing technological, political and economic environment that surrounds cleantech) and a disciplined business plan, companies seeking capital will be very disadvantaged in their search for capital, operating in a reactive rather than pro active mode.

In addition, you need explore and develop the basic concepts used to establish the business valuation, and it cannot be over emphasized that the importance of securing buy-in among the stakeholders with respect to realistic valuations is paramount. Without a realistic sense of valuation, current owners or shareholders may cause management to expend significant time and organizational resources hunting for capital only to have a potential transaction fall apart in midstream due to unrealistic expectations.

There are some other observations and practical suggestions about startups, particularly ones that are
bootstrapped or ones that do not have institutional investors who tend to impose certain disciplines.

For example, there is an overall allure when investors are invited to participate in ventures where the business legal structure represents that the moneys at risk are limited to the amounts invested in the C or S corporations or the limited partnerships. It happens frequently with successful professionals and with groups of friends, family members or even local grants from innovation funds investing in a start-up venture. The common denominator is that these investors have large disposable income from their professional practices or trades, sums of inherited money, or easy access to family loans or innovation funds. The feeling of the small risk involved is particularly present when the investing group is composed of several individuals. The cash amount to be invested by each one is small in relation to their personal net worth or funds under management.

Regardless of the source of initial funding, the investors do not actively participate in the day-to-day running of operations. They believe it is only a matter of investing some money in a deal that a promoter indicates is a potential big winner. In many instances management is assigned to the venture's promoter. In other cases management is assigned to a rather inexperienced manager who is hired as an employee at a low pay scale. It is hands-off from the beginning.

Most of these investors do not have business experience and fail to request an evaluation of cash flow projections beforehand. They read some documents and charts with business plans ranging from short and rather flimsy narratives to various degrees of sophisticated presentations.

The allure of the limited monetary risk becomes a fallacy once the investors put their personal or their company’s assets as collateral in support of the venture's bank loans and equipment leases. And, without fully realizing it, the limited risk situation becomes an open-ended risk where homes, bank accounts, and investments in the investors' names are in jeopardy if the business venture goes sideways.

A better alternative for hands-off investors in start-ups is to obtain reliable cash flow projections and a reasonable determination of the capital required to fund at least the working capital for the entire start-up phase, including the payroll expenses of an experienced manager. It is much easier to confront the need in advance and make the investment with a complete understanding of the risk.

In renewable projects and cleantech companies, is it worth it to pay an investment banker?

Many renewable energy project developers seeking investors for their projects or cleantech companies looking for early or growth stage funding hesitate in hiring a specialized investment banking firm to lead the process. How? They wonder, can the RE specialized IB help raise funds and what exactly can they bring to the table? Here are some of the answers.

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First and most importantly, the two words “Investment Bank” send shudders of fear down the spine of most cleantech company owners or developers. Thoughts of huge bills, endless meetings and 20 kilogram reports immediately rush through their heads. “We already put together a business plan”, “we have everything ready” and “our financial guy has put together some great spreadsheets” are the some of the usual, but short sighted replies and are a long shot away from getting close to successfully closing the funding objective.

Specialized boutique investment banks do not carry huge bills and are mostly success oriented although

you should expect some payments for reasonable work done for cleaning up and preparing the road to funding. Below are just some of the advantages in taking this path, they lead to success instead of failure and almost more importantly to a higher valuation or project returns and lower cost of capital.

Is Funding Possible? Why and How do I go about it?

In spite of the current economic turbulence, the author of this article and the firm represented continue to share an enthusiasm and positive outlook for the growth and vitality of the global emerging middle market cleantech companies and projects. And we collectively believe that those companies that are proactive and well positioned and advised, there is likely capital to be found. For those that need help getting their house in order and need to strengthen their position and focus, we hope this article will help and strongly recommend the assistance of a specialized boutique investment bank.

Planning

The figure below depicts the key elements of the planning process. We provide some  background here and then transition to the process in the following paragraphs. This treatment of the planning process presumes senior leadership has already established a compelling vision and mission to ensure a solid linkage to the intent or aim of the business. Revisiting these foundational concepts is important with each planning cycle.

In its original sense, strategy (from the Greek word strategos) is a military term that describes the art of the general. It refers to the general's plans for arraying and maneuvering his forces with the goal of defeating an enemy army. Not surprisingly, businesses have embraced this notion of strategy, defining it as a plan for leading, controlling, and utilizing resources for the purpose of promoting and securing the vital interests of the business. Ideally, one seeks (per Michael Porter of Harvard) a broad formula for achieving a competitive edge, "... deliberately choosing a different set of competitive activities which creates a unique and sustainable mix of value .... ". We call this redefining the race, as can be seen later in this article.

With the company vision, mission, and values serving as its foundation, the strategic plan strives to provide the three- to five-year strategic (competitive) initiatives in broad stokes along with the expected value-creation (financial and nonfinancial) outcomes. In contrast, the business plan (or one-year operating plan and budget) links to the strategic plan by outlining the detailed actions underlying the broadly stated strategic initiatives that must take place over the year in order to achieve Year 1 objectives. The key elements of the business plan are mainly functional improvement plans coupled with resource assignments, project milestones, final due dates, and expected benefits against projected costs (capital and expense).

 

Preparing for the funding process

Typically a startup or developer seeking funding must complete a questionnaire and submit an executive summary or a full business plan. A pro active company will understand the private equity or venture capital investing process. Some groups require that a member meet with the target management and determine if the plan is viable before allowing presenting to the group. Other groups allow the administrative staff and managing director to review the plan and invite the entrepreneur to present without a champion. The questionnaire will typically include the following:

• Name of company.
• Year founded and legal structure (C corporation, S corporation, limited liability company (LLC), etc.].
• Who referred you to this investment  group and who is your professional advisor, accountant, lawyer and other consultants?
• Summary of business (in three sentences or less).
• What problem is your product or service solving?
• What is the size of the market, how much has it grown in the past few years, and what is its projected growth?
• Describe the competition (companies as well as substitute products).
• What are your company's competitive advantages?
• Why will your company succeed in the long run?
• Does the company or its founders have any relevant patents or proprietary technologies?
• What is the relevant experience of each member of the management team? Please enclose a one-page resume of each of the key management team members plus an organizational chart.
• What is the company's sales and marketing strategy?
• What are the major short-, medium-, and long-range operational milestones you intend to achieve?
• Complete financial information, historical, 5 year projections or lifetime proforma if it is for a standalone asset based project
• Are 50 percent or more of revenues generated from one or two customers?
• What are the three greatest risks of this venture? How are they eliminated or managed?
• What are the liabilities outstanding other than operational payables and accruals-especially off-balance-sheet items?
• What is your capitalization structure? (How many shares are currently owned by founders and investors? How much capital has been invested so far, and by whom?)
• How much capital are you seeking, and how will this capital be used?
• How many rounds of investment and what amounts do you expect to need in total?
• What is your exit strategy?

The private Equity and Venture Capital Business Model

Understanding the business model and economics behind the venture or private equity fund may help you better understand the motives and actions of the VCs you partner with. We highlight some of the key facets of the VC model:

Young VCs and PEs tend to look at markets and data, experienced VCs tend to look at people.
A typical fund:

• Invests in 10 to 15 companies.
• Expects one company to return the fund or generate enol'gh gains to repay the entire amount of the fund back to the limited p;..Ltners.
• Expects one to four companies to fail.
• Expects the rest of the companies to have minimal to reasonable returns.
• Has a life of 10 years.
• Leverages expertise in certain areas by investing in a portfolio of companies in an industry.
• Invests in stages, based on milestone completion.

 

Investment banks are financial intermediaries (not investors) that act as an underwriter or agent for corporations raising capital or seeking strategic transactions. Many maintain broker-dealer operations, maintain markets for previously issued securities, provide market analysis, and offer advisory services to investors. Investment banks generally provide advisory services relating to mergers and acquisitions, private equity placements, and corporate restructuring. Some investment banks offer a subset of the services mentioned, particularly the small and niche boutiques. In 2008, many top investment banks added commercial lending services as a response to the tremendous upheaval on Wall Street.

There are several tiers, or levels, of investment banks. The largest are global and often referred to as the , bulge bracket firms. Prior to 2008, these included the likes of Lehman Brothers, Credit Suisse, Merrill Lynch, Citigroup, Morgan Stanley, JPMorgan Chase, Bear Stearns & Co., and Goldman Sachs, as well as the less recognized firms UBS, Barclays Capital (UK), and Deutsche Bank AG. During the credit and subprime mortgage crisis of 2008, Merrill Lynch was purchased by Bank of America; Bear Stearns & Co. was purchased by JPMorgan Chase; Lehman Brothers went bankrupt and its investment banking group became part of Barclays; and Goldman Sachs and Morgan Stanley became bank holding companies.

The second-tier firms are usually regional but sometimes international in nature and have focused operations in a geographic area or in an area of specialty like renewable energy or cleantech. These firms are referred to as boutique firms which specialize in a particular market niches or technologies. Keep in mind that the tier in which an investment bank resides is not necessarily a reflection of the quality of the services offered. A key factor in selecting an investment bank is matching the needs of your company or projects with the focus of the investment bank’s ca abilities and the experience of the team dedicated to your project. There are high quality, strongly performing firms in each tier.

Bio jet fuels…"The only way to fly."

Bio jet fuels, which in essence come from the same biodiesel producing value chain, are hitting it big with investors and developers as they scramble to capture a chunk of this huge high growth market. The growth is sparked by two major forces, government regulations that are setting objectives for replacing fossil fuel based kerosene and major airlines that are anxious to look green to their customers.

Commercial flight pollution

Aviation and the environment are on a collision course. The number of airline flights worldwide is growing and expected to skyrocket over the coming decades. Aircraft emissions pollute the air and threaten by 2050 to become one of the largest contributors to global warming, British scientists have concluded.

The aviation sector is a major source of the world’s carbon pollution – accounting for more emissions than the entire United Kingdom.  And left unregulated, aviation emissions are on pace to quadruple by 2050 (see figure).  The EU program requires a 3% emissions reduction (compared to a 2004-2006 baseline) by 2013, and a 5% reduction by 2020.  Aviation's growing contribution to climate change if left uncheckedGiven the needed pollution reductions to address global warming this is a very modest cut in pollution.  It also provides airlines with several avenues to meet their targets.

Much remains unknown about climate change and the role aviation plays, though climate scientists express particular concern about jet emissions in the upper atmosphere, where the warming effect from some pollutants is amplified.

According to a recent USA Today article “With the projected explosion in worldwide travel, air pollution from aviation is a growing concern among scientists, and it's drawing increased scrutiny from governments, particularly in Europe. ‘It's an issue that has to be addressed,’ says Brenda Ekwurzel, a climate scientist for the Union of Concerned Scientists, an environmental advocacy group.”

David Travis, a climate science professor at the University of Wisconsin-Whitewater, says aircraft emissions "are currently one of the fastest-growing contributors to global warming."

Private initiatives

Biodiesel

The report 'Global Bio fuel Market Analysis' by RNCOS estimates that Brazil and the US accounted for 87% of global bio fuel production in 2008, driven by government support.

The RNCOS report forecasts that biodiesel production will grow at a Compound Annual Growth Rate (CAGR) of 6% from 2009 to 2018, with bio ethanol production increasing at 5% CAGR over the same period. The report also predicts significant growth potential for bio fuels in India and China.

This prediction is reinforced by the OECD (Organization for Economic Co-operation and Development) and UN FAO food agency, which projected that global ethanol production would double between 2007-2017 reaching 125 billion liters. Biodiesel is predicted to increase from 11 billion liters to 24 billion liters over the same period (these forecasts assumed that there would not be major changes in US or EU policies supporting the production and use of bio fuels through tax incentives and blending targets).

Bio Jet Fuel

Both the European Union and the United States have enacted strict objectives and compliances to be met by 2020 on the amount of bio jet fuels that each commercial airliner needs to be burning. In fact the percentage of bio fuels being used in commercial aviation increases with the passage of years. This pressure is driven by two major factors; the reduction of emissions and the dependence on foreign supplies of fossil oils.

Sustainable Aviation Fuels Northwest (SAFN) is the USA’s first regional stakeholder effort to explore the opportunities and challenges surrounding the production of sustainable aviation fuels.

The initiative was launched in July 2010 by Boeing, Alaska Airlines, the operators of the region’s three largest airports – Port of Seattle, Port of Portland and Spokane International Airport – and Washington State University, a center for advanced bio fuels research. Climate Solutions, a Northwest clean-energy nonprofit, was retained to manage a stakeholder process that included more than 40 organizations ranging across aviation, bio fuels production, environmental advocacy, agriculture, forestry, federal and state government agencies, academic research and technical consultancies.

While the development of alternative jet fuels is a global challenge, SAFN focuses on sustainable biomass grown in the US Northwest. The findings were conclusive.

Technologies and opportunities

Hydroprocessing

The long established oil refinery technology of hydroprocessing has now been demonstrated for jet fuel production from lipids, which are natural oils produced from crops and animals. A regional hydroprocessing facility could become the center of a supply chain that first employs oilseed crops such as bamboo, camelina and canola, along with animal fats, and then incorporates algal oils as algae cultivation matures.

Using catalysts and heat, hydroprocessing removes oxygen, adds hydrogen and rearranges carbon molecules to create a drop-in petroleum substitute that requires no engine modifications in a 50 percent blend. Hydroprocessing produces renewable diesel, and can produce 50-70 percent jet fuel with an additional cracking step.62 The remaining product would be mostly renewable diesel, with fractions as propane and Naphtha, a feedstock for plastics and chemicals.

Lignocellulosic Biomass Processing

Lignocellulosic biomass is composed of three materials – cellulose, hemicellulose and lignin. The latter two bind and protect the cellulose. Technologies must break down the material in order to process biomass into bioenergy and bioproducts. These technologies have long been available but the fundamental challenge is to make the processes economical. The two major biomass processing technologies employed are separation of biomass into chemical components, which are then separately converted to fuels and products (example: biomass to sugar to fuel) and conversion of whole biomass to fuels or chemicals through thermal and chemical routes. They are extensively detailed in other literature, so this article provides only a brief summary.

• Catalytic – A combination of heat and catalysts rebuild molecules into longer chains required for
  fuels. The Fisher-Tropsch (FT) process provides a prominent example, as it was developed by the Germans in the 1920s and used to a limited extent in World War II, and by the South Africans for the last 20-plus years to make jet fuel. Today a number of companies seek to commercialize FT for biomass-based fuels but capital costs present a challenge. Other catalytic technologies are in development.
• Biological – Syngas is fed to microbes that ferment into alcohols and acetic acid, which can then be upgraded to other fuels and chemicals.

A large number of startups are developing innovative technologies and are poised for commercial deployment with highly efficient and high return applications but are lacking the proper funding to go to market, even with good projects shovel ready and substantial well developed pipelines. Large ventures are relying on the more tried true technologies although they are finding that meeting IATA specifications are harder and less cost effective with older technologies.

Interested developers with funding requirements click here

Interested investors in technologies or project opportunities click here

Energy – renewable and traditional, infrastructure, retail, minerals, commodities, aviation...Brazil sets record on the record of mergers.

There can only be one leader

Energy – renewable and traditional, retail, minerals, commodities, aviation...Brazil sets record on the record of mergers. These are companies with the Highlander syndrome, wanting to cut off competitors’ heads or gobble them up. No sector is safe and this includes new and emerging areas in this emerging giant, including renewable, cleantech and it, as everyone scrambles for scale to become the leader and get the higher margins and security that come with it.

THERE CAN ONLY BE ONE! "Cries the warrior Victor Kruger (Clancy Brown) to attack Connor Macleod  (Christopher Lambert), the film Highlander, the warrior immortal, 1986. The two form part of a race of immortals, which for some mysterious reason feel an irrepressible desire to seek, attack and destroy each other. The only way is decapitating the opponent. And the game (and movie) is only over when there was only one left.

The merger and acquisitions fervor in Brazil and some of the latest friendly and hostile takeover attempts paint a very similar scenario.

Companies also do not die of natural causes. In the Brazil of today, it seems that in the majority of occasions, when a rival approaches and after an uphill battle, strikes a blow to rival separating the head from the body. Like in the movie, the winner of the battle comes out stronger, more able and willing for the next fight. The only difference is that the Highlander corporation goes around with one head but commanding two, three, sometimes several bodies. Ah, yes, and the severed head usually survives richer than before, no longer having to meet the needs of that foreign body. (In some cases, however, a double body remains with two heads for some time.)

The sun that the Spanish want to bring

The board of Isolux, a Spanish company in the area of infrastructure and concessions, has decided to invest R$ 6 billion in Brazil later this year, much of which will be through joint ventures and acquisitions. The amount represents 40% of all that the company intends to spend in the world. This investment will be applied to the construction and development transmission lines and photovoltaic power plants. The company generated revenues of € 3.2 billion and is present in 30 countries.

Infrastructure, minerals, IT and other sectors.

The retail market has recently had several struggles. The warrior Ricardo Eletro cut the head off of Insinuante, forming a body called Sales Machine. The warrior Magazine Luiza seized in June Lojas de Baú – and came out stronger than Ricardo, getting ready for the battle with the duo-Casas Bahia – Ponto Frio (under the command of another merger guerilla, the Pao de Açucar). But behold, Ricardo beheaded Shopping Eletro in July, and returned to leap frog the warrior Luiza.

 
In the aviation market, TAM and Gol emulate Kruger and the likes of Macleod. TAM battles (amicably) with Trip, and Gol in turn beheads Webjet this past month. In food sector, Perdigao digested Sadia, JBS wormed into Bertin. These are only some of the examples of a phenomenon that affects numerous companies in countless industries in Brazil. Everyone thinks he is Highlander.

To understand why there are so many battles taking place now, we must go back to another war. It was In the middle of the 1940’s, in the first moments after the Second World War when television began to work again, after years of interruption due to the conflict. It was the trigger for a period of expansion of communications, which culminated in the advent of the Internet in the 1980’s, and its constant development to today’s current omnipresence.

This is a time characterized by the flow of information with almost no barriers. "In these years, there was a dramatic fall costs of information, "says Claudio Felisoni of Angelo, economist, chairman of the Provar, the core of a group specializing in retail distribution founded by professors of the prestigious USP, and Ibevar, the institute of executives of same market. With so much information circulating free, products and services were very easier to be copied. That is why many have no competitive differences and are now so alike. This means that one cannot charge too much for any given product or service. Increase the price a little, and then comes someone willing to sell at your old price. Keep your old price, and soon someone will come by selling less.


Innovate or Acquire, Grow or Die

There are only two exits to seek higher profits: the first is to innovate. Create something that no one else knows or can do, or improve the process to have more efficiency. The problem is that innovations are also quickly copied. And that is why so many businesses are calling for second way out – acquire, gain scale, get the biggest market share quickly, a position where margins are higher. Nobody is safe from this phenomenon and even new sectors like renewable energies and cleantech are not safe. In the first semester of the year, the number of mergers and acquisitions reached 379 in Brazil, a record, according to KPMG. And the report only counted only businesses of large size, which were recorded in the media.

Brazil has an extra reason for this galloping of mergers: the proliferation of the Internet has coincided with the effects of the Real Plan. Accounting for inflation, it was possible to "see the real value" of the products as Felisoni says, "and establish relative prices." The increased consumption and helps you understand the need for higher turnover, which feeds the wheel of mergers and acquisitions.

In trade, the phenomenon is even more radical. The e-commerce brings instantly price of anything for the consumer. Therefore, the profit margin in retail is the lowest of the economic activities. According to The Valor 1000, the net margin (profit Net on net) of retail was 2.3 in 2009 - the lowest among 26 activities analyzed, except for the sugar industry and alcohol, which that year had an unusual period large losses.

Civil aviation has also margins especially low. Likewise, access to information gave visibility to certain practices. Gol, for example, the tropicalized model low cost successful in other countries and TAM led to review the strategy, as recalled by André Castellini consultant, Bain & Company. In aviation, and this model, you need volume to negotiate the price of fuel, aircraft and Spare parts, especially with few suppliers, although the advent of bio-jet fuels threatens to fragment the market in the short term. Aside from historical and structural factors, there those term to explain the large number purchase of companies in Brazil. "The country offers less risk, more predictable and allows for long-term vision, "said Luis Augusto Dead, KPMG partner in charge of mergers and acquisitions. The force of the business in 2011 becomes discounted even more significant if the effects of international crisis in the comparison with 2010 and the rest of the global economy.

"In 2009, business plummeted by cause of the crisis, "says Dead. In 2010, many operations were shelved. Already, the numbers of 2011 do not carry this compensation on businesses, he said, reflecting the confidence in the economy Brazil. Both the participation of foreigners was decisive in purchases to get the record the first half. The number of operations acquisition of Brazilian companies by foreign grew 23% in relation to the same period 2010. On the other hand, fell 16% the number of Foreign purchases by Brazil. And to Brazilian purchases by Brazil increased 9%. A sign that life in Brazil is better, of course, assuming no one gets a shot at our heads.

Brazil jumps to number 5 spot in foreign investment with Renewable Energy in a starring role.

Brazil is the fifth place ranking in global foreign productive investment. That is quite a feat as in 2010 Brazil jumped 10 places in the ranking. As Europe and the US stagnate, high growth markets in secure emerging markets are attracting more attention.

In 2010, the country received U.S. $ 48 billion from abroad and advanced ten positions. With a record inflow of $ 48.4 billion last year in foreign productive investments, Brazil has advanced ten positions and became the fifth in a ranking of the United Nations Conference on Trade and Development (UNCTAD). The country is second only to the United States, China, Hong Kong and Belgium as the world's largest investment destination. Among the attractions of the country, are World Cup, Olympics, Renewable Energies and oil. Last year, the first time, emerging countries outperformed the wealthiest countries in raising this money. The year also marked the resumption of the global flow of resources to production after the 2008 crisis.

 FDI (Foreign Direct Investments) in Brazil increased 84.6% in 2010 compared to the previous year, totaling U.S. $ 48.4 billion, according to the study of the 2011 World Investment UNCTAD. In 2009, due to the international economic crisis, Brazil suffered a 42% decrease in the volume of FDI, a drop above the world average that year. In 2010, the United States once again lead the ranking of the UNCTAD study, with inflows of U.S. $ 228 billion in foreign direct investment, representing an increase of 49%.
China and Hong Kong are classified differently and occupy respectively the second and third places, with FDI of U.S. $ 106 billion and U.S. $ 69 billion. In the fourth, was Belgium, with $ 62 billion in investments.

The jump in FDI in Brazil in 2010 was driven by the entry of more than $ 15 billion in December, of which $ 7.1 billion relate to the sale of 40% of the Brazilian unit of Spanish company Repsol to the Chinese oil company Sinopec.

Biodiesel comes to the forefront

Biodiesel attracts foreign investments from both the big and small such as is the case to enhance production, Vital Planet, a small Dutch company with only a year of operation wants to jump into the biofuels market and is getting ready to start production testing in two weeks in the country. The raw materials used by the company will be 90 percent soybean and 5 percent anhydrous alcohol. The company is getting ready to start testing to produce 25,000 liters of biofuel per day (750,000 per month) in a pilot plant in Campos dos Goytacazes, in the state of Rio de Janeiro. A R$ 13 million investment will be made in the plant and a facility for equipment construction.

Evolution of biodiesel production in Brazil. Soure:MME

The biodiesel blending in diesel fuel in Brazil is already beginning to have positive effect on the Brazilian trade balance. Last year, the 5% consumption of the product, as required by the government (program known as B5) accounted for approximately 30% of the total regular diesel imported by Brazil to meet demand in the country. In 2009, this proportion reached 50%, but imports of diesel were much lower, due to the global financial crisis.

The federal government is stimulation the production of biodiesel with high guaranteed purchase prices reaching as much as R$2.30 per liter. The expectation is that the dependence on diesel imports in the country will gradually decrease down to zero over the next six years, whereas the blend of biodiesel fuel will increase to 10% in 2014 and reach 20% in 2020, plus the installation of new refineries in Brazil by Petrobras up to 2017, according to the state.

Last year, the consumption of biodiesel amounted to 2.5 billion gallons, up 56% over 2009, reflecting the mandatory use of 5% of the product in regular diesel established by the government in early 2010, said Sergio Beltran, executive director of Ubrabio (Brazilian Biodiesel Union). Because of this policy, the country failed to directly import the same volume of diesel consumed, avoiding direct spending around of US$ 1.4 billion. By 2008, the mixture was optional and started with 2% in 2005.

Solar finally begins to take off in a country which has enormous solar resources

A flagship solar power plant project arouses the interest of domestic and foreign companies as Brazil prepares for new legislation and subsidies in photovoltaic.

President of Abeama attended a meeting hosted by Eletrobrás in Florianopolis last month to discuss the project Megawatt Solar, and commented that the time is coming to start the construction of a photovoltaic plant in Brazil.

Representatives of about 30 national and foreign companies participated, on Wednesday, July 22, the meeting hosted by Eletrosul Central Electric SA - a subsidiary of Eletrobras - to present the technical details of the Megawatt Solar - the largest project of solar photovoltaic power generation integrated with building underway in Brazil. The meeting held at the state, in Florianópolis (SC), before the release of the notice of international competition to be published in coming days.

The initiative is Eletrosul pioneer in Brazil, considering the size of the plant - one megawatt of installed capacity - the proposed model - BIPV system ((abbreviation for the building integrated photovoltaics) - and the form of energy trading, which will be offered at auction on the open market. Just the novelty of the proposal is that the state decided to promote the technical discussion with companies who have expertise in photovoltaic generation.

Most of the companies represented have developed solar PV projects in other countries. They are manufacturers of Germany, Spain, Portugal, France, United States, Japan and China. Brazilian companies are also interested in participating in the bidding Megawatt Solar. On Tuesday (21), company representatives toured the headquarters facilities Eletrosul to know the place for the solar plant.

Eletrosul headquarters complex in Florianopolis. The blue areas are covered with photovoltaic modules, and P2 in the area with a solar generator 12kWp has been in operation since February this year. The largest blue area corresponds to coverage of the headquarters of Eletrosul.

The Project - With Megawatt Solar Eletrosul, Brazil wants to encourage the expansion of solar energy in Brazil and other Latin American countries, where the raw material for photovoltaic generation - solar radiation - is abundant. The plant will cost approximately $ 10 million, partially financed by the German promotional bank KfW.  Other flagship projects such as covering the football stadiums with PV panels are planned for the upcoming World Cup and the Olympics are also garnering support for the use of solar photovoltaic energy in many of the installations.

Contrary to the argument that solar energy is too expensive to be implemented in Brazil, today, without any subsidy or tax exemption until the new law to enter into effect next January, the photovoltaic generation is already economically viable in some regions of the country. This is the case of Belo Horizonte, where favorable weather conditions combined with higher electricity rates in the country (U.S. $ 58 per kilowatt hour) cause the production cost of solar energy be a few cents above what is provided today to local consumers. The prospect of an adjustment in the rate of 11%, as authorized by Aneel, will make solar energy more competitive and foreign investment will be sure to flow in.

Wind continues to advance very strongly

As the construction of hydroelectric and nuclear plants are increasingly questioned in the country, renewable sources of energy such as wind, biomass and solar, are gaining space in Brazil.
Data from the Brazilian Wind Energy Association (ABEEólica), for example, shows that by 2013, $ 25 billion will be invested in the country in 141 projects in the sector, spread through the states of Ceara, Rio Grande do Norte, Sergipe, Bahia and Rio Grande do Sul. The chairman of the Energy Research Company (EPE), Maurício Tolmasquim, said that within two years, the country will produce 5,272 megawatts (MW) of wind power, a major breakthrough considering that in 2005, Brazil generated only 29 MW.

 Foreigners invest in renewable sources in Brazil

Currently, the capacity of wind power generation in Brazil is 928.9 MW. As president of the EPE, the federal government agency, renewable energy accounts today for approximately 8% (mostly hydroelectric) of the electricity produced in the country and in ten years should reach 14%. Just CPFL Renewable Energy is investing $ 5.8 billion in the sector. Renova Energy already plans to invest R $ 1.2 billion in various projects, mainly wind farms.

Wind farm in the state of Rio Grande do Norte

Wind energy will reduce the operation of thermal power plants with natural gas which are activated to complement the hydro - Tolmasquim said.

ABEEólica's president, Ricardo Simões, has recently said that the energy produced from wind currently accounts for 0.7% of the country's electricity, but in 2013 this percentage will change to 4.3%. He said many foreign manufacturers are begining to install equipment and plants in Brazil, which will allow a gradual reduction of costs in the industry.

Who hasn’t leaped on the massive potential Brazilian biofuels has to offer? Perhaps  biofuels are the international energy policy du jour. Or maybe with a projected 60 billion gallon global market by 2022, capacity depending, we’re on to a winner? Among the nations turning their attentions  to the sector is the European Union (EU). News from the EU commits seven  of the 10 per cent renewable energy generation target for 2020—under  the Renewable Energy Directive (RED)—to biofuels and mandates in the  U.S. and China hold equally hefty swings in the same direction. However  it is nigh-on impossible to talk biofuels without Brazil, whose  estimated 2020 fuel demand total of 16 billion gallons is on schedule to  see eight billion gallons stumped up through ethanol fuels.

Biodiesel in Brazil Becomes a Booming Business as Oil Reserves Dwindle

Source: Brasil Biodiesel

As world oil reserves dwindle, some say we have reach the dreaded “Peak Oil” syndrome, many new business opportunities take shape as necessity is the mother of invention. Many opportunities to cash in on this high growth market are available ranging from developers with pipelines of refineries to be built, agricultural producers with until now useless land, to independent distributors and exporters. 

Biodiesel is not an isolated business in the global economy and many factors contribute to or hinder its development. Therefore, although the Brazilian government has created a very positive regulatory environment, before starting a business involving biodiesel, it is necessary to study the macroeconomic forces that interfere in this business.

The country has great advantages in its geography agronomists, for being in a tropical region, with high solar radiation figures and average annual temperatures. Associated with water availability and regularity of rainfall, it is the country with the greatest potential for renewable energy production.

But biodiesel does not come from treating crops and biomass, new technologies based on Gas Plasma Arc processes and Thermolysis are being used to sole another problem by turning Municipal Solid Waste in biodiesel. Even smaller and remote cities are building plants of this nature to get rid of the waste and make money on the private initiatives investing in building these facilities.

Brazil has explored less than a third of its arable land, which is the greatest frontier for agricultural expansion in the world. The potential is about 150 million hectares, 90 million related to new frontiers, and another 60 related to grazing land that can be converted to agricultural use in the short term. The government Biodiesel Program aims to use only land unsuitable for growing food.

There is also a wide variety of options for biodiesel production, such as the babassu palm and in the north, soy, sunflower and groundnut in the south, southeast and midwest, and castor oil, which besides being the best of the semi-arid northeast, is also presented as an alternative to the other regions of the country.

The synergy between the oilseed complex and the ethanol industry brings the need for increased production of alcohol. Biodiesel production consumes ethyl alcohol by transesterification by ethylic route, which generates increased demand for the product. Consequently, the biodiesel project also encourages the development of this sector, generating new investments, employment and income.

The ANP (Agência Nacional do Petróleo) estimates that the current Brazilian production of biodiesel is the order of 176 million liters annually.

The current level of production is a major challenge to achieving the goals established under the National Program of Biodiesel Production and Use, which will require approximately 750 ML in its initial phase. That is, the current production capacity meets only 17% of demand, considering the mix B2. However, with the approval of plants whose request Moving in ANP, the ability to match production with demand forecast for 2006. This capacity will be tripled by 2012, with the need of adding 5% biodiesel to biodiesel.                                                   

In order to give perspective to the prospect of expanding biodiesel production in Brazil, projections were made for the period 2005 to 2035. Considere the following basic official assumptions to make a projection:

•  Geometric growth rate of consumption of diesel oil substitutes, or 3.5% pa;
•  Blend of biodiesel to diesel by 2% starting and ending at 40%;
•  Oil productivity starting at 600 kg / ha and ending in 5000 kg ha-1;
•  It was considered that large plant that processes over 100 kt.ano-1;
•  Portion allocated to large production plants 80%;
•  Crackers installed in small communities or rural properties reaching 100,000 at the end of the period, with average production of 250 L.dia-1;

The figure shows that Brazil could produce only for the internal market, an approximate volume of 50 GL, the largest share being produced by transesterification (80%) and the remainder by cracking. The production by transesterification meet the large wholesale market, intended to blend with biodieseldiesel, the supply of fleet owners or consumers interested in increasing the proportion of biodiesel in biodiesel.

It is estimated that the production of biodiesel for external and internal markets at the end of the period, is equivalent (see graph above). However, in the first 10 years, the market will absorb the entire production. Throughout the domestic and foreign markets, the ethanolic transesterification route account for 90% of biodiesel produced. In this scenario, the end of the period, there will be a demand for 6 GL of ethanol and glycerol production 4mt, highlighting the potential for integration of chains with the production of biodiesel.

Investment opportunities abound in Brazil…WTE, Biomass, bio-fuels, wind, CSP, biotech and even IT.

The flourishing economy, government subsidies, development bank loans, a good base of technology startups and a highly skilled labor force are creating the perfect cultivating environment for a plethora of opportunities in the country.

The most recent example is the French retail distribution giant, Carrefour's board approval on Monday July 4^th, a controversial plan to merge its Brazilian assets with Casino's Brazilian partner, Pão de Açúcar in what some consider a takeover by the Brazilian company with the help of the state owned development bank BNDES.

Brazil is the country with the largest economic and social differences between classes in the world with the classes AB and DE the only ones growing. This trend is reversing however and since 2004 and the middle class “C” is now growing at an accelerated pace. This is creating huge demand in many areas of the economy.  In an interview last week in Belo Horizonte with economics professor at Gerenciais da PUC Minas, Ricardo Fonseca, the author was told that “40 million people will enter class C and 10 million will migrate to A and B in the next ten years”

 

Target technologies and regions

Waste to Energy

Many see WTE technology as the Redeemer of Brazil's waste legacy. In 2014 Brazil will host the FIFA World Cup followed by the Summer Olympic Games in 2016. As a result a huge amount of investment is being spent, yet waste management improvements have still lacked funds and interest. The potential and interest of institutions in cleaning up the country for waste to energy technologies is flourishing in such a situation help by a strong push by popular demand to present a clean and modern country. Opportunities abound as even small to midsized cities are looking for investors as well as technology companies to bring the necessary capital and know-how.

Strong evidence of this can be seen in the new Brazilian policy on Solid Waste Management, law 12.305 signed by former President Lula on August 2, 2010 also known by its Portuguese abbreviation, PNRS. It took 20 years of discussions in Congress. And after trying to please many different lobbies, resulted in a very misleading piece of work containing mistakes that should be immediately corrected if it is to be taken seriously by society

Wind

Brazil’s national energy research agency Empresa de Pesquisa Energetica said that wind energy accounts for the largest share of the 23 gigawatts registered for two auctions for power contracts scheduled in July. E.P.E. said 429 of the 568 projects registered in Brazil’s A-3 and reserve power tenders were wind farms, which had a combined capacity of 11 GW. The bulk of the wind projects are spread between the states of Rio Grande du Norte, Rio Grande du Sul, Ceare and Bahia.

 

Concentrated Solar Power (CSP)

National Agency for Electric Energy – ANEEL: Regulation The Brazilian power industry is regulated by Agência Nacional de Energia Elétrica or the National Agency for Electric Energy (“ANEEL”), an independent federal regulatory agency. ANEEL’s primary responsibility is to regulate and supervise the power industry in line with the policy to be dictated by the MME and to respond to matters which are delegated to it by the GoB and by the MME. ANEEL’s current responsibilities include, among others: (i) administering concessions for electricity generation, transmission and distribution activities, including the approval of electricity tariffs; (ii) enacting regulations for the electricity industry; (iii) implementing and regulating the exploitation of energy sources, including the use of hydroelectric energy; (iv) promoting the public bidding process for new concessions; (v) settling administrative disputes among electricity generation entities and electricity purchasers; and (vi) defining the criteria and methodology for the determination of transmission tariffs. The agency is lead by a General Director and four Directors. Currently, Mr. Nelson Hubner is the General Director chosen by the President.

For the first time CSP has been included in the ANEEL auction process and the next one is due to be held at the end of next August.

Small Hydroelectric

The Brazilian power system is a predominantly hydroelectric system with total installed capacity of 99 GW as of the first quarter of 2009 and average demand of 59 GW in 2009. Historically, Brazil has relied on its hydroelectric power generation to meet its power demand, and given that only 28% of its hydroelectric potential has been exploited, hydroelectric power generation will continue to be the predominant source of power in Brazil in the long term.

Bio-Technology

Brazil's biotech boom. Ten years ago, Brazilian bioscience was transformed by a bold initiative. Scientists and the government must develop and extend the progress that has paid off.

 

Brazilian biotechnology has matured to the point at which its scientists are players on the international stage. And FAPESP is still promoting big ideas, including a new programme to pump money into a broad portfolio of bioenergy research even as the Ministry of Science and Technology constructs a bioethanol research centre; both initiatives seek to build on Brazil's lead in this field. FAPESP is also working to overcome one of the biggest impediments to progress — a lack of doctoral researchers — by encouraging scientists to fill the gaps with young stars from the United States and Europe, part of a broader effort to internationalize Brazilian science.

Information Technology

Brasil IT – The New Upcoming Global IT Power and its New Go-To-Market Identity.

Brazil, in the last 5 years, has been diligently working very hard to promote and position the country as world class IT player, with compatible delivery models that are capable to attend to most demanding world organizations.

From just one more country in the general crowd, Brazil is strongly making its way to become at least 
part of a top 5 list. In every single point of contact, the representatives for Brasil IT made sure that they demonstrated its unique value proposition, based on a highly technically skilled workforce combined with deep business expertise, which together with its unique “cultural DNA”, made for the best alternative that could “hit the ground running” and provide a great opportunity and time to market payback.

Banking policy

The Brazilian Development Bank (BNDES) is the main financing agent for development in Brazil. Since its foundation, in 1952, the BNDES has played a fundamental role in stimulating the expansion of industry and infrastructure in the country. Over the course of the Bank’s history, its operations have evolved in accordance with the Brazilian socio-economic challenges, and now they include support for exports, technological innovation, sustainable socio-environmental development and the modernization of public administration. The BNDES has three integral subsidiaries: FINAME, BNDESPAR and BNDES Limited. Together, the four companies comprise the BNDES System. A specialized development bank Banco do Nordeste also plays a key role in investments in the northeastern part of the country which is the most disfavored in the country.

The author met with high officials in Banco de Nordeste headquartered in the booming town of Montes Claros in the middle of the state of Minas Gerais.  In the HQ of the state owned development bank he was told last week that they had in excess of 500 M€ to allocate in financing for energy and infrastructure projects before the end of the year in the Northeastern region of the country under good terms with interest rates averaging 7-8%, loan terms of 15 years and loan rations of up to 75%.

Waste to Energy is taking off around the world…but what is the best technology per investment dollar?

Waste comes in many forms, municipal solid waste, biomass waste, industrial wastes etc. and in a consumer based society was considered a bothersome collateral which you either dumped into a landfill, incinerated or cleaned up to minimum requirements and injected into the nearest water body.

The production of waste, especially with many countries emerging into powerful economies, has become a problem of such dimensions that something definite has to be done. Waste is causing unbearable pollution and earthquakes and mudslides uncover landfills under housing developments and seepage contaminates water and agricultural land and gases generated cause foul odors and health problems. Worldwide indiscriminate incineration is also contributing substantially to the climate change.

Alas – desperation is the mother of invention, but it seems that as industry and governments have discovered that in solving the problem there is much money to be made the race is on to conquer a new and lucrative market of waste to energy.

Many new technologies are being developed, some combining waste treatment processes in the same plant to produce a variety of useful products such as electrical energy, diesel, heat, carbon black and other recyclable materials. The feedstock is equally varied and the different technologies are combined in a modular fashion depending on the type of waste that is available at each particular location to get the most out of it and at the same.

Municipal Solid Waste

Waste-to-energy (WTE) is the process of creating energy in the form of electricity or heat from the conversion of a waste resource. WTE is a form of energy recovery. Most WTE processes produce electricity directly through combustion (incineration), but a gasification process produces a combustible fuel gas consisting mostly of methane, carbon monoxide and hydrogen.

Latest estimates show that there were 431 WTE plants in Europe and 89 in the United States (2004). The U.S. recycles 14 percent of its trash in WTE plants. Denmark, on the other hand, reuses 54 percent.

Gasification WTE plants work very much like natural gas fired power plants. The difference is the fuel. Waste-to-energy plants use syngas made from garbage—not natural gas— to fire a gas turbine. The same steps are used to make electricity in a waste-to-energy plant as in a natural gas fired power plant, this method is known as “combined cycle”:

•    The fuel is heated, releasing gas.
•    The gas is combusted in a gas turbine
•    The turbine turns a generator to produce electricity
•    The waste heat from the turbine turns water into steam.
•    The high-pressure steam turns the blades of a steam turbine which turns a generator to produce electricity.
•    A utility company sends the electricity along power lines to homes, schools, and businesses.

Thermolysis Process

The principle of thermolysis is based on the decomposition of organic matter into solid residue and combustible gas by using heat at 600°C in the absence of oxygen. After treatment, the volume of sludge is reduced by at least 10.

Unlike incineration or gasification, thermolysis optimises energy production. The gas produced, which can be recycled to treat new sludge, allows the plant to meet its own energy requirements. Moreover, there is no oxidation reaction (combustion) of the matter, only decomposition, enabling a notable reduction in fumes and harmful volatile elements. Pollutants such as heavy metals, when present, are trapped then stabilised. They can then be stored without causing a nuisance for the environment.

The KUG Technology

Thermal Conversion by Gasification

The Pyrolyzer system uses a slow pyrolysis method developed by the German company KUG GmbH. It is an innovative state of the art pyrolysis process for the gasification of carbon based waste materials to produce fuel gas. The fuel gas (PyroGasTM) reaches a calorific value of 5 to 14 KWh/m3 or 500 to 1400 BTU/ft³ depending on type of feedstock. PyroGasTM made with the KUG process can be used interchangeably with natural gas or for highly efficient, extremely low-emission power generation in gas engines, gas turbines, and combined cycle systems. Alternatively, it can also be used as feedstock for liquid transportation fuels production or separated into Hydrogen and Liquid Natural Gas (LNG).

  Characteristics of the KUG Thermolysis Process

• Gas production: 820 m3 per metric ton feedstock material.
•  Heating value: ~500 - 1400 BTU/ft³, depending on the feedstock.
• Very low emissions (50% below German Environmental Air Emission Standards).
• Adjustable to various feedstocks, including biomass, wood waste, MSW, rubber and plastics.

Innovations of the KUG GmbH Process

• Multistage bi-directional gasification reaction is controlled kinetically on a catalytic carbon bed.
• Improved heat transfer by indirect heating using the carrier effect.
• Reaction occurs in the absence of oxygen avoiding Dioxins and Furans.
• Bi-directional flow of the materials avoiding short cuts in the gas stream ensuring complete gasification.
• Multistage gas treatments using newly patented technologies.
• Tars treated internally by additional integrated cracking reactors
• Vitrified slag with minimized residues.

Advantages of the KUG Pyrolysis Process
•    Fuel gas with quality standards comparable to natural gas in purity and BTU value.
•    Very low emissions.
•    High thermal efficiency (70 - 85%).
•    Efficient separation and processing of liquid aromatic oils and tars with conversion into additional fuel gas.

The integrated Waste / Bio-Mass to energy plant

Bio Mass can contribute to a huge extend for covering the fuel and energy demand.  Each country has a treasure of not-used sources of bio mass, such as waste from rice peeling, sugar cane or leftovers from oil mills, straw, sawdust, wood waste. Statistically only 50% of the produced food reaches the table of the consumer. The rest is sorted out during the supply chain by not meeting quality standards, exceeding legal shelf times or other reasons. These materials can be turned into fuel and energy without having any impact on the alimentation of the population.

Catalytic Pressure-less Depolarization

Recyclable waste is sorted out and sent into the specific recycling processes. For the left over passive and non-toxic ashes – in lack of local production that could use those - a final deposit is created following international standards.

Green Power Inc (GPI) claims to have developed a method of inexpensively converting biomass and household waste into high grade diesel fuel, a process they call "NanoDiesel" that could go a long way toward solving the world's energy and waste problems at the same time, without upsetting the CO2 balance.

In March of 2008, GPI completed their first production prototype that is said to be capable of processing 100 tons of municipal and other waste per day in a low heat and low pressure, proprietary catalytic system, converting the feedstock into high grade fuel, including diesel, kerosene, and fuel oil; as well as electricity and an asphalt component.

The preparation of incoming waste stream includes chopping, extraction of metals, glass, and sand, so that approximately 2/3 of the feedstock is able to be run through the unit to produce fuel and electricity.

The key to the system is the catalyst (trade secret) which is said to be made from environmentally benign components.

GPI says a 100 ton/day facility will employ approximately 5 people per shift, in three shifts per day. Methane generated in the process is used to run a generator to power the facility, with 1 Megawatt excess available for distribution.

They claim that the raw costs of producing the diesel is about $0.60/gallon. Covering capitalization, maintenance, marketing, decommissioning and other costs will place the actual cost much higher, but still competitive with fossil-based fuel.

The conversion of input waste to fuel output is said to be around 25-30% efficient so that one ton of input waste will produce around 120 gallons (~3.8 barrels) of diesel. Materials that can be converted to diesel fuel through this process include plastics (including PVCs), rubber, waste oils, agricultural wastes (food and animal waste) and wood. The diesel produced is not biodiesel, but purportedly a pure hydrocarbon diesel, equivalent to what comes out of the oil fields.

Other products that can be produced in a combined plant are:

•    Recyclable materials (metals and glass)
•    Synthetic Diesel
•    Electrical Power
•    Fertilizer and manure for agriculture
•    Water for irrigation
•    Neutral ash for industrial / construction / agriculture

How can I get my deal structured and marketed by a pro without spending s small fortune? What are the trends for sourcing and advising on new energy deals?

There has been a pendulum swinging back to advisory-only firms as private equity funds, companies and even developers are turning to boutique investment banks. This is evidenced by data provided by the market research firms such as Bloomberg and Freeman Consulting to mention a few.

The reasons are several and weigh heavy; specialization and independence (no balance sheet related conflicts) are the major reasons but many times an international reach, local industry and financial contacts are also high in the list. Many such boutique firms also include market entry advising services that include strategic local investors and partners, JVs and alliances in addition to sourcing the deals. Many are just not seeing the justification of paying the big name’s big fees.

Market trends

In a recent article published early this month by Bloomberg it was stated that “European companies are increasingly favoring independent advice from boutique investment banking firms. The firms accounted for 37 percent of fees in the region last year, earning about $2.2 billion, according to New York-based research firm Freeman Consulting. That’s up from a 26 percent market- share in 2008 and 30 percent in 2009, the data shows.”

Robert Leitao, Rothschild’s head of U.K. Global Financial Advisory, said in an interview in London before a Vivendi purchase was announced. The trend has “been accelerated by the unraveling of the crisis and the fact that there are stresses and strains within the universal banking model, which aren’t always client friendly.”

“Conflicts frequently develop and when a full-service bank is retained on a deal, the team tends to push the client to do that deal as they may be conflicted on the next,” said Keevil. Independent firms “also don’t have to worry about quarterly earnings as much. They are less likely to act as guns for hire and more likely to advise a client not to do something that would be harmful to its long-term interests.”

Independent Advisors

In a recent interview, Scott Bok, chief executive officer of Greenhill Hill & Co stated that small and large companies, developers and even corporate boards need independent advisers especially when dealing with private-equity funds as potential buyers because the funds generate so much lucrative business for the “bulge bracket banks”.

“It’s hard to rely on the large investment banks to vigorously represent your interests against those funds when those funds are literally their most important clients,” said Bok, who added that they were already expanding to take advantage of the need for independent advice.
While it’s going to be “a lot harder now,” investment bankers at the largest banks and securities firms will still angle for deals in which they can play a role on both sides because the payoff can be large, said Smith, a former partner at Goldman Sachs Group Inc.

The renewable energy and cleantech markets have experienced challenges over the last several years. The state of the global economy, inconsistent national positions on environmental policies, the scarcity of private funding to develop sustainable technologies, and obtaining the capital to mature the commercial side of the market have presented significant hurdles across these sectors.

Although investments and boutique M&A in the sustainable industries have lagged, this is about to change. The rate of financing components, technological innovation and policy changes that impact the sustainable industries space has been astounding over the past five years and bulge bracket and generalist firms cannot adapt quickly enough on the specialized knowledge required. In the coming months, we believe the clean energy market landscape will be marked by significant investment activity from Fortune 100 companies, a string of mergers and acquisitions, and investment in the development of new technologies for transforming waste to energy, natural gas extraction, and production.

Boutique Investment Banks advantages

Possibly the greatest advantages of working with boutique investment banks are the high focus and specialization and the much more competitive fees charged. Following are the principle services offered by these firms which many times are success fee oriented with reduced retainer fees.
Identifying required agreements.

Probabilistic Analysis of Forcatsed Returns

 

Boutique investment banks have substantial knowledge regarding what is required from an investor’s standpoint regarding a project’s legal aspects. Here, all documentationn and contracts that need to be arranged are done so independently from an investor’s perspective. The way is prepared in reducing the perceived risk in securing supplies, land lease, environmental reports, PPA’s and so forth which are all part of any investors DD and as of today none are perceived as existing in this project.

Ensure bankability

To ensure that agreements and contracts are attractive it’s important to build them “risk” proof. This is done by hedging currencies, forcing contract partners to carry extensive liability cover, remove any and all outside factors that might occur and impact the project negatively. Bauhaus will provide the mechanisms by which most risks will adequately dealt with.

Profiling and screening of possible investors

Already at this phase it’s important to start discussions with intended and potential investors. This gives the project valuable input regarding other factors which need to be covered and it also builds the project to be ready from day 1. Hence limiting time risks and also shortening the time to market so that once the elections are over the project can take off.

 
Risk analysis and management

The boutique investment bank would run different scenario data models to evaluate each risk such as currency risk, country risk, supply risk, management risk, time risk and all other financial risks with a great enough potential to negatively impact on the project.  We have the knowledge and the necessary tools to run complex simulations and hence limit any risk exposure or at least create enough knowledge to ensure that the risks are known factors and can eliminated if possible.

Correct and rebuild the financial information

We have already identified areas that need to be corrected and more will follow when we run our complete case study. In the screening process, risk analyses and DD process we will gain knowledge as to how the material should be presented to ensure the highest possible success rate.

Prearranging a risk elimination “tool box”

With the vast amount of information created in the overall process we can prearrange Insurances, Liability cover etc. We will make certain that all agreements are written in a way which limits the risks and also arrange binding quotas to remove risks were possible.

This together with the technical and physical breakdown will serve to create a platform from which the project can be realized in a timely fashion. It will provide the investor with confidence that every corner has been looked at and all holes have been filled.

I’ve done all the homework and the investor road-show, why can’t I still get my new energy project (or company) funded?

When you have poured over your investor memorandum and have had an exhausting investor road show with your Energy project or cleantech company and still can’t get the funding, then what do you do? Company executives tend to blame the credit crunch but this is simply not true. The year 2010 was a record year where over $200bn was invested in 2010 in Clean Energy and related industries worldwide and the forecast for 2011 is in excess of $240bn.

Market Investment facts and figures.

The report “G-20 CLEAN ENERGY FACTBOOK” recently published by The Clean Energy Economy and the PEW Trust heralds the dawning of a new worldwide industry—clean energy—which has experienced investment growth of 230 percent since 2005. Demonstrating its strength, the clean energy sector declined only 6.6 percent in 2009 despite the worst financial downturn in over half a century. In 2009, $162 billion was invested in clean energy around the world. Rebounding from a sharp downturn in the last quarter of 2008 and first quarter of 2009, clean energy investments in the G-20 averaged a robust $32 billion in each of the last three quarters of 2009. In an encouraging sign for the future, many governments prioritized clean energy within economic recovery funding, the bulk of which will reach innovators, businesses and installers in 2010 and 2011.

 

Download G-20 Report Investment 2010

The Bloomberg NEF “Global Trends in Sustainable Energy Investment 2010” states that “investment in sustainable energy reached $162 billion in the year 2009, the second highest figure ever, after 2008’s revised $173 billion (see Figure 7 in the report). Although the 2009 figure was down by 7%, it was higher than the $157 billion achieved in 2007, at the height of the world economic boom, and it was nearly four times the 2004 total of $46 billion. The setback in sustainable energy investment was relatively mild given the severity of the world economic downturn and the caution that the banking crisis and stock market fall created among many types of investors. The quarterly pattern for new financial investment in clean

energy (defined as total investment minus corporate and government research and development and small-scale projects) shows that the first quarter of 2009 marked the bottom for the clean energy sector.” But the sector report shows mild growth in 2010 and forecasts even stronger growth for 2011.

 

 Download NEF global investments trends_2010

 If there’s so much money pouring into New Energy, what is my problem?

Most funds and investment sources are literally buried under mountains of proposals, investment memorandums and requests for funding. With a global economy and an online world this is compounded a hundredfold and is similar to looking for a job where your CV is just a drop in the ocean where even if it surfaces on someone’s desk it is hard to distinguish it from the hundreds of others on the same desk.

Even if your Investment Memorandum (IM) has been done by a financial expert it’s still probably going to have the same textbook content and bland development that everyone else’s IM has. Even if you are lucky enough to get through the elevator pitch, into the board room and through your presentation, 5 minutes after you leave it is muddled in the fund manager’s mind especially after the next 15 presentations he sees that same day.

The secrets to getting funding

Business is still done by people

Regardless of the no doubt useful electronic world, deals are still done by people and emotions and relationships still normally make the final call on the project to get funded. If you are a project owner or company executive looking for funding use an investment firm with expertise in your particular field, they are much more likely to have personal relationships with fund managers that will place closer attention to investment requests from these sources than others.

Remember that the information overload is also a problem with the funding sources and many are even using specific firms to source projects, do the first level analysis and due diligence and weed out the ordinary investments from the truly attractive ones that merit their attention.

Profile your investor targets

Make sure that your business objectives are very clear: from what you company mission is to what kind of exit strategy you will be offering the investor and whether you want a strategic investor or a purely financial one. Technology preferences, geographical locations, hurdle rates, typical investment ranges, share ownership preferences and many other investment criteria must be known before you even make the phone call to an investment source. If this is not done up front you will waste a lot of time money and over-shop your investment proposal. The investment community is a closely knit one and you can run the danger of closing doors before you even knock on them.

Proper Valuation including Synergy

The persistence and the magnitude of the overvaluation comes from two problems. The first is that the process of setting valuation is flawed, with those that are richly compensated by the closing of the transaction (developer or executives) also being responsible for analyzing the level of the valuation itself. Hubris – The managers in searching for funds make mistakes in assessing the company values and their pride prevents them from admitting these mistakes. Overconfidence – The same overconfidence that leads managers to overestimate cash flows on conventional capital budgeting projects manifests itself in valuations, perhaps in its most virulent form. Anchoring and framing – When negotiating a valuation, both the firms managers and the investor compare the valuation to reference points which are often unrelated to the intrinsic value. Synergy – Quantify the synergy produced by specific events or situations according to the type of investor coming on board and include it in the valuation in a comprehensive way.

Quantify your Risk Analysis

The things that investor hate the most is risk. Of course there is no such thing as a riskless investment (especially nowadays). But if a risky investment, which provides the proper hurdle rate, is not correctly handled, mitigated and numerically analyzed, the investor will close the IM and walk away – it is simply not his job to do this analysis for you. You are the one who has to prove without a shadow of a doubt that your investment has been thoroughly analyzed, hedged and has contingency plans.

 

While one cannot make uncertainty disappear, you can consider ways in which you can get a better handle on how a project’s value will change as the situation changes. There are four approaches for dealing with uncertainty. The first and simplest is sensitivity analysis where one can ask what if questions about key variables to estimate how much room for error the project has on each one. The second is scenario analysis , where you develop a few most likely scenarios and a few less likely ones and compute the value of the project under each one. The third approach is decision trees, designed for multistage investments, where you evaluate the probabilities of success and failure for each stage and the consequences for the final value. The last approach is simulation where the probabilities distributions are estimated for each input variable rather than expected values. All this requires specialized knowledge, reference databases and powerful software which only expert firms have and know how to apply.

All of this work and analysis has to be done up front and the numerical outcome may force you to change your initial business plan in order for it to really become attarctive.