Overview 1
Catalyst 1
Summary 1
Table of Contents 2
Table of figures 3
ANALYSIS 4
It is important to understand the investment environment and the fundamentals of energy project finance before an investor can rationally decide to invest in a new energy asset 4
The market framework for investment in new energy assets has significant implications for potential investors 4
A competitive market inherently carries more investment risk than a monopoly or state investment market 4
Investment in new energy assets is heavily dependent on the debt versus equity ratio 5
Investors will compare expected future revenue streams with the cost of investing in the new energy asset 6
When choosing to invest in any new energy asset, the investor should look at the associated risk profiles and factors which could impede its viability 7
Different factors affect the viability of investing in a new energy asset to varying degrees 7
Investment in new nuclear generation build is typically riskier than investment in gas generation 8
Salt cavern gas storage facilities are typically easier to finance than depleted field facilities 9
LNG liquefaction facilities are typically several times more expensive to fund than LNG regasification facilities 10
Deep water upstream oil activities are financially riskier than onshore activities 12
The impact of the global credit crunch between 2007-09 has had a profound impact on several investors' ability to procure the necessary levels of finance to fund new energy assets or extensions of existing ones 13
The global credit crunch has impacted investors' ability to fund new energy assets or extensions of existing ones 13
The recession led to weaker energy demand and a consequent slump in prices, making investment in energy assets less profitable 14
Falling energy demand has made it less urgent for suppliers to invest in new production capacity and reduced their appetite to take this risk 15
The impact of the global credit crunch on new thermal power generation investments: new power plant orders worldwide down by 30-50% in 2009 15
The impact of the global credit crunch on new renewable power generation investments: there was a drop post Q4 2008 17
The impact of the global credit crunch on upstream oil investments: several projects were cancelled in 2009 (1) 18
The post-credit-crunch landscape means that funding new energy assets could now carry more investment risk than previously, although investment will still follow market fundamentals 19
In the post-credit-crunch landscape, market and policy signals are still the biggest drivers of investment in new energy assets 19
Greater demand for power generation investments will make them more viable and profitable, helping investors secure project finance (1) 20
New nuclear power generation is significantly more expensive to invest in than new gas power generation 21
Funding power generation: EU and US rely on private firms and utilities, while China and India rely on government and state utilities 22
Investment in oil exploration and production is forecast to rise significantly to 2030 to keep up with growing global oil demand 23
OPEC countries have lower investment costs for oil exploration activities than Western Europe and North America 24
OPEC countries are forecast to add an extra 900,000-1,400,000 barrels per day year-on-year in extra capacity between 2010-15 (2) 25
Non-OPEC countries are forecast to add an extra 900,000-1,800,000 barrels per day year-on-year in extra capacity between 2010-15 (2) 26
Expected future investment in new gas storage facilities will be driven by a range of market, strategic and regulatory factors 28
The global gas glut could impact investment in new LNG terminals, but it will recover due to an expected increase in LNG demand (2) 29
APPENDIX 31
Case study 1: the UK's Portland Gas Storage Project 31
Case study 2: London Array 31
Ask the analyst 32
Datamonitor consulting 32
Disclaimer 32
List of Figures
Figure 1: Market structure comparison for investment in new energy assets 4
Figure 2: Assessment of future revenue streams for a power plant project 6
Figure 3: Factors which affect energy project finance 7
Figure 4: Investment Risk Profile - Thermal Power Generation 8
Figure 5: Investment Risk Profile - Gas Storage Facilities 9
Figure 6: Investment Risk Profile - LNG Facilities 10
Figure 7: Investment Risk Profile - Upstream Oil Exploration & Production 12
Figure 8: European 1-Month Ahead Wholesale Baseload Electricity Prices 14
Figure 9: UK annual peak demand 2005 - 2009 15
Figure 10: Global Investment in Renewable Energy Generation 2004 - 2008 17
Figure 11: Global Upstream Capital Expenditure 2008 - 2009 18
Figure 12: Total global investment in power generation to 2030 20
Figure 13: Levelized costs for power generating units starting commercial operations in 2015 21
Figure 14: Individual country investment in power generation to 2030 22
Figure 15: Projected Upstream Oil Investment to 2030 ($2008 billion) 23
Figure 16: Cost assumptions per b/d for the calculation of upstream oil investment requirements out to 2030 ($2008 prices) 24
Figure 17: New Oil Capacity Additions (OPEC Countries) 25
Figure 18: New Oil Capacity Additions (Non-OPEC Countries) 26
Figure 19: New European Gas Storage Capacity Investment to 2015 28
Figure 20: New European LNG Capacity Investments to 2015 29
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