Jan H. Jansen E-mail: jan.jansen@han.nl Finance Lecture # 1 Jan H. Jansen E-mail: jan.jansen@han.nl

Wind energy

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Minor Wind Energy Project Management Finance Law Supply Chain Management Construction Mechanical Engineering Energy

Minor Wind Energy Project Management Finance Law Supply Chain Management Construction Mechanical Engineering Energy Commercial Engineering

Educational unit: WEPM-C (7.5 ECTS) Commercial Educational unit: WEPM-C (7.5 ECTS) WEPM-C-LW Law 30% ≥ 5.5 WEPM-C-FC Finance 40% ≥ 5,5 WEPM-C-SC ISCM

What is our ambition? Recognizing trends in the Wind Energy market Analyzing an annual report of a wind energy supplier; Constructing an cash flow overview of wind energy project; Establish risk awareness (project- , exchange -, interest rate- and political risks) Decision criteria for an investment in a wind energy project (PBP, ROI, NPV, IRR and BET). Financially sourcing a wind energy project.

Assessment WEPM-C-FC WEPM-P-FR Written exam of 120 minutes (PW8) Finance will also be assed in the final report and presentation of the project of this minor

Programme Lecture Topic 1 Overview Energy Market 2 Annual Reports 3 Project Financials, Value Propositions & Business Model 4 Business plan I 5 Business plan II 6 Case study WEPM 7 8 Written Exam

Energy Market Oil Gas Coal Nuclear Wind Electricity Hydro Solar Biomass Geothermal

Electricity market Complex market The art of electricity See slide before The art of electricity Not directly tangible Storage problems Capacity Transformation of Wind (free good) into Electricity (economic good)

Overview Energy Market Macro level Energy prices (P) Energy demand (Q) Meso level / Industry level Micro level / Firm level Value chain & supply chain Annual Reports

Macro level Energy prices (P) Energy demand (Q) Prices of substitutes / Trends http://www.bloomberg.com/energy/ http://www.energy.eu/ Energy demand (Q) Trends http://www.nwea.nl/ http://www.ewea.org/

Renewable energy in final energy consumption (2020 target) Source: www Renewable energy in final energy consumption (2020 target) Source: www.energy.eu 2006 2007 2008 2020 Target % To cover: United Kingdom 1.5 % 1.8 % 2.2 % 15 % 12.8 % France 9.6 % 10.2 % 11 % 23 % 12 % Denmark 16.8 % 18.1 % 18.7 % 30 % 11.3 % Netherlands 2.5 % 3 % 3.2 % 14 % 10.8 % Italy 5.3 % 5.2 % 6.6 % 17 % 10.4 % Belgium 2.7 % 3.3 % 13 % 9.7 % Spain 9.1 % 9.5 % 10.7 % 20 % 9.3 % Germany 6.9 % 9 % 8.9 % 18 % Austria 24.8 % 26.6 % 28.3 % 34 % 5.7 % Sweden 42.7 % 44.2 % 44.4 % 49 % 4.6 %

Renewable electric energy in the EU Resource: 2005: 2006: 2007: 2008: Hydro energy 60.60 % 64.40 % 60.00 % Wind energy 20.40 % 17.10 % 21.00 % Biomass 17.00 % 16.70 % Geothermal energy 1.20 % 1.00 % Solar energy 0.80 % 0.50 % Resource: www.energy.eu

Meso level / Industry level Wind Energy Farm Distribution Suppliers

Micro level / Firm level Wind Energy Farm Input > Throughput > Output Procurement > Production > Sales

Annual reports Market & Strategy Corporate Governance Corporate Social Responsibility (CSR) Sustainability Financial ratios Profitability Liquidity Solvency Activity

Structure of the balance sheet Equity: Issued Capital Retained earnings / Reserves Long Term Liabilities Provisions Loans Bonds Current liabilities: Creditors / AP Bank overdraft Taxes Dividend Fixed assets: Property, Plant & Equipment Intangible assets Financial noncurrent assets Current assets: Inventories Debtors / AR Cash & Cash equivalents

Structure of the income statement / profit & loss account Costs Costs of Sales: Cost of raw materials Cost of (manufacturing) labour Costs of depreciation of equipment Overhead costs: Selling expenses R&D expenses General expenses Administrative expenses Other expenses Incidentals Financial charges Operating income Revenues / Sales

Profit definitions Gross Profit: Revenues - Cost of Sales Operating Income / EBIT: Gross Profit - Overhead costs EBITDA: EBIT + Depreciation + Amortization EVA: NOPAT - Capital Charges : NOPAT = EBIT - Taxes Capital Charges = Invested Capital * Cost of Capital

Performance of the company: Liquidity The ability of an asset to be converted into cash without a significant price concession Current ratio: Current Assets / Current Liabilities Quick ratio: { Current Assets -/- Inventories } / Current Liabilities

Performance of the company: Solvency Solvency shows how the extent to which the firm is financed by debt Debt Ratio: Debt / Total Assets Debt-To-Equity Ratio: Debt / Shareholder’s Equity

Performance of the company: Profitability Compares profit (output) with invested money (input) of the firm Gross Profit Margin: Gross Profit / Sales ROI (ROA) = Return on Investment (Assets) Net Profit after taxes / Total Assets ROE = Return on Equity Net Profit after taxes / Shareholder’s Equity

Performance of the company: Economic activity Provides performance information of the efficiency of some internal processes Asset turnover Sales / Assets Inventory turnover Cost of goods sold / Inventory Receivable turnover (collection period) Sales / Receivables

Du Pont formule ROE = NPM * TAT * EM NPM = Net Profit Margin (Market profit) NPM = Net Profit / Sales TAT = Total Assets Turnover (Utilisation) TAT = Sales / Total Assets EM = Equity Multiplier (Financial structure) EM = Total Assets / Total Equity

Altman’s Z-score Working Capital / Total Assets * 1.2 Retained Earnings / Total Assets * 1.4 EBIT / Total Assets * 3.3 Market Value Equity / Book Value Liabilities * 0.6 Sales / Total Assets * 0.999

Annual reports (2010) of Sustainable Energy Industry Van Oord (case for the lectures) Teams  Eneco Vestas ABB RWE GE Siemens Nordex BP Shell

Organisation # Company URL Team members Van Oord www.vanoord.com Van Oord www.vanoord.com Mr Jan Jansen 1 Eneco www.eneco.com 2 Vestas www.vestas.com 3 ABB www.abb.com 4 RWE www.rwe.com 5 GE www.ge.com 6 Siemens www.siemens.com 7 Nordex www.nordex-online.com 8 BP www.bp.com 9 Shell www.shell.com