10 tips for presenting your renewable energy investment case
Energy Blog, 26 September 2023
Your business case is the little word seed that could either grow into a real energy project or wither and die. Here are our 10 tips to ensure it actually germinates
My unlikely inspiration for writing this blog was watching 8 Mile Road, Eminem’s bleak but ultimately uplifting film about growing up as a rapper in Detroit. Now I know that fat, bald, white, middle class and middle aged men being inspired by rap is a comedy character all by itself but the phrase “you get one shot, don’t let it blow, this opportunity comes along once in a lifetime” made me think about how many clients only get a very limited window to pitch their idea to investors and how quite a few often don’t make the most of it. Business cases are the tiny seeds that grow into real projects. Your average investor sees a lot of potential ones every month and inevitably turns most of them down. This is a blog about how 10 common tips can make sure your proposal actually gets read and germinated.
- Be upfront about money – the English are weird about this, nobody ever discusses what they earn though paradoxically we like to talk about house prices a lot as a sort of code for bragging about our income. Apparently the Americans are much more open and asking somebody you’ve just met what they earn is considered acceptable small talk. In England this would be a major faux pas along with asking someone how often they had sex or how much they drink. In presenting your business case you need to be a lot more like the Americans than the English at least when it comes to the former. Say right away how much you are looking to raise and on what terms. This should be in the first sentence of the first page not hidden away like a shameful little secret in an Appendix at the back.
- Have a story – until the invention of the internet, pretty much all human knowledge was handed down through stories so our brains have evolved to receive information that way. Your business case should follow a clear narrative arc that says if somebody invests X, you will build Y and they will get a return on their money of Z. Again this sounds obvious but you’d be surprised at how many business cases don’t follow this structure and it’s not obvious either what the reader is being asked to invest in or what they get in return.
- Keep it simple – not all stories are simple. War and Peace is ½ million words long and has over 500 characters so it’s probably not a great template for your pitch deck. Ideally, you should be able to explain your project in a very short precise way or as our American friends call it an elevator pitch i.e. the time you have to explain your great idea to the impatient investor who you are metaphorically sharing the lift with. Diagrams are your friend here as you can explain a lot with a picture which makes me think there is a great business in putting white boards and pens on the walls of elevators.
- Avoid hyperbole – your reader will have seen hundreds of business cases so yours is unlikely to be a “unique” opportunity. There are only really about 7 types of renewable energy investment opportunities (wind, solar, bio gas, bio mass, batteries, waste, EV charging) so it is very unlikely that yours is really that much different from the 10,000s of projects that have gone before. The world would be a very slightly better place if we all agreed to stop calling common things “unique” or in the same vein simple coincidences “ironic”.
- Be realistic and conventional about valuations – there is a very formulaic way to assess the value of investment opportunities for renewable energy, you invest to build the asset then discount back the % of the subsequent cash flows accruing to the investor at an agreed discount rate and if the number is > 0, then it’s a positive investment. Basic stuff. Obviously the three issues here are; how much cash the investor has to put in to build the asset (the negative cash flow), the % of the positive cash flow the investors receives (their share of the dividends) and the discount rate used (higher discount rates reduce the value of the positive future cashflows). You can overlay this with complicated things like preference shares, convertible loans etc but the underlying mechanics are universal and accepted and so are discount rates. These are pretty much always 12% – 15% for greenfield projects maybe slightly less for projects with very low risk such as wholly contracted income streams. What you can’t do is buck the market either by using a completely different method or by using crazily low discount rates then claim your project is somehow ‘unique’ (see above) so conventional methods or rates don’t apply. A few years ago there was a solar portfolio in the UK that claimed both (unconventional valuation methodology and exceptionally low discount rates) and predictably the gullible investors who swallowed the metaphorical Kool Aid have subsequently lost all their money.
- Also be realistic about power prices – most projects end up selling energy to the grid either as electricity or gas so your assumptions about the behaviour of future power prices are key to the value for your future cash flows. Nobody really knows what the future power price will be of course though there is a cottage industry of consultants who charge a lot of money because they claim to able to predict what the Dutch day ahead price for electricity will be in 2032. The same consultants failed to predict the massive impact on power prices of either Covid (huge reduction) or the Ukraine war (huge increase) but hey ho, we are all fallible. The key for your project is that these predictive power price curves exist and they mostly assume falling real prices long term so once again your project will have to adhere to industry norms and ideally use an existing curve that gently slopes downwards like a beginner’s ski slope.
- Don’t make your reader do maths – this sounds obvious but it’s a surprisingly common habit that drives me mad. If you reference a figure in the text it should be the same figure in the table or the financial model not the sum of two or more other numbers. People don’t like doing maths so don’t make them do it.
- Dnuloa – Do Not Use Lots Of Acronyms or to be more precise in this sentence initialisations. Like a lot of industries, renewable energy has its language of acronyms and abbreviations which are a mystery to outsiders so it’s helpful if you use the full name at least once and attach a glossary. Nobody will flinch at MW/hr but some more obscure terms like RGGO or Triads should be explained. Confusingly Triad is not an acronym but describes a weird form of UK retrospect pricing for grid access at peak times. I once wrote a blog just about Triads because they were such an odd concept.
- We need to talk about risk. Every project has a lot of risks. Life is full of risk. Getting in your car or on a bike is a risk (though fun fact for every mile travelled you are 20 x more likely to die on your bike than in a car and 67 x more on a motorbike). Risk is the other side of the metaphorical coin to returns, the heads to the interest rate tails. Government bonds are cheaper than pay day loans because the lender is taking less risk on the borrower’s ability to repay. Your business case should explain those risks, which ones can be mitigated and which ones are just the price of the raffle ticket. You can mitigate construction overrun risk with a suitable FIDIC contact, there’s not much you can do about power prices apart from being conservative in your assumptions. Your business case should have a nice long section called risk and mitigation.
- Tip the waiter – Imagine your business case as a first date so behave and write accordingly. You are asking your investor to go on long hazardous journey with you where you will have to navigate a lot of challenges together in order to hopefully make a lot of money. How you come across on the page is how the reader thinks you are going to be in person on the rest of our metaphorical trip so be honest, reasonable and realistic. Avoid exaggeration or heaven forbid actual deceit as you will get found out and that will be the end of that.
In conclusion, writing a business case for investment is really not that hard if you follow these 10 tips. There are an awful lot of investment funds in the world who have all migrated towards green energy so your job is to make their life easier. Over GBP 1 trillion was invested globally in renewable energy in 2022 and every single project started life as a little seed of a business case. Give investors simple narratives with well thought out risk mitigations, conservative power prices and realistic valuations and somebody somewhere will back you to build your project. Failing that you can always try selling elevator white boards.