CHINA HYDROELECTRIC CORPORATION

Transcription

1 CHINA HYDROELECTRIC CORPORATION CHINA HYDROELECTRIC CORPORATION Corporate Presentation September 2011 January 2010

2 Disclaimer This presentation contains forward-looking statements that relate to our current expectations and views of future events. These forward-looking statements include, among other things, statements relating to our business strategies and plan of operations, our ability to acquire hydroelectric assets, our capital expenditure and funding plans, our operations and business prospects, estimates of production and tariff trends, projects under development, construction and planning, the regulatory environment and future developments in China's hydropower industry. These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and actual events, developments, results or performance may differ materially from the information contained in the forward-looking statements as a result of a number of factors. Additional information about risks and uncertainties that could affect our future results are contained in the Form 10-F for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission on April 4,

3 Overview of Presentation HK000QQS Company History The Opportunity in China - Focused Strategy Experienced Management Team Competition/Barriers to entry Technology/Hydrology Summary Financial Information 3

4 Company History China Hydro is a rapidly growing owner and operator of small hydroelectric power projects in China Established in July 2006, China Hydro was formed to acquire existing small, i.e. under 50 Mw capacity, hydroelectric assets in China. It is the largest such enterprise in China. In November 2006, China Hydro raised its first round of financing $50MM convertible notes. In April 2007, China Hydroelectric acquired its initial projects and became an operating company. Operating Stations: 29 Total MW Capacity: Sichuan Province Liyuan (12.0MW) Zhejiang Province Yingchuan (40.0MW) Wuliting (42.0MW) Shapulong (25.0MW) Zhougongyuan (53.6MW) Ruiyang (32.0MW) In 2007, office established in Beijing senior management, operations, engineering, finance and accounting. In January 2008, China Hydro raised its second round of financing $150MM in Series A convertible preferred stock. Yunnan Province Binglangjiang I (21.0MW) Binglangjiang II (20.0MW) Husahe (18.7 MW) Aluhe (10.0 MW) Latudi (18.9 MW) Zilenghe (25.2 MW) Xiaopengzu (44.0 MW) Dazhaihe (15.0 MW) Sichuan Yunnan Zhejiang Fujian Fujian Province Yuanping (16.0MW) Yuheng (30.0MW) Banzhu (45.0MW) Wangkeng (40.0MW) Taiyu 1 (55.4 MW) * Taiyu 2 (59.0 MW) * Acquisitions in final stage 4

5 Company History China Hydro is a rapidly growing owner and operator of small hydroelectric power projects in China In July/August 2008, China Hydro raised its third round of financing $129MM in Series B convertible preferred stock. In October 2009, China Hydro raised its fourth round of financing $20MM in Series C convertible preferred stock. In January 2010, China Hydro completed its IPO, raising $100MM, and listing on the NYSE Operating Stations: 29 Total MW Capacity: Sichuan Province Liyuan (12.0MW) Zhejiang Province Yingchuan (40.0MW) Wuliting (42.0MW) Shapulong (25.0MW) Zhougongyuan (53.6MW) Ruiyang (32.0MW) China Hydroelectric currently owns 27 operating hydroelectric power projects, four of which were developed by CHC, with an aggregate installed capacity of MW (rising to MW pending closing of two additional acquisitions). China Hydro s projects are located in four provinces: Zhejiang, Fujian, Yunnan and Sichuan. Yunnan Province Binglangjiang I (21.0MW) Binglangjiang II (20.0MW) Husahe (18.7 MW) Aluhe (10.0 MW) Latudi (18.9 MW) Zilenghe (25.2 MW) Xiaopengzu (44.0 MW) Dazhaihe (15.0 MW) Sichuan Yunnan Zhejiang Fujian Fujian Province Yuanping (16.0MW) Yuheng (30.0MW) Banzhu (45.0MW) Wangkeng (40.0MW) Taiyu 1 (55.4 MW) * Taiyu 2 (59.0 MW) * Acquisitions in final stage 5

6 Corporate Events Strategic Acquisitions HK000QQS Pre IPO Acquisition Timeline and Construction Cycle From 2007 to 2009, CHC successfully closed on 5 sets of acquisitions, averaging about 4.4 months per deal Zhougongyuan 53.6 MW Banzhu 45.0 MW Ruiyang 32.0 MW Binglangjiang I Binglangjiang II 21.0MW 20.0MW Liyuan 12.0 MW Yingchuan 40.0 MW Wangkeng 40.0 MW Completion of Zhougongyuan Completion of Binglangjiang II Shapulong 25.0 MW Wuliting 42.0 MW Yuan Ping & Yuheng 46 MW Established Company Established a whollyowned subsidiary, Beijing A.B.C. Investment Consulting Co., Ltd. Established China Hydroelectric Corp. Hong Kong Limited July November April May December January June October May August September 6

7 Post-IPO Acquisitions Aluhe 10.0 MW Xineng 18.9 MW Xiaopengzu 44.0 MW Yangkou 48.0 MW Jintang 11.6 MW Jinwei 16.0 MW Gross MW Net MW Pre -IPO MW Husahe Project (18.7 MW) Closed Minrui Projects (54.1 MW) Closed Xiaopengzu Project (44.0 MW) Closed Huangtangjia 11.0 MW Zilenghe 25.2 MW Taiyu Projects Phase 1 (55.4 MW) Closed Dazhaihe Project (15 MW) Closed Taiyu Projects Phase 2 (59.0 MW) Final stages Total Post-IPO Husahe 18.7 MW Jinlong 10.0 MW Shaowujin 17.8 MW March June July September October December

8 The Opportunity in China HK000QQS Strong government promotion and support Hydroelectricity is a priority under PRC policy - rapid growth of economy and energy consumption - severe environmental problems - increase share of renewable energy to 20% by 2020 (vs. 7.5% in 2005) - foreign investment welcomed - favorable legislation - favorable tariff trend for hydroelectric power Large universe of willing sellers of existing projects Large universe of sites for development, many willing partners to co-develop small projects Strong ROI with modest equity investment - projects purchased at 8x-10x EBITDA multiple, typically assume debt, require appropriate work force size 8

9 The Opportunity in China - Power Generation in China - Growing and Needs Hydro HK000QQS Installed Capacity Installed Capacity By Fuel Type (2008) (GW) 1, % 1.1% 0.3% 21.6% 75.9% Carbon-based Thermal Hydro Wind Nuclear Others Electricity Consumption Electricity Generation (TWh) (TWh) 4,000 3,000 2,000 1, ,271 3,427 2,859 2,494 2,197 1,903 1,347 1,463 1, ,000 3,500 3,000 2,500 2,000 1,500 1, ,282 3,433 2,866 2,500 2,203 1,911 1,356 1,472 1, Source: China Statistical Yearbooks 2002 to 2008, State Electricity Regulatory Commission. 9

10 Thousands Megawatts HK000QQS The Opportunity in China - Why Hydro in China? Hydroelectric Power Resources in China (2005) China is rich with hydro and small hydro resources. Room for growth: 400,000 MW of hydro power resources available for development ; substantial resources yet to be developed Assets with very long lives; very positive cash flow implications with EBITDA at 80% of revenue Highest internal rate of return on unlevered equity compared to similar projects in other countries. CHC s IRR at the project level = 11-14% Technologically Exploitable Economically Exploitable Installed Capacity * Source: NDRC (2005 report), Ministry of Water Resources, World Energy Council, Energy Information Administration 10

11 The Opportunity in China - Why Small Hydro? Lower value-added tax (VAT) 6% vs. 17% to encourage development of small projects; increase to gross profit/margin Projects under 100 MW are regulated at the local level Less environmental impact, permitting less difficult (MW) 60,000 50,000 40,000 30,000 20,000 10,000 China s Small Hydro Capacity Growth Less competition SOEs focus on large hydro projects * Source: Ministry of Water Resources 11

12 The Opportunity in China - Government Emphasis on Hydro The 12 th Five Year Plan s hydropower capacity targets are set to grow at 10% CAGR. Hydroelectric Power Generation Growth Around the World Reliable customer: In the Renewable Energy Law of 2006, the PRC obligated power grids to purchase electricity produced from renewable sources. Further, hydro tariffs are lower than thermal tariffs in some regions, helping support the power grids margins. Tariffs (1) are, and have been, increasing. They are determined by the State Council, who has publically expressed an intention to raise them to coal parity. PRC tariffs approximate US tariffs. Billions kwh Source: International Energy Statistics ( China United States Russia Norway India Japan * Source: Economic Observer and other news coverage (1) A tariff is the price paid for each kilowatt hour of electricity sold to the grid. 12

13 The Opportunity - Chinese Policies and Regulations Favor Renewable Energy HK000QQS Renewable Energy Law Renewable Energy Law enacted in January 2006 to provide a formal legislative framework for developing renewable energy The law provides general guidance on capacity targets, tariffs, grid connections and was followed by detailed implementation rules set by the NDRC and the Ministry of Finance ( MOF ) Renewable Energy Policies Name of Policy / Regulation Authority Date The Renewable Energy Law Temporary Implementation Rules for Establishing a Feed-in Tariff for Renewable Energy Power and the Sharing of Expenses in Purchasing Electricity from Renewable Energy Standing committee of the National People s Congress NDRC Jan-06 Jan-06 Administration of Renewable Energy Power Generation NDRC Jan-06 Provisional Measures for Administration of Special Funding for Developing Renewable Energy Resources MOF June Capacity Targets Medium and long-term targets are generally set by the Energy Bureau of the NDRC Development of small to mid size hydro plants are encouraged in the April 2007 Energy Development Plan for the 11th Five Year Plan; in the 12th Five Year Plan, hydro capacity growth target is 10% CAGR Feed-in Tariffs Under the Renewable Energy Law, tariffs are to be determined by pricing authorities of the State Council in order to benefit renewables development Grid Connections Under the August 2007 implementation rules, power grid companies are obligated to purchase renewable energy in their jurisdiction Medium and Long-Term Development Plan for Renewable Energy Measures for Administration of Power Grid Enterprises Full Acquisition of Renewable Energy Power Renewable Energy Development Plan for the 11 th Five Year Plan NDRC NDRC NDRC Aug-07 Sep-07 Mar-08 Source: BTM Consulting, news articles. 13

14 The Opportunity - Low Cost Per Megawatt China compared to other Hydro-rich Countries Average Construction & Acquisition Cost per MW Among the world s most concentrated hydro areas, China has the lowest construction and acquisition costs per megawatt. China Hydro s portfolio has been acquired at an average cost of $1.3 million per megawatt ($1.1 million in Yunnan); developer s profit of 10% to 20%. Lower than India s construction costs of approximately $1.5 million per megawatt. Construct Purchase $0.0 MM $1.0 MM $2.0 MM $3.0 MM $4.0 MM $ / MW (millions) * Source: Company and comparable companies press releases and filings 14

15 The Opportunity - High Capacity Factor China compared to other Hydro-rich Countries Marginal Developable Capacity Factors (1) Even as a global leader in hydropower installed capacity, China still has a significant amount of undeveloped economically desirable hydropower resources. China s remaining developable hydropower sites have a higher capacity factor than other hydro-rich countries. % Typical Hydropower Capacity Factor Range Developable Capacity Factor CHC s capacity factor for 2010 was roughly 39% 0 PRC BZ US CA EU Source: Company (1) Capacity factors of hydroelectric power stations vary depending on the availability of water. On the high end, with enough water, hydro stations can have as high as 75% capacity factors. On the low end, peaking stations (operating only during peak demand) typically have capacity factors in the 15-40% range 15

16 The Opportunity - Comparison Between Chinese Hydroelectric and Coal Power Producers HK000QQS Hydroelectric Power Components of Operating Costs Margin Benchmarking Between Hydroelectric Power and Coal Power Producers Cash costs include: Water use fees: 2-3% of revenues; Labor costs: 4-5% of revenues; Maintenance expenditures: 2% of revenues; Other overhead expenses: 2-3% of revenues; No fuel Value added tax, typically 6% of revenues (netted against top line revenue) Cost of revenue (COR) includes: Depreciation (non-cash): 65-70% of COR Labor, maintenance and all other costs: 30-35% of COR Coal-fired vs. Hydro (9 months Ending Sept ) (1)(2) 80% 80% 65% 70% 60% 50% 40% 30% 13% 19% 20% 10% 0% Gross Margin EBITDA Hydro Conventional * Source: Company (1) Hydroelectric Power constituency includes China Yangtze Power (2) Coal constituents include Huadian Power, Huaneng Power, and Datang Int l 16

17 Hydroelectric Tariffs in China Have Increased Over the Last Decade.. HK000QQS On November 20, 2009 the NDRC announced tariff adjustments for coal-fired as well as hydro power plants across China. The tables to the right show the details of some of those changes in hydroelectric tariffs. News and action from the NDRC only strengthens the company s belief that hydro tariff prices overall will continue to increase Zhejiang Tariff Yunnan Tariff Most recent increase of over 3.5% China Hydro has directly seen over an 11% increase in tariff in Yunnan with its Binglangjiang power project in one year. Yunnan has one of the lowest tariffs in China. Zhejiang Province s hydro tariff has increased nearly 28% since Priced close to thermal energy tariffs, it is one of the most expensive tariffs in the country. This is a prime example of the hydro / coal-fired tariff convergence. Hydro tariff change Old benchmark New tariff Old tariff % change Province (RMB/kWh) (RMB/kWh) Guangdong n/a n/a 5.10% Guizhou n/a % Jiangxi n/a % Sichuan % Hebei n/a % Anhui n/a % *Source: NDRC Chongqing average small hydropower plant Tariff 2008 Capacity New tariff % change Under 25MW % Commence operations before July 2008 Commence operations after July MW % Above 50MW % Under 25MW % MW % Above 50MW % *Source: Chongqing Municipal Commission of Development and Reform, Chinapower.com.cn * Source: China Hydroelectric Corp. 17

18 EPR factor Utilization (hours) The Opportunity - Hydropower compares favorably with other renewable energy sources HK000QQS Hydro Solar Wind Tariff upside potential High None None Operating cost efficiency High Low High Reliance on subsidies Low High Medium Grid connection Good Weak Average Asset lifespan (years) ~25 ~20 Utilization rate High Low Medium Energy payback ratio (a) Annual utilization hours ,000 5, ,000 3,000 2,000 3,000 1,800 2, Hydro Solar Wind 1, ,200 1,500 Hydro Solar Wind (a) Calculated as annual, total generation output divided by electricity required for operation of assets Source: Source: Deutsche Bank Equity Research 18

19 Experienced Management Team 30 years of experience in hydro/alternative energy field Knowledge of hydropower industry in general and China in particular due diligence, engineering, operations, finance Relationships with banks in China, local officials and power grid Experience operating a business in China - regulatory Setting up a China base of operations management team fluent with all things Chinese as well as US business standards, accounting and financial management functions on par with a US based company Engineering plant construction, maintenance and hydrology Operations/regionally managed/clustered projects Financial optimization of capital structure Integrity of financial management and reporting replicate best US standards; top-notch professional advisors 19

20 Experienced Management Team John D. Kuhns Chairman & CEO Dr. You-Su Lin Chairman, Beijing ABC Investment Consultant Co. Ltd. 30 years of experience in hydroelectric power and alternative energy Founder and CEO of Catalyst Energy (NYSE: CE), the first IPP and largest IPP developer of hydroelectric projects in the U.S. Involved with hydroelectricity in China since 1984 Extensive experience in advising Chinese hydroelectric projects including Three Gorges, Xiaolangdi, Wanjiazai etc Former Chief Consultant for Beijing Urban Construction Group Co., Ltd. in the Beijing Olympics project Extensive experience and indepth knowledge of the Chinese hydropower industry James Tie Li, President Mary E. Fellows Executive Vice President & Secretary Extensive senior management experience in hydroelectric power Extensive investment banking experience advising Chinese companies in raising public and private capital, credit rating experience with Citigroup, HVB Group and Standard & Poor s, founder of Columbia China Capital Group Executive Vice President of Kuhns Brothers, Inc. Former Director of Corporate Administration of the New World Power Corporation Core management team has been working together since inception Wu Gan Vice Chairman Beijing ABC Investment Consultant Co. Ltd. Former Director of the general office of the State Supervision Work Committee of China Extensive working experience in the hydroelectric industry, including China Three Gorges Dam Project, Ministry of Water Resources, and the Yellow River of Water Conservatory Committee Broad network with the Chinese central, provincial and local governments Michael Best Chief Engineer Extensive experience in hydroelectric power and alternative energy Actively involved in project finance, project management and coordination of tender and bidding procedures among international manufacturers of utility equipment located in Norway, U.K., Spain, Germany, and China and the U.S. 30 years of experience in all aspects of hydroelectric power projects 20

21 Organizational Structure China Hydroelectric Corporation (Cayman) John D. Kuhns Chairman & Chief Executive Officer Mary Fellows Secretary & EVP Michael Best Chief Engineer James Li President Beijing A.B.C Investment Consultant Co., Ltd (1) Dr. You Su Lin Chairman Mr. Wu Gan Vice Chairman Yunnan Province Projects Sichuan Province Projects Rhyson Li, CPA, CFA Chief Financial Officer Zhejiang Province Projects Fujian Province Projects Jian Bin Zhou General Manager Ying Qiang You General Manager Hong Zhang General Manager Hua Kang Xiong General Manager Number of As of January 31, 2011 Employees % Beijing Yunnan Zhejiang Fujian Sichuan (1) China Hydro s wholly-owned subsidiary in Beijing Total

22 Competition/Barriers to Entry Competition in China is a relatively new phenomenon; energy producers were historically government run or controlled CHC sees no direct competition from other renewable power generators; may change The five biggest power generators are SOE s; will likely focus more on hydro, but on large projects As first mover in the small hydro industry, CHC is well recognized in China by sellers as preferred buyer of small hydro power projects Relationships with banks in China are part of CHC s strong financing capabilities giving it the ability to quickly respond to and secure attractive acquisition opportunities Through senior management and regional managers, good network in the small hydro industry providing first-hand intelligence of acquisition opportunities Setting up a base of operations in China; management team fluent with all things Chinese as well as US business standards, accounting and financial management functions on par with a US based company 22

23 Technology/Hydrology Very important factor in determining revenue and profitability; hydrological conditions can vary + or 20% off the median; good conditions in 2010 vs. 2009, which was a low year Seasonal, with Q2 and Q3 the strongest quarters due to timing of snowmelt and periods of high precipitation CHC has analyzed and modeled available hydrology data available in a project by project and regional basis Geographic diversity four provinces offers some downside protection China offers a much higher capacity factor than in any other country; big impact on profitability Hydro power projects run-of-the-river diversion dam; low head run-of-the-river; impoundment dam reservoir; pumped storage, with the first two types representing most CHC s operations Minimal technology risk powerhouse turbine generator design, substations, concrete dams, gates/valves, pipelines, penstocks are not new 23

24 (GWh) (US$m) HK000QQS Summary of revenue Net revenue Electricity sold (a) ,000 1,800 1,600 1,400 1,200 1, % % % 1, Electricity sold Average utilization 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Average utilization (%) (a) Excluding electricity sold by unconsolidated entities Gross Profit Gross Margin (US$m) % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 67% 59% 63% 53%

25 (US$m) (%) (US$m) (%) HK000QQS Summary of profitability Adj. EBITDA Adj. EBITDA margin (5.0) (0.3) 2007A 2008A 2009A 2010A 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% (10.0)% (20.0)% 63.0% 64.2% 44.0% (13.1)% 2007A 2008A 2009A 2010A Net cash income Net margin % 30.0% 20.0% 10.0% 10.3% 21.0% 37.1% (5.0) (2.6) 2007A 2008A 2009A 2010A 0.0% 2008A 2009A 2010A (a) Net cash income = Non-GAAP net income + D&A 25

26 15% Organic Growth Capability China Hydro can grow organically if access to equity capital markets closes: Generating $35 million of free cash flow on a pro forma 2010 basis (assuming existing debt amortization of principle is rolled over) Plus re-leveraging of existing debt combined with 65% leverage on new acquisitions gives CHC total buying power of roughly $100 million. With $100 million, China hydro can purchase roughly 90 megawatts of operating assets at $1.1 million per MW(in western provinces like Yunnan). $140 $120 $100 $80 $60 $40 $20 $0 121MW 105MW 91MW Targeted Acquisition 65% Total Free Cash Flow Available for Acquisition Additional MW As this process repeats, CHC has the ability to grow organically at roughly 15% year over year. 26

27 Optimization of Capital Structure China Bank Debt Market is Developer s Dream China Hydro Total Debt / Total Capitalization CHC Long Term Loan History Beginning Balance $0.0 $10.3 $176.9 $236.3 Ending Balance $10.3 $176.9 $236.3 $302.8 Average Life (years) Average Interest 7.38% 8.47% 7.58% 6.33% 80% 70% Lending Institution Breakdown* Amount % of Total Bank of China $114 37% China Agricultural Bank $97 31% China Construction Bank $26 8% Agriculture Development Bank of China $21 7% Industrial Bank of Fujian $20 7% Industrial and Commerce Bank of China $18 6% Industrial bank of China $15 5% 60% 50% 40% 30% 20% 10% 37% 36% 43% 43% Total $ % *As of Q PRC bank debt requires no commitment or closing fees, financial covenants, or parental guarantees EBITDA / Net Interest Expense = 2.9x (Fiscal 2010) 0%

28 Investment Highlights Largest small hydroelectric company in China Experienced and international management team Fully functional platform; CHC identifies, evaluates, acquires, develops & constructs 563 MW currently owned and operated; in process of closing on two projects for approximately 60 MW Assembling a pipeline of over 1 GW of small hydropower facilities in Sichuan and Yunnan Provinces and developing a 1 GW pumped storage project in Henan $450 million lending commitment from the Bank of China Increasing tariffs Chinese policies and regulations favor renewable energy 28

29 Contact Us Company: John D. Kuhns, Chairman and CEO of China Hydroelectric Corporation Phone: New York: (646) John E. Donahue, VP of Investor Relations Phone: New York: (646) Investor Relations Firm: Scott Powell HC International, Inc. Phone: