Autor: Roland Gruber , 05.02.2013

Green City Energy was founded in 2005 as a 100% subsidiary of the largest Munich environmental protection society Green City e.V.

From the beginning, the official aim in its own words was to support a decentralised and democratic energy revolution owned by the citizens. In practical terms, this means: The company plans renewable energy power plants in the fields of wind energy, hydro power, and originally also solar energy. The projected plants are offered to small private investors in the form of investments in funds. For example, these include investment funds in small French hydroelectric power stations, which can be found recently in portfolios of offerings from the German energy service provider. zek HYDRO took the opportunity and contacted Jens Mühlhaus, CEO of Green City Energy, who willingly granted a look behind the scenes.

How important is hydroelectric power for your company and what role can it play for the intended energy revolution?
Mühlhaus: Hydroelectric power is, in any event, an important base for change in energy production. At the moment, hydroelectric energy represents about 3% of the German energy mix. This doesn't sound like very much at first glance, and hydroelectric power is already widely developed, particularly in the south of Germany. However, a study commissioned by the BMU (German Ministry for the Environment) estimates the total potential for hydroelectric power in Germany to be between 33.2 and 42.1 terawatthours, so there are still many opportunities, especially in the area of modernisation. And hydroelectric power has other advantages. As is the case with wind energy, hydroelectric power is already produced much nearer to the market price than solar energy, leaving a relatively smaller target for political criticism. With proper maintenance, the technology has an extremely long service life; a hydroelectric power station can easily produce green electricity for 60 to 90 years. With hydroelectric power, we also have very high availability of more than 90%, and with pumped storage power plants, for example, flexible operation as well. In this way, renewable energy can be stored. Green City Energy has been actively involved in hydroelectric power since 2006. Together with the Munich utilities company, we planned and commissioned the sophisticated underground Prater power station in the middle of Munich. This, of course, enabled us to gain invaluable experience. Amongst other things, we are engaged in the modernisation of existing small hydroelectric power stations in France. This is particularly valuable from an ecological perspective, as this renders the construction of new dams unnecessary. This is an improvement from both ecological and economic points of view. The modernised or revitalised plants are currently offered  to the public for financial participation in the "Wasserkraft Frankreich" fund.

What significance does the Prater power station in Munich have for the development of the company? And what were key lessons learned from this project?
Mühlhaus: Certainly, the project laid the foundation for the expansion of our services to include hydroelectric power; in that way, it was very important for Green City Energy. Even today, there is still great interest in the power station, which pleases us immensely. Of course, planning in the middle of a city was not exactly easy. The worries of the residents about a possible change in the urban landscape had to be taken into account, and there were unexpected delays which, in our case, were caused by flooding in 2009, partially washing away the riverbank. However, such a project is exciting even without incidents: Before the underground construction work could begin at all, the area had to be pumped dry and the fish removed by hand; for this around 200 employees of the fisheries authority were in action
and a total of 60,000 pumping hours were necessary. Now, there is a pressure pipe 150m long and 4.5 wide in the bed of the river Isar. 600 bored piles with a length of up to 10m each were installed, and a total of 3,500m³ of reinforced concrete and 800t of reinforcement steel were used. The power station chamber is a full 25m below the riverbank. The Kaplan turbine with a diameter of 230 cm was developed specially for the location and combines advanced technolog y from wind and water power. A
gearless ring generator from Enercon allows continuous regulation and thus optimal energy production. In 2012, the Prater power station yielded some 20% above forecast.

Your company relies on communal participation models in the field of wind energy and, now,  investment funds in small French hydroelectric power stations are being offered in the hydroelectric power sector. Which strategy are you following with these models?

Mühlhaus: Basically, we support a democratic energ y revolution from the bottom up. We achieve this by financing the plants through citizen participation funds. In this way, the plants belong to the investors, who also profit from the yields. A representative study by TNS Infratest in 2011 showed that citizens identify with the plant in their neighbourhood because of its proximity and the possibility of financial interest in an eco-power plant, which increases its acceptance. In this survey, 69% of those people questioned who lived near to a wind farm were in favour of wind farms in the immediate neighbourhood. This is also true for other types of renewable energy plants. The planning of local renewable energy plants also provides communities with good opportunity, on the one hand, to achieve their own energy independence and, on the other, to increase value. Since 2008, we have also been offering active support for local authorities on the way to local energy independence together with our communal energy consulting This includes extensive analyses of potentials and an individual action-oriented timetable for local energy independence and increases in value.

Apart from the Prater power station in Munich, you now operate hydroelectric power stations in France. What makes small French hydroelectric power stations particularly attractive to investors, and where do you see differences to hydroelectric power stations in Germany in this respect?
Mühlhaus: We were introduced to this market through our branch in Toulouse. First, hydroelectric power has a long tradition in France as the only renewable source of energy and a good standing; around 12 % of the French energy requirement is covered, which is otherwise dominated by nuclear energy. In addition to the large plants, there are some 1,700 small hydroelectric power stations, which are mostly privately owned. However, many of these power stations have been operating a long time. Most of the
technology used cannot fully utilise the potential of the location. To solve the congestion, the French government promotes modernised power stations by way of a fixed remuneration, similar to the feed-in tariff in Germany. Some owners cannot or do not wish to finance the necessary modernisation work and therefore sell their power stations. We modernise them in accordance with ecological standards, which increases their efficiency, and offer the investors high security due to the fixed remuneration. In Germany, we are currently exploring the market. Hydroelectric power in Germany is already quite developed, particularly in the south of the country. However, we are generally very interested in acquiring power stations or water rights here as well, in order to create similar funds in Germany.

The operators of power stations often mention the responsibility to people and the environment connected with the acquisition of longterm water rights for a hydroelectric power station. How do you
view your responsibility for the projects in France?
Mühlhaus: As the subsidiary of an environmental protection society, an ecologically correct implementation of our projects is very important to us. With the hydroelectricity fund in France, we are already revitalising small hydroelectric power stations, which means that not only the approval risk for the investor is very small but also that, above all, it is unnecessary to construct new dams. In this way, there is no further intervention in the ecology of the fresh water. In addition, the subsidies are linked with clear requirements which also include the optimisation of the ecological aspects of the power station. This suits our objectives. For example, close-toothed combs are installed to protect fish, and new fish ladders enable the fish to ascend and descend easily. The turbines we use for the modernisation have advanced and proven technology from professional manufacturers, generating the best possible yield for the particular location. In this way, we can improve the existing resources and fully utilise the potential without causing serious disruption to the local environment. After completion of the modernisation work, we do not give up responsibility for the plant. Our French branch Green City Energy France in Toulouse remains on site managing the operating companies. By continuous reporting
to Green City Energy AG, support can be provided from Munich with technical issues and with the administration of the plant. The control of the operational management is also carried out from here following the principle of dual control.

How many power stations have already been included in the French investment fund and what are the criteria used in the selection of these small power stations?
Mühlhaus: In the meantime, three locations in Lempdes-sur-Allagnon, La Chapelle and Villognon are included in the fund; three further power stations are currently undergoing due diligence processes and there are more in the pipeline. There are concrete and irrevocable investment criteria; compliance with
these is reviewed by an investment committee for each acquisition. Before acquisition, the hydroelectric power stations or the hydroelectric power companies owning them are subjected to technical, economic and legal analysis by specialists, tax consultants and lawyers, with the analyses being available before acquisition and forming the basis for consent and release. Basically, they must be small 0.4 - 2 MW power stations in need of renovation or modernisation, which, after upgrading by prescribed investment in accordance with French law, get a 20-year feed-in tariff. Whether or not the modernisation has been completed before acquisition or completed afterwards does not matter. Additionally existing power stations, for which the fixed tariff is expiring, can be purchased into the funds, if the costs of production of electricity are at market level. In this case, the electricity produced is sold on the open market through the energy exchange without feed-in tariff. A regional and technical diversification is also important in order to increase the security of income for the investors. The purchase price of a plant, including planned modernisation costs, should be no more than 11 times the forecast of the future annual net income.

What expertise does Green City Energy bring directly into the project process; in which areas are partnerships or cooperations entered into?
Mühlhaus: First, through its own French branch, Green City Energy naturally provides the necessary commercial know-how, knowledge of the French renewable energy market and the appropriate contacts. Therefore, the main responsibility for the selection and investigation of hydroelectric companies to be acquired is ours; in addition, we support the technical due diligence investigations and accompany contract negotiations. Incidentally, the costs of unsuccessful acquisition attempts are borne by us. Due to our many years of experience, we also have a wide ranging network of competent local planners, engineers and technicians. This is, of course, also put to good use in the individual steps, such as acquisition, project investigations, purchasing preparations, modernisation, operational management and maintenance. Green City Energy AG then assumes the commercial management for GCE Wasserkraft Invest Frankreich GmbH; the administration of the hydroelectric power companies is carried out by our French company Green City Energy France S.a.r.l.

What possibilities do you offer your investors to request detailed information about the technical condition and the energy-economic potential of the modernised plants in France?
Mühlhaus: We highly value transparency and are always ready to speak personally with our investors and interested parties. Our colleagues in investor relations are available to answer questions by telephone or email. Basic information is, of course, available on our web site, where anyone can download the detailed sales prospect approved by BaFin (the Federal Financial Supervisory Authority) and audited by IDW S4. If requested, the prospect can also be sent by mail. In addition, the web site regularly records the progress of the structuring of the fund and the individual progress of projects in Fact Sheets. During the emission, the experts are also available at detailed information events for specific queries. After completion of the placing of the fund, there are annual shareholders' meetings, in which the management presents the financial statement figures and the annual dividend is decided. In addition, at the first shareholders' meeting, a three-member advisory board is elected from the ranks of investors. This henceforth serves as a supervisory body and intermediary between the investors and the management, and at the annual shareholders' meetings reports on its independent review of the fund documentation. In addition, the investors are informed of the yields and the status of projects via our password protected investors portal.

What yield prospects do you offer your investors in your hydroelectric power fund and on what parameters are these calculated? What general advantages do the investors see in your hydro-electric power fund?
Mühlhaus: The forecasted average payout of the French hydroelectric power fund is 8.35 % annually. For the annual net income calculation for plants to be renovated or which have recently been renovated, the average water values of the last ten years are multiplied with current electricity prices. The assumptions are supported by technical assessments from independent engineering consultants and by earnings guarantees laid down in the purchase contracts with the technical manufacturers. Further security is also offered in this case by the feed-in remuneration, legally guaranteed by the French government for 20 years, for small modernised hydroelectric power stations. In the event of the acquisition of plants not needing renovation, the average yields actually produced over the last ten years and technical experts' reports are used. There are many advantages of participating in this fund. First, it is a pure equity fund without bank financing and with a relatively short term of just eight years and good earning opportunities. In addition, the investor is investing in ecological material assets with a real value. As the power stations already exist, there are no risks with building approvals or construction. The three-stage construction of the fund is clear and offers the opportunity of nearly tax-free dividends, the applicable capital gains tax is a maximum of 25 %. The fixed investment criteria and the standardised due diligence investigations ensure a stable project portfolio. Furthermore, the state-guaranteed feed-in remuneration offers additional security, and the entry prices on the French market are currently low. Green City Energy also offers a buy-back guarantee at a guaranteed purchase price of 15 times the annual net income, plus a 50% more income guarantee.

How would you assess the risks for an investor in your investment fund in direct sales?
Mühlhaus: The sales prospect is approved by BaFin and audited by IDW S4, which means that the fund concept has undergone extensive economic reviews, offering our investors additional security. A possible risk of direct selling remains in that we inform the investors only of the details of the fund; we do not offer investment advice for making an investment decision. However, for those to whom this is important, this does not mean that one cannot invest. Those interested can obtain advice about the Hydro-electric Fund France from a few select independent investment advisers.

Are you planning to expand your hydroelectric business to other countries in the future? In this respect, which international markets would you class as being of interest?
Mühlhaus: Apart from further plants in France, we are actually looking for hydroelectric power stations to buy or lease in Germany, Austria, Italy and Switzerland. Water rights are also of interest to us. If the offer is available, we are planning various communal participation models here too.

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