Financing Instruments for Energy Transition. 16 August 2013 Midrand, Johannesburg

Transcription

1 Financing Instruments for Energy Transition 16 August 2013 Midrand, Johannesburg 1

2 Presentation outline 1. Planning for the transition 2. Finance instruments 3. Case study examples 4. Reflections for African policy makers Additional information: Illustrative example of Sustainable Energy Programme & related financial instruments 2

3 PRESENTATION OUTLINE 1. Planning for transition 2. Finance Instruments 3. Case Studies 4. Reflections

4 Significant system pressures on continent creates energy security opportunities Continent is most vulnerable: land degradation, water scarcity, flooding Africa population expected to increase to 2 bn by 2050, with 1/3 rd person under 25yrs Significant rise in the rate of urbanization to 60% of total population (higher CO2) Rising demands on limited and diminishing natural resource base: water, energy, land Major interest in Africa by developed nations as carbon offset market and land for food production Regional integration initiatives will enable a localized response strategy Unlocking opportunities requires alleviation of several barriers technical, capacity, financial, etc Credible regional information, incremental funding and institution building is critical 4

5 Translating policy into development gains: sustainable sector creation for renewable energy Importance of enabling policy framework to build new renewable energy infrastructure and industrial sector which can deliver both commercially sustainable cleaner energy, jobs, localisation of technology and improved service delivery. To fully realise the socioeconomic and environment benefits of a clean energy programme, there needs to be sustainable financing partnerships Source: DBSA

6 Public finances Carbon markets Donors Institutional FDI UNFCCC GEF Venture capital Philanthropy Adapt Fund SCCF LDCF GEF TF UN (and agencies) World Bank / IMF UN- REED REEEP UN- REDD RDBs / BFIs Carbon Funds CIFs Capital markets CTF SCF SCAF MDG Financial institutions (Public / Private) Public sector Financial instruments Source, DNA Economics, 2011 Mitigation / Adaptation projects

7 Climate finance has become complex on the ground NATIONAL SOURCES INTERNATIONAL SOURCES National Government (National Treasury) Provinces Private Investors Municipalities Development corporations Private Banks Development Banks World Bank GEF, adaptation fund, others mechanism Individual governments Private Banks Private Investors National Government (Departments) Provinces Municipalities Development Banks Development Corporations Individuals projects NGO s Resources are available but possibly not being effectively utilised Mixing of international and national (public and private sources) for best effect Need to create large scale, high impact and sustainable programmes Is there a plan? Is it resourced? 7

8 Indicative challenges to energy transition Structure of existing infrastructure & dependencies Independent/other systems operator that manages the renewable energy grid feed Energy planning and technology choices to ensure grid stability and access to those that are energy poor equitable & sustained energy access of urban and rural Regulatory elements setting tariffs, price of renewables, procurement guidelines Land issues availability, suitability and potential compensation for affected communities Technology assessment trade offs and impact in terms of socio economic benefits (local content, jobs) Environmental Strategic & Impact Assessments enhancing the guidelines to embrace renewable energy specific issues (e.g. access to water in case of CSP) Commercial viability curtailment and other issues impacting project developers excess / below capacity energy), access to transmission lines (grid infrastructure adequacy) Risk and return matching role of government in mitigating risk and long term purchase agreements, guarantees, working with international partners, role of private sector E3G Third Generation Environmentalism 8

9 PRESENTATION OUTLINE 1. Planning for transition 2. Finance Instruments 3. Case Studies 4. Reflections

10 What are the funding challenges for Green Projects? Stable and certain policy and regulatory frameworks defining sound business models Creating demand stimulus for energy investment investment horizon Use of public finance creation of a sustainable sector vs. energy policy targets Cost of technologies high capital injections and comparable cost per kwh Trade off & transition costs often unquantifiable (full cost accounting) Localisation of manufacture vs. import strategy of technology National & sub national integration traditional energy incentives Capacity in financial institutions investment appraisal, risk management Insufficient project development funding (pre investment phase) Risk sharing and mitigation based on project design Packaging investment for capital markets creating entry & exit strategies 10

11 Financial instruments mapped across project cycle (source: UNEP) Private / public venture capital funds Guarantees & insurance products / risk mitigation instruments/ equity/ bonds R&D Support Soft loans Mezzanine debt Grants (incl. carbon assistance) Commercial Loan facilities Public/ private equity funds Carbon Investment Funds Incubators Specialist Credit lines Project development assistance Source: UNEP-FI,

12 Example: National institution facilities for energy transition Project inception Enabling environment Next project owner investment proposition Prefeasibility Studies Feasibility Studies Detailed business plan Capital raising Bankable and sustainable Renewable Energy Market Transformation Unit (World Bank, GEF & DOE) - South Africa Energy & Environment Partnership for East & Southern Africa 10.5 m East & Southern Africa DFI Project Development Loans Bilateral finance facility Multilateral facility for investment & guarantees Institution own investment capital Source: DBSA research, 2011 RE IPP Fund

13 PRESENTATION OUTLINE 1. Planning for transition 2. Finance Instruments 3. Case Studies 4. Reflections

14 Summary of key challenges Case study Morocco (CSP) Zambia (mini grid) Tanzania (small hydro) South Africa (wind) Senegal (solar & wind) Pointers Political willingness and technology transfer issues Ability to replicate initial projects and take to scale Institutional strength and capacities Meaningful and inclusive participation in benefits Policy blockages and grey areas in terms of tax issues E3G Third Generation Environmentalism 14

15 Summary of key learnings on use of financing instruments Case study Morocco (CSP) Zambia (mini grid) Tanzania South Africa Senegal Pointers Concessional finance critical for deployment & scaling up investment Use of seed funding to enhance viability Innovations during course of implementation Use of equity for community investments Private sector incentives E3G Third Generation Environmentalism 15

16 Ouarzazate Concentrated Solar Power Plant Morocco The Ouarzazate power plant will be the largest in the world using concentrated solar power technology. The project involves installing a total capacity of 500 MW, of which 160 MW will be installed in a first phase that was officially launch on 10 May this year. This first phase will be developed through a public private partnership between the Moroccan Agency for Solar Energy (MASEN) and a private partner This power plant will help to diversify Morocco s energy production sources, which currently relays on fossil fuels and imports of almost 97% of its energy in order to meet its energy needs. The first phase of construction will help reduce greenhouse gas emissions, avoiding the emission of 240,000 tons of carbon dioxide per year. The Ouarzazate project will generate about 800 jobs during construction and 50 during operation and maintenance. Furthermore, a local industry capable of providing locallymanufactured inputs to the solar programme will also be developed. E3G Third Generation Environmentalism 16

17 Ouarzazate Concentrated Solar Power Plant Morocco Main Financing Instruments Financing Entity Financing instrument Financed amount African Development Bank loan USD 245 million Clean Technology Fund (CTF), channelled through AfDB. concessional loan USD 100 million Clean Technology Fund (CTF), channelled through the World Bank to MASEN Agence Française de Développement, Kreditanstalt für Wiederaufbau, European Investment Bank Neighborhood Investment Facility (NIF) throught European Investment Bank. International Bank for Reconstruction and Development to MASEN Main Financing Instruments The total investment cost of Ouarzazate I is estimated at about US$ 1 billion. concessional loan Loan grant loan USD 97 million USD 122 million USD 37 million USD 200 million Taken from The World Bank PROJECT APPRAISAL DOCUMENT, Report No: MA wds.worldbank.org/external/default/wdscontentserver/wdsp/ib/2011/11/18/ _ /rendered/pdf/ pdf E3G Third Generation Environmentalism 17

18 Ouarzazate Concentrated Solar Power Plant Morocco Lessons learned The Morocco experience with the Ouarzazate plant has been widely study and documented. The learning experiences were also presented at a joint workshop hosted by the African Development Bank (AfDB) and the World Bank (WB) in Tunis, Tunisia on 28 June The highlighted points were: Political buy in essential to lay groundwork It s of great importance to lay the proper ground work, including institutional and regulatory frameworks, to support the vision. This requires political will at the highest levels of government and concerted coordination across all stakeholders Concessional financing needed to buy down costs project structuring and financing remain challenges Technology transfer required for sustained growth technology transfer and the need to ensure local CSP industries are established and jobs are created. markets/16515 inclusive and green africa s economic makeover and events/article/afdb powering a climate smart and greener continent 11815/ E3G Third Generation Environmentalism 18

19 Renewable Energy Based Electricity Generation for Isolated Mini-Grids Zambia. This project is being executed by The United Nations Industrial Development Organisation (UNIDO) and funded by the Global Environmental Facility (GEF). This initiative looks to promote renewable energy based electricity generation for isolated minigrids in Zambia by proving technical and economical viability in remote non grid connected areas in the north of Zambia. The project includes the installation of: 1MW biomass gasification power plant for electricity generation at the Kaputa region. 1MW small hydropower station at Shimunenga linking with productive uses and local production. A solar energy mini grid to introduce solar lighting to support fishing and other productive activities at night. In addition, this project includes contributions to a legal, institutional and policy framework that provides a favourable environment for further expansion of commercial deployment of renewable energy based mini grids in rural areas of Zambia. E3G Third Generation Environmentalism 19

20 Renewable Energy Based Electricity Generation for Isolated Mini-Grids Zambia. Main Financing Instruments Financing Entity Financing instrument Financed amount GEF Grant USD 2.95 million Public private partnership: Government of Zambia, National Electricity Utility of Zambia ZESCO/Private investors, UNIDO, UNEP. Trust Fund Agreement with ZESCO through the Development Bank of Zambia (DBZ). Co financing Co funding USD million USD 3.55million Lessons learned A strong focus has been given to the replicability of the project and the financial viability for local owners. Local ownership is being ensured with the communities, individual consumers, the public utility and investors actively contribute to the programme. As partners during the project implementation the UNIDO International Centre on Small Hydropower (ICSHP) has emphasized the positive impacts of south south cooperation. E3G Third Generation Environmentalism 20

21 Mapembasi Small Hydro Project Tanzania Inspired Evolution Investment Management (IEIM) through its Evolution One Fund has in 2011 committed to provide $350,000 of seed financing for development of the 10 MW Mapembasi small hydro project by the Tanzanian Njombe Resource Development Company. This plant will provide electrical power to about 22,000 people (5000 households), 159 small and medium enterprises and 12 rural institutions in five (5) villages in Igominyi Division. The surplus electricity will be fed to the TANESCO national utility main grid under a Standardized Power Purchase Agreement (SPPA). In addition CDM credits for energy fed into the national grid only will be obtained. The total number of carbon credits to be generated by the project are now estimated at 33,600 CERs annually. energy.org/example_projects.html Events/Mapembasi%20Hydro%20Power%20Project.pdf wv4uagewwyqpva8xzwlr E3G Third Generation Environmentalism 21

22 Mapembasi Small Hydro Project Tanzania Main Financing Instruments Financing Entity Financing instrument Financed amount IEIM + SCAF Seed Financed Development Loan soft quasi equity investment, interest free and convertible to equity at financial close. $350,000 + $70,000 IEIM equity $3.5 million Mapembasi Hydro Power Company Ltd debt financing $19 million Lessons learned (on going project) Currently one of the biggest issues affronted by RE projects like this in Tanzania is that TANESCO is insolvent and has trouble paying invoices. This is threatening existing projects and those in the pipeline. Early this year was reported that a late payment guarantee mechanism is being considered in the context of Tanzania s Scaling Up Renewable Energy (SREP) program in order to tackle this challenge. E3G Third Generation Environmentalism 22

23 Kouga Wind Farm South Africa With a potential of up to 300MW of installed capacity, the fist phase of the Kouga Wind Farm is on track to go operational in the final quarter of 2014 and will generate 80MW of clean and renewable power. The wind farm is being developed by the Red Cap Kouga Wind Development Company, a partnership between Red Cap Investments, Afri Coast Engineers SA, Eurocape Renewables, Inspired Evolution Investment Management and Standard Bank. The project will contribute to the sustainable development of South Africa as it will foster and stimulate the expansion of renewable energy technologies. Furthermore, by demonstrating the viability of larger grid connected wind farms, the project will strengthen and diversify the national energy supply.. minister opens wind farm at oyster bay/ energy.org/example_projects.html E3G Third Generation Environmentalism 23

24 Kouga Wind Farm South Africa Main Financing Instruments For additional funding to make it economically feasible and sustainable the project is seeking registration under the Clean Development Mechanism (CDM). Lessons learned Financing Entity Financing instrument Financed amount IEIM & SCAF Standard Bank, Nedbank Cooperating Fund Agreement Debt providers USD 20 millions USD 192 millions (estimated) A defining feature of the Red Cap Kouga Wind Farm project is the Red Cap Kouga Community Development Trust, which holds a 26% shareholding in the project company courtesy of an Industrial Development Corporation loan. The trust will derive income off the sale of electricity and this will be used to uplift the local community. nd_farm/ E3G Third Generation 24 Environmentalism

25 Sangomar Ice Fabrics and Fisheries Senegal Sangomar Ice Fabrics and Fisheries (SIFF) aims to address the ice supply problem that currently affront the ice manufacturing sector and fishing sector due to frequent power blackouts. SIFF is integrating the use of renewable energy into the ice manufacturing processes. Currently, the factory uses 25 KWc solar power system and a 10Kw wind turbine, along with twenty-four batteries and six hybrid inverter/chargers. The renewable energy power system is coupled with an 80KH diesel power generator. The SIFF factory does not use any electricity from the power grid, and is the first ice factory in Senegal to use renewable energy sources. The company s goal is to manufacture ice for both the fishing industry and other food preservation activities using only clean energy sources.ice factory uses a solar PV system and a wind turbine as a to diesel-powered E3G Third Generation Environmentalism 25

26 Sangomar Ice Fabrics and Fisheries Senegal Main Financing Instruments Financing Entity Financing instrument Financed amount Loan Interest rate: 11% US$ 155,555 AREED Loan US$ 38,888 In addition the company benefits from an import tax waiver and was exempted from paying VAT for the first 3 years of operation. Lessons learned Thanks to SIFF s use of renewable energy the company has signed a distribution contract with Senegal s largest fish processor and exporter, Elim-Peche and many fishermen would like to use it as their primary ice supplier. During the project it was noticed that the regulation in Senegal is lacking on clarity regarding which markets and technologies are, in fact, exempted from various taxes. E3G Third Generation Environmentalism 26

27 PRESENTATION OUTLINE 1. Planning for transition 2. Finance Instruments 3. Case Studies 4. Reflections

28 Thoughts on more effective use of finance instruments 1. Enabling frameworks including financial regulation & sector practices that support sustainable investment (e.g. Nigeria, South Africa) 2. Develop capacity in Ministries of Finance, Planning, Energy and Environmental Affairs to focus on resource strategy & mobilisation plus 3. Engage in ongoing & inclusive stakeholder dialogues on resource constraints & needs especially financing institutions, public finance ministries, development agencies etc to ensure demand driven resourcing strategy 4. Evaluate ongoing basis whether existing mechanisms effective & remedy E3G Third Generation Environmentalism 28

29 Suggested role of Parliament to create conditions for steady transition Iterative and dynamic cycle leading to implementation Unique circumstances in each country would determine the appropriate vantage/ entry point Shifting from plan to implementation requires multiple interventions working together Non linear/ no standard formula depends on circumstances at country level Use evidence and develop suitable responses for effective transition 29

30 Thank you Contact details Chantal Naidoo Senior Associate, E3G

31 Illustrative example of programmes and matched resources

32 Climate finance in support of SA Renewable Energy Sector Development Early market development agency arrangements with national development banks for demonstration and pilot projects Key driving force towards IPP implementation was deep collaboration between Dept of Energy and National Treasury (PPP Unit) despite single power utility challenges Domestic project manager to support national gov t DBSA (National development bank) facilitated the enabling environment work streams regulatory, legal, technical and provided upfront funding commitments Extensive stakeholder engagements technical, procurement, tariff structure, legal docs including domestic banks & industry associations Localisation policies enabled large and small IPP programmes to ensure inclusive green growth Development partners from several countries provided strong technical & financial support different support mechanisms: access to experts, full time consultants, funding for technical support, funding lines for private and national banks Resource mobilisation Long term vision to ensure ability to absorb future investment & create market liquidity for current investors e.g. specialist funds for renewable energy Installed: MW IPP process: Bid per kwh Potential: Gwh Current R/E bids : MW Source: SA Dept of Energy, 2012 Early difficulties is a great mirror for future effectiveness 32

33 Illustrative example: Creating investment plans linked with national goals Source: DBSA, 2011 Key principles: Alignment & coherency E3G Third Generation Environmentalism 33

34 Illustrative example: Comprehensive programme focusing on sector development (helps to identify what resources needed) Programme Vision: Powering development through sustainable energy for all Grants, National budgets, International climate finance sources, Carbon market assistance programmes Loans, equity, gov t guarantees, REFiT, PPPs 34