ADB Innovative Financing Instruments for Clean Energy

Transcription

1 ADB Innovative Financing Instruments for Clean Energy Samuel Tumiwa Senior Energy Sector Specialist Regional and Small Hydro Summit Dehradun, Uttanranchal October 2006 ADB s Mission To help our developing member countries (DMCs) reduce poverty and improve their living conditions and quality of life. ADB s Core Business Finance and advice for development solutions 1

2 Regional Character Asia and Pacific is our only focus Concern for small economies Emphasis on regional and subregional cooperation Active role in developing domestic bond markets Current Energy Path (1) Focuses on expanding fossil fuel supplies Neither environmentally nor economically sustainable Chart: IEA World Energy Outlook

3 Current Energy Path (2) Energy use in Asia- Pacific increasing to support economic growth Energy investments (mostly for electricity) largest in Asia-Pacific through 2030 Chart: IEA World Energy Outlook 2005 Energy use in Asia Pacific (1) Consumption rose 183% from 1973 to 2004 (vs 66% worldwide) 30% of world consumption by 2030 Growth driven by manufacturing and rural-to-urban migration trends Chart: IEA,

4 Energy use in Asia Pacific (2) Fossil fueldominated supply mix: 41% coal, 25% oil, and 7% natural gas GHG share: 8.7% in 1973, 24.4% in 2003 and 30.4% by 2030 Chart: IEA World Energy Outlook 2004 Energy use in Asia Pacific (3) Relatively low end-use efficiencies Relatively low per capita energy consumption must increase to improve quality of life Limited access to energy services $4.5 trillion in energy investments needed by DMCs in Chart: IEA World Energy Outlook

5 Highest level in past 160,000 years Year 2100 ADB works towards a low-carbon future Slow down the growth of GHG emissions, then stop and reverse them Needed: a shift from an economy dominated by fossil fuels to a lowcarbon and sustainable energy future Energy efficiency (EE) and renewable energy (RE) investments needed in diverse market segments Chart: Intergovernmental Panel on Climate Change, 2001 Promoting EE and RE Lower GHG emissions Improved local air quality Reduced upward pressure of international fuel prices Diversified primary energy sources for energy security 5

6 ADB s Response: Clean Energy and Environment Program REACH Steering Committee Directors Energy & Infrastructure Divisions, OCO, PSD Working Group ADB Staff with expertise on REACH EEI Steering Committee DGs RDs, PSD, OGC Working Group ADB Staff w/ expertise on energy efficiency CMI Design Team ADB staff with technical, financial and legal expertise on clean energy & the carbon market Knowledge Hubs Tsinghua University, PRC Asian Institute of Technology, THA The Energy Research Institute, IND Energy Efficiency in Transport ADB taking lead for G8 IFI Investment Framework Energy for All ADB staff with expertise on modern forms of clean energy With support from the Dutch Government *Canadian, Danish, Dutch (including PREGA) & Finnish Channel Financing Facilities Clean Energy Program ADB Clean Energy Loans: Past and Future Year No. of Loans Amount (in US$ million) , Includes 4 renewable energy and 7 energy efficiency projects. 2 Includes 11 renewable energy and 7 energy efficiency projects. 12 6

7 Energy Efficiency Initiative An ADB Initiative in support of Clean Energy & Environment 13 ADB s Energy Efficiency Initiative (EEI) ADB launched EEI in July 2005 Expand EE operations to $1 billion/yr Focus on both supply-side and demand-side EE (including RE) 7

8 EEI Implementation ( ) EEI Phase I Inception (Jul Jun 2006) EEI Phase II - Formulation (Jun 2006-Dec 2007) EEI Phase III - Implementation ( ) Mainstreaming EE in ADB Operations Phase I Initiation (Jul 2005 Jun 2006) Phase II Formulation (Jun 2005 Dec 2007) Phase III Implementation ( ) Establish rationale for expanded ADB action in EE Provide priorities and framework for next steps Prepare country-level investment/action plans and project pipeline Design and establish the Asia Pacific Fund for Energy Efficiency (APFEE) Develop institutional capacity to scale up EE investments and perform EE monitoring & evaluation Pursue immediate EE investment opportunities Execute investment and action plan Process projects in pipeline Commit APFEE fund 8

9 Design of the Asia Pacific Fund for Energy Efficiency Clean energy has been a component of ADB s operations ADB s EE and RE programs have been small traditional financing has not been responsive APFEE proposed to provide mechanism with flexibility to respond to needs of smaller EE and RE projects Special fund to lower barriers and risks, add incentives for moving towards low-carbon path APFEE s 3 Facilities Credit Enhancement (CEF) - 50% of Fund Technology Deployment (TDF) - 35% of Fund Technical Assistance (TAF) - 15% of Fund 9

10 Credit Enhancement ADB Donors APFEE APFEE Fund Management Unit Credit Enhancement Technology Deployment Technical Assistance Technical Assistance Credit Guarantee Level 1 LFI LFI Demonstration Demonstration TA Cap Bldg Policies, etc TA Cap Bldg Policies, etc Credit Guarantee Level 2 Proj SFI SFI Proj SFI SFI Project Loans Project Loans Proj Proj Proj Proj Proj Proj Proj Proj Credit Enhancement (1) Targets numerous, small-sized, widely distributed EE and RE projects in ADB DMCs Implemented in partnership with local financial institutions that have closer ongoing relationships with energy users Provides a partial credit guarantee (PCG) for EE project borrowings, including loans to ESCOs Provided in conjunction with other types of ADB support for EE and RE projects Risk managed on ADB s understanding of EE and RE technologies and impacts Standard templates to lower transaction costs and reduce credit risk 10

11 Credit Enhancement (2) PCG provided through 1-2 lead financial institutions (LFIs) in participating DMC LFIs will handle marketing, identifying, selecting and monitoring EE and RE projects based on ADB-set criteria If LFIs do not directly utilize PCGs for EE and RE investments, they can pass on PCGs to secondary financial institutions (SFIs) SFI strength better knowledge of the companies, their management, and project implementation capacities Credit Enhancement (3) CEF would: Mobilize local sources of financing for EE and RE projects Open access to funds for potential EE and RE projects, irrespective of size Finance EE and RE investments throughout the DMC markets 11

12 Credit Enhancement (4) Targeted projects for CEF include: Supply-side Smaller grid-connected and off-grid renewable energy Transport - alternative fuels Demand-side Industrial EE, including process efficiency Building end-use (commercial, governmental, residential) Municipal infrastructure (streetlighting, water, waste and sewage treatment, and pumping) Irrigation efficient pumps, foot valves, pipe sizing Project financing for ESCOs Transport new technologies, mass transit EE Standards & Labeling equipment, lighting & domestic appliances Technology Deployment ADB Donors APFEE APFEE Fund Management Unit Credit Enhancement Technology Deployment Technical Assistance Technical Assistance Credit Guarantee Level 1 LFI LFI Demonstration Demonstration TA Cap Bldg Policies, etc TA Cap Bldg Policies, etc Credit Guarantee Level 2 Proj SFI SFI Proj SFI SFI Project Loans Project Loans Proj Proj Proj Proj Proj Proj Proj Proj 12

13 Technology Deployment (1) Stages of Technology Development R&D Demonstration Deployment Competitive Source: IEA Energy Technology Perspectives 2006 Targets small number of high-impact large interventions that will deploy new EE technologies IEA identifies the crucial need for large deployment programs to bridge between EE and RE technology R&D and commercialization Technology Deployment (2) TDF to lower cost of capital and make EE and RE projects financially viable through either: extending grants for interest buydowns parallel cofinancing through ODA grants modified lending terms 13

14 Technology Deployment (3) Targeted projects for TDF include: Supply-side New power generation technologies such as clean coal Larger grid-connected RE such as wind farms EE and RE equipment production Demand-side Larger industrial EE, including process efficiency, in energy intensive industries such as cement, fertilizer, iron and steel Start-up financing for ESCOs Technical Assistance ADB Donors APFEE APFEE Fund Management Unit Credit Enhancement Technology Deployment Technical Assistance Technical Assistance Credit Guarantee Level 1 LFI LFI Demonstration Demonstration TA Cap Bldg Policies, etc TA Cap Bldg Policies, etc Credit Guarantee Level 2 Proj SFI SFI Proj SFI SFI Project Loans Project Loans Proj Proj Proj Proj Proj Proj Proj Proj 14

15 Technical Assistance Provide assistance for non-lending measures, such as: policies, regulations, standards institutional capacity building project preparation Build capacity in LFIs and SFIs providing PCGs on EE and RE project borrowings Develop monitoring and evaluation (M&E) mechanisms for EE and RE projects in order to compensate for the swifter upfront project appraisal procedures Carbon Market Initiative An ADB Initiative in support of Clean Energy & Environment 30 15

16 Context Climate Change - Kyoto Protocol, G8, Energy Security Carbon market: an emerging opportunity Kyoto-deficit countries vs. supply constraints Project financing gap in developing countries ADB portfolio: provides finance & support services Partnership between carbon investors, sellers and ADB Carbon Market Initiative (CMI) Carbon Market Status Severe Supply Constraint Number of Kyoto Protocol signatories well behind in terms of their GHG reduction commitment targets Shortage of good projects with carbon credits content Financing Gap Projects with carbon credits require upfront finance Procurement funds are main carbon credit players but only offer pay-on-delivery contracts Such funds do not share project risks latter remain entirely with project sponsors Projects heavily skewed towards countries/sectors favorable to foreign direct investment 16

17 $50-400/ton-CO 2 e abatement cost CDM Concept $0.5-20/ ton-co 2 e abatement cost Industrialized Country (Annex B) Carbon Credits (=GHG Emission rights) Developing Country (non-annex B) Entity A GHG Emissions Entity B Project Activity Emission Reduction Finance Technology (Capacity Building) CDM Reality Industrialized Country (Annex B) Developing Country (non-annex B) Carbon Credits Entity A GHG Emissions Entity B Project Activity Emission Reduction Payment 17

18 Consultation with Developing Countries Need underlying finance ADB long-term finance Desire highest prices/best conditions for CERs Dedicated credit marketing service Prefer upfront payment for future credits (willing to discount price based on inflation and risk) Upfront procurement vehicle Require CDM implementation support Comprehensive CDM technical support team Carbon Market Initiative: 3 Components Credit Marketing Service Input Output Residual CERs Investor A Technical Support Projects with Carbon Content $ CERs Carbon Fund CERs CERs $ CERs Investor B Investor C ADB Financing & Services * CERs = Certified Emission Reductions 18

19 Component 1: Asia Pacific Carbon Fund Co-finances projects alongside ADB Can secure 25-50% of future carbon credits Credits secured at discount prices Access to ADB s project pipeline Fills a critical project financing gap Component 2: Credit Marketing Service Assists with sale of credits not purchased by Fund Provides financial incentives for project completion Buyers will bid for credits offered Competitive process to achieve best prices & terms Fund investors can also participate as buyers 19

20 Component 3: CDM Technical Support Upstream support in project preparation phase Due diligence: technical, financial, legal, safeguards, governance Capacity development and policy reform Carbon credit valuation Documentation preparation for credits (PIN, PDD, methodology) Obtaining Host Country approvals Facilitating project Validation (DOE) & Registration (CDM EB) For More Information Web site: 20