Public Finance and Private Investment
Eric Usher, Manager
Seed Capital Programmes, Energy Branch
United Nations Environment Programme
GLOBAL INVESTMENT IN RENEWABLE ENERGY:
DEVELOPED VS. DEVELOPING, 2004 – 11($BN)
168
139
109
96
93
Global Trends
in Renewable
Energy
Investment
2012
89
81
71
58
45
65
39
31
25
16
8
2004
2005
2006
2007
Developed
2008
2009
2010
2011
Developing
Note: New investment volume adjusts for re-invested equity. Total values include estimates for undisclosed
deals. Developed volumes are based on OECD countries excluding Mexico, Chile, and Turkey.
Source: BNEF, UNEP
GLOBAL NEW INVESTMENT IN RENEWABLE ENERGY BY
REGION, 2004 - 2011 ($BN)
Europe
101.0
92.3
67.1 67.9
57.8
United States
China
37.4
52.2
27.7
50.8
44.5
18.6
37.4
37.7
32.5
27.2 28.5
2004 2005 2006 2007 2008 2009 2010 2011
22.5
7.4
24.3
14.9
11.2
10.0
Middle East & Africa
2004 2005 2006 2007 2008 2009 2010 2011
2.2
5.4
2004 2005 2006 2007 2008 2009 2010 2011
Global Trends
AMER (excl. US &
in Renewable
Brazil)
Energy
Investment
2012
ASOC (excl. China &
India)
India
Brazil
0.3
0.4
1.6
1.9
3.7
3.1
6.7
5.5
2004 2005 2006 2007 2008 2009 2010 2011
18.4
11.0
1.3
3.3
3.3
4.7
5.4
6.4
7.0
7.2
8.0
8.0
21.1
10.1 11.0 12.1
12.3
2004 2005 2006 2007 2008 2009 2010 2011
9.3
0.4
1.9
4.3
12.7
7.3
6.9
7.5
2.0
2.9
4.7
5.6
4.7
4.2
7.6
2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
Note: New investment volume adjusts for re-invested equity. Total values include estimates for
undisclosed deals. This comparison does not include small-scale projects.
Source: BNEF, UNEP
2004 2005 2006 2007 2008 2009 2010 2011
Performance of Public Stocks
RE POWER GENERATION AND CAPACITY AS A PROPORTION
OF GLOBAL POWER, 2004 - 2011 (%)
50%
50%
43.7%
43.7%
40%
40%
30%
30%
Global Trends
in Renewable
Energy
Investment
2012
20%
20%
10%
10%
0%
0%
34.2%
34.2%
30.7%
30.7%
25.9%
25.9%
15.0%
15.0%
13.8%
13.8%
10.3%
10.3%
4.3%
3.6%
4.3%
3.6%
3.5%
3.5%
2004
2004
4.6%
4.6%
4.6%
4.6%
3.5%
3.5%
2005
2005
5.3%
5.0%
5.3%
5.0%
3.6%
3.6%
2006
2006
16.3%
16.3%
7.9%
7.9%
5.4%
5.4%
3.8%
3.8%
2007
2007
17.3%
17.3%
6.1%
6.1%
4.0%
4.0%
2008
2008
26.2%
26.2%
23.9%
23.9%
18.3%
18.3%
6.9%
6.9%
4.5%
4.5%
2009
2009
7.9%
7.9%
9.2%
9.2%
6.0%
6.0%
5.1%
5.1%
2010
2010
2011
2011
In terms of new
power plants
built in 2011, the
share of
renewables is
much higher,
with 44% of new
plant capacity
and 31% of the
actual power
generation
increase.
As of 2011, 9% of
global installed
power capacity
was from
renewables, not
including large
hydro.
Renewable power capacity change as a % of global power capacity change (net)
Renewable power capacity change as a % of global power capacity change (net)
Renewable power generation change as a % of global power generation change (net)
Renewable power generation change as a % of global power generation change (net)
Renewable power as a % of global power capacity
Renewable power as a % of global power capacity
Renewable power as a % of global power generation
Renewable power as a % of global power generation
Note: Renewable power excludes large hydro. Renewable capacity figures based on
Bloomberg New Energy Finance global totals.
Source: Bloomberg New Energy Finance,
EIA, IEA, UNEP
Three Reasons Renewables Are Ready for Uptake Today in Developing Countries
1. GOVERNMENTS GETTING SERIOUS
IPCC Special Report on Renewable Energy Sources
Three Reasons Renewables Are Ready for Uptake Today in Developing Countries
2. SUCCESSES TO LEARN FROM
Land Area Under Cane in Mauritius and Electricity Output from Sugar Industry
Today sugar accounts
for 51% of Mauritius
electricity generation
Source: AFREPREN
Indian Solar Mission Auction Prices
29/11/2011
Source: Re-Emerging World
Source: Bloomberg New Energy Finance
Three Reasons Renewables Are Ready for Uptake Today in Developing Countries
3. COST COMPETITIVENESS
Generating Costs - Levelised cost of electricity (Q1 2012, $cents/kWh)
Sugar Cogeneration in Mauritius
Solar PV in Europe
Marine - Wave
Land Area Under Cane
in Mauritius
Marine
- Tidal and Electricity Output from Sugar Industry
STEG - Parabolic Trough
STEG - LFR
STEG - Parabolic Trough + Storage
STEG - Tower & Heliostat
Wind - Offshore
STEG - Tower & Heliostat w/storage
Plant Size
PV - c-Si
90MW
PV - Thin Film
Biomass - Gasification
PV - Plant
c-Si Size
Tracking
Biomass - Anaerobic
1MW -Digestion
5MW
Today sugar accounts
Biomass - Incineration
for 51% of Mauritius
Municipal Solid Waste
electricity generation
Geothermal - Binary Plant
Wind - Onshore
Small Hydro
Large Hydro
Hydro
Large
Geothermal - Flash Plant
Source: AFREPREN
Costs
Landfill Gas
Nuclear
Coal Fired
Diesel
Natural Gas CCGT
0
LCOE
10
Carbon Price
in Africa
20
Q1 2012 Average
30
Source: Bloomberg New Energy Finance
40
Q4 2011 Average
50
Private Hurdles – Public Responses
Large scale
THREE HURDLES
MANY RESPONSES
1. Immature project
pipeline
Public/private support for project development.
-> Seed Capital Assistance Facility
2. Non-investment grade
Policy support
Performance payments / Credit enhancements
Risk mitigation approaches
policies
- off-takers
- legal jurisdictions
-
Public/private equity funds
Public/private lending
Risk mitigation approaches
Small scale
3. Limited access to
capital
Policy support
Engaging local banks
Removing subsidy distortions
-> Prosol Tunisian solar water heating programme
4
www.scaf-energy.org
6
Where are the financiers along the project cycle ?
Why is it hard to get capital into this space ?
Catalysing Early
Stage Investment
•
Early Stage
Financing Gap
Sponsor / Developer
(30-40+%)
Financial Close
Funding Source (and Indicative
Return Requirements)
•
Capital Markets
‘First mover’ low carbon
projects
have
(generally
driven by P/E
and other
comparables rather than return)
higher development costs.
Carbon Finance
(20-25+%)
In addition to costs, development cycles
are typically 2 – 3 times longer.
Debt Finance (Project Finance)
(Indicatively, e.g., 7-8% in US$; 11-13% in INR)
 Different risk/return paradigm is a
mismatch
Mezzanine
Capital with conventional developers.
(12-15%, somewhere between debt and equity return)
 More of a VC risk profile than
Private Equity & Infrastructure Funds
infrastructure development finance.
(18-25+%)
Corporate & Compliance Investors
(15-20%)
Early-stage
Mid-stage
Development
Late-stage
Financing
Construction
Commissioning
Operation
Project Development Lifecycle
Source: UNEP, Aequero
Development/Transaction Costs
4
CONCEPT
SCAF Cooperating Fund Agreement (CFA)
www.scaf-energy.org
7
FUNDS
Asia
Contracted Fund Managers
Africa
PE Funds
VC/PE Hybrid Funds
www.scaf-energy.org
9
PROJECTS
SL1
Asia
Name,
Country
Tech.
Size
Stage
Kouga
South Africa
Wind
80
Financial
closing
Mapembasi
Tanzania
Small
hydro
10
Financial
closing
Kinangop
Kenya
Wind
50
Financial
closing
Akiira Kenya
Geo.
35
Baringo Kenya
Biomass
DSI Rwanda
Name, Country
Tech.
(MW)
Size
Stage
(MW)
Wind
48
Financial
closing
Philippines
Small hydro
25
Financial
closing
Philippines
Biomass
30
Feasibility
Feasibility
Philippines
Small hydro
24
Feasibility
12
Feasibility
India
Small hydro
13
Feasibility
PV
20
Feasibility
India
Small hydro
48
Feasibility
Lubilia
Uganda
Small
hydro
5.4
Feasibility
India
Wind farm
230
Feasibility
SITI I/II
Uganda
Small
hydro
22
Feasibility
KVTC
Tanzania
Biomass
4
Prefeasibility
www.scaf-energy.org
SL2
Philippines
SL1
SL2
Africa
11
PROJECTS
Example Seed Financed Projects
Name,
Country
Tech.
Size
Stage
Kouga
South Africa
Wind
80
Financial
closing
Mapembasi
Tanzania
Small
hydro
10
Financial
closing
Financing
Co-finance Ratio;
Leverage Ratio
CO2
Seed Financed Development Loan
R20mn
dev.;investment,
R380mn equity; R800mn debt
-Total:
soft quasi
equity
Fund:
R10mn
dev.
(20%SCAF);
R90mn equity
interest free and convertible to
equity at financial close
4x co-finance
50x fund; 600x total
6.1
Total: $720K dev.; $8mn equity; $19mn debt
Fund: $350K dev.(20%SCAF); $3.5mn equity
4x co-finance
55x fund; 400x total
0.6
(MW)
* Figures in italics are still to be realised
www.scaf-energy.org
(MT)
$70K of SCAF Support For:
- EIA and technical verification studies.
- covers max 50% of any activity
10
Tunisian PROSOL Solar Water Heating Programme
1. Mechanism to facilitate consumers access to credit
 repayments made through electricity bills
 interest rates initially softened
 interest subsidy phased out after 18 months
BANK FINANCING through UTILITY BILL
A loan mechanism over a 5-year term with repayment via the STEG bill
2. Subsidy equalized between SWH and LPG
Monthly payment
Energy savings
Discounted
Interest=Rates:
 20% subsidy on SWH capital cost to enhance
Initial average bank consumer loans: 12 – 13%
competiveness
of SWH vis
vis the existing
gas
SWH
Size
200aliters
300 liters
subsidy
(underwritten
for
period rates
by Italy)
End-user
down
payment banks lowered
0%a trial
With STEG’s
involvement,
the interest15%
by 5-6 points
because
the
risk of nonpayment
is20%
lowpermanent:
(less than 1%,
Prosol I)
Govt
subsidy
20%
 After
successful
trial made
legislation
Loan
(Attijari Bank)
65%SWH in
mandating
a 20% capital 80%
cost subsidy for
UNEP
further softened
residential
sectorinterest rates down to 0%, full benefit passed on
to the customer.
PROSOL Results
SWH Market Growth in Tunisia (m2 installed)
90000
PROSOL II
80000
70000
PROSOL I
435,350 m2
=
145,100 systems
60000
50000
other projects
40000
30000
112 million USD
worth of local bank
loans
20000
10000
0
1985-96
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Financial and Economic Analysis
Investments – Who pays for what
• investment in the overall Program during 2005-2011
has been estimated at approximately US$ 248
million
• The Public Sector provided
18%;
• 82% was provided by Private
Capital (end-users and
banks)
45%
1 US$ of public
resources
37%
Mobilized
18%
5 US$ of private
capital
Financial and Economic Analysis
Benefits for the Tunisian Government
• 101 million US$ expected savings achievable in 20 years (2005-2025), of
which 15.2 million US$ were achieved in the period 2005-2010.
Public finance returns under the BAU scenario and fossil fuel “phasing out” scenario
Financial and Economic Analysis
Benefits for the Tunisian Government
• 251,000 toe of fuel savings are expected over 20 years
• CO2 emission reductions of 715,000 tCO2 over 20 years
• Second phase of PROSOL Residential registered as a Programmatic
CDM with revenues reinvested to sustain the Programme itself.
GSWH Mexico
GSWH Chile
Lessons
1. Policies are what mobilise sector wide investment.
•
•
Public finance should be closely linked to policy
developments.
Policy-finance signals travel in both directions. Need to
optimise feedback loops.
2. Public finance mechanisms can only fill gaps, mostly by
rebalancing the risk-return profile of projects. But…
•
•
•
When to engage ?
How to align risks ?
What size of projects to focus on ?
3. Public finance programmes can start small, but if linked to
policy improvements can realise impacts at scale.
Thank You!
[email protected]