EU Regional Blending Facilities and Private Sector Investments

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1 EU Regional Blending Facilities and Private Sector Investments Innovative Development Finance Workshop Margareta McConnell 8 May 2015

2 EU Regional Blending Facilities 2

3 Potential Sources of Private Finance Potential Source of Private Finance Example Commercial Financiers Local Banks and International Banks Factoring and Leasing Companies Incentive Limited risk profile Companies (Project Developers) International Companies Local Companies Financial Investors Institutional Investors Investment Banks Private Equity Investors Impact Investors Insurance / Reinsurance Market Social Investors NGOs Impact Investors Patient Capitalists Philanthropists Individual Investors Supporting local activities Supply (export) of goods and services Local interests Diversifying investments in developing countries Additional return Open up new markets Active vs. Passive Investors Official Export Credit Insurers (ECAs) Invest based on risk profile and probability ECA focus on CC Social and/or development goals with acceptable return 3

4 Current Status of Private Financing 1,600 1,200 EU grants to blending projects in million Financing mix for projects with private financing EU grants 6% other grants 2% partner country 1% % DFI loans 61% private/ market finance 30% projects with private engagement purely public projects 4

5 Private Sector Leverage Untapped potential for blending to catalyze private financing Private financing is key for developing countries to transform their economies away from a dependence on grant money Energy projects are currently the strong forerunner for private investment - primarily PPPs or financing schemes for energy efficiency investments To date primarily public sector partners, although there is a marked trend towards increase private sector financing Potential Sources of Private Finance Type of Project Finance EU grants DFI loans Private/Market Finance Developers Local SME/households Financial investors Dev. & comm. finance Commercial finance Total

6 Africa Energy Guarantee Fund (AEGF) Region Sector Scope Grant Amount Total Project Cost PFG Leader African Continent Energy Technical Assistance EUR 1 million EUR 600 million EIB Objective is to provide proper risk mitigation and credit enhancement solutions to facilitate private sector involvement in the African energy sector Risks: regulatory uncertainties, weak off-takers, weak business environments ITF grant used to finance a feasibility study (Phase 1) Phase 2: Implementation of AEGF Phase 3 Financing Operational Costs during start-up and ramp-up period 6

7 Africa Sustainable Energy Facility Region Sector Scope Grant Amount Total Project Cost PFG Leader Eastern Africa Energy Risk-sharing, Guarantee and Technical Assistance EUR 3 million EUR 50 million EIB Aims to increase investments in RE and EE in Sub-Saharan Africa Financing Facility and Facility Support Unit, which will provide business development and advisory services Includes a South-South technology exchange between private sector players 7

8 Barriers to Private Investment Blending Partners Private Financiers Cross- Cutting Regulation Framework Lack of Efficient Structures Lack of Knowledge Lack of Knowledge Lack of Information to Assess Opportunities Mandates Investment Strategies Availability of Alternatives Enabling Environment Institutional Project and PPP Management Capacity Correct Allocation of Risks in PPPs Long-Term Local Private Sector Capacity Crowding / Keeping Out Private Finance 8

9 Opportunities for the EU BFs 1. Eligible DFIs engage more actively with the private sector 2. Strengthen the involvement of European and Multilateral DFIs 3. Launch a call of proposals to attract investors 4. Investigate the potential role of ECAs and insurance market 5. Dialogue on private finance for development 6. Assess optimal level of control in financial instruments 7. Improve reporting on private sector results and leverage 9

10 Key Conclusions Potential to increase private investment through the EU BFs The Blending Facilities provide a well-developed tool with a global reach Coordination of EU and development banks enable large-scale projects interesting in terms of Climate Change impact as well as private sector mobilisation Cooperation to structure a financial instrument that can be used by a broader set of investors (on-going) 10

11 Fields of Business Support scheme and programme management International Climate Protection Austrian JI/CDM Programme Climate Austria - Voluntary Carbon Offsetting Climate Finance International National and International Consulting for the Environment & Energy segment Management of the Environmental and Water Management Fund (UWF) Total assets 2014: EUR 1.9 billion 11

12 National and International Consulting Examples of international consulting projects EU Study on blending mechanisms for infrastructure financing and on publicprivate collaboration in the context of EU development cooperation EU Support to municipalities in Armenia, Georgia, Moldova, Ukraine and Belarus for implementing energy efficient projects EBRD Support in the implementation of an EBRD Credit Line for the energy efficient renovation of residential buildings in Russia (RuSEFF Residential) GIZ Support to municipalities in Moldova for improving municipal service provision OECD Study on the identification of climate change adaptation measures for the water sector in Moldova IFC Support in the set-up of a Homeowners Association Resource Center in a city in Ukraine EIB Support in the implementation of the EIB Credit Line Green Initiative in Slovakia and the Czech Republic ADA Policy advice for and support of water and wastewater projects within the framework of the Austrian Development Cooperation in South Eastern and Eastern Europe Examples of national consulting projects BMLFUW* Modified cost-effectiveness analysis for contaminated site rehabilitation BMLFUW* Technical support for technology transfer expert group (EGTECH) BMLFUW* Study of Industrial Waste Heat potential in Austria Verbund AG Study of market potential for small-scale CHP plants Technical, economic and financial consulting according to ISO 9001:2008 Quality Management Standard * Federal Ministry of Agriculture, Forestry, Environment and Water Management 12

13 Our Clients and Partners 13

14 Kommunalkredit Public Consulting GmbH (KPC) Türkenstraße 9, 1092 Wien Tel Fax

15 Facility for Performance Based Climate Finance Region Sector Scope Grant Amount Total Project Cost Consortium Latin America Environment Investment Grant & Technical Assistance EUR 10 million EUR 60 million KfW, CAF 15

16 Global Energy Efficiency and Renewable Energy Fund (GEEREF) Region Sector Scope Size Manager Emerging Markets Energy Equity ( fund-of-funds ) EUR 112 million EIB Aims to mobilise private investments in smallscale energy efficiency and renewable energy projects Invest into relevant regional funds (6 funds to date) Proven slow due to the lack of track record, risk of underlying assets (equity), and narrow focus 16