Barriers and Gaps to Mobilising Investment in Low Carbon Energy Technology

Transcription

1 Barriers and Gaps to Mobilising Investment in Low Carbon Energy Technology Eric Usher, Manager Seed Capital Programmes, Energy Branch United Nations Environment Programme IEA Workshop on Forging Intl Finance Collaboration Stockholm, June 21, 2012

2 UNFCCC Technology Mechanism (TM) Technology Mechanism Technology Executive Committee (TEC) Policy and strategy arm Advisory Board of CTCN Climate Technology Centre and Network (CTCN) Operational arm

3 Establishment of the CTCN COP17 (Durban) in 2011: guidelines to select the host of the CTC 16 January 2012: call for proposals for host of CTC 16 March-April 2012: evaluation of proposals SBI 36 (Bonn) in May 2012: UNEP consortium ranked first Next steps UNFCCC Secretariat in discussion with UNEP on host agreement COP 18 (Doha): agreement on CTC host and CTCN advisory board

4 CTCN responses to NDE requests Country driven technology transfer process

5 Transfer Technology Development, Manufacture & Deployment Processes A. Technology Development Research & Development Tech. Dev. Proof of Concept Tech. Dev. Pilot Plant Continuous R & D Developed Countries Technology Frontier Developing Countries Transfer B. Supply Chain Development Initial Manufacture & Component Sourcing Manufacture Scale-up Maturity, Econ. of Scale C. Project Development Activity Adoption: Initial Commercial Plants Deployment / Diffusion Scale-up 5 Source: UNEP, AEQUERO

6 Financial Actors and the Gaps Valley of Death financing gap Venture Capital Corporate Investor / M&A R&D Grants Innovator / Entrepreneur Angel Capital Private Equity Public Markets A. Technology Development Research & Development Tech. Dev. Proof of Concept Tech. Dev. Pilot Plant Continuous R & D Pre-profit financing gap Venture Capital Public Markets Corporate Investor / M&A Angel Capital Private Equity Entrepreneur B. Supply Chain Development Initial Manufacture & Component Sourcing Manufactur e Scale-up Maturity, Econ. of Scale 6 Source: UNEP, AEQUERO

7 Establish Feasibility Financial Close Project Capital Cost Project Development and Allocation of Project Capital Spend Early Stage Project Development Activity Approx. 1% of Total Project Cost Late Stage Project Development Activity Approx. 4% of Total Project Cost Construction Finance Approx. 95% of Total Project Cost Risk Catalysing Early Stage Investment Early-stage Mid-stage Late-stage Development Financing Construction Commissioning Operation Project Development Lifecycle Source: Aequero, UNEP 3

8 Funding Source (and Indicative Return Requirements) Financial Close Where are the financiers along the project cycle? Why is it hard to get capital into this space? Sponsor / Developer (30-40+%) Early Stage Financing Gap Carbon Finance (20-25+%) Debt Finance (Project Finance) (Indicatively, e.g., 7-8% in US$; 11-13% in INR) Mezzanine Capital (12-15%, somewhere between debt and equity return) Private Equity & Infrastructure Funds (18-25+%) Capital Markets (generally driven by P/E and other comparables rather than return) First mover low carbon projects have higher development costs. In addition to costs, development cycles are typically 2 3 times longer. Different risk/return paradigm is a mismatch with conventional developers. More of a VC risk profile than infrastructure development finance. Catalysing Early Stage Investment Corporate & Compliance Investors (15-20%) Early-stage Mid-stage Late-stage Development Financing Construction Commissioning Operation Project Development Lifecycle Source: UNEP, Aequero Development/Transaction Costs 4

9 Non-Investment Approaches Financial Close Investment Approaches Lesson 1 Grant and Non-Grant Approaches are Needed to Address All Gaps Challenging to Address Early Stage Financing Gap with Only Non-Grant Approaches Gap - Early Stage Financing Gaps - Equity, Long-Term Debt & Risk Mitigation Loan Facilities Through Funds / Credit Lines Guarantee Products Direct Private Equity Investments VC, PE & Infrastructure Funds ~ $3.9 billion / year Philanthropic / Publicly-backed Social Venture Funds (e.g., Acumen) Catalysing Early Stage Investment Coaching, Mentoring & Advisory (e.g., CTI PFAN) Transaction Cost Sharing (e.g., ACAD, CDM Loan Scheme) Seed Capital Incentives (e.g., SCAF) Publicly-backed DevCos (e.g., InfraCo, SN Power) ~ $18 million / year Early Development Mid Development Late Development / Financing Construction & Operation Project Development Lifecycle Source: UNEP, Aequero Early-stage Public Non-Investment Interventions Early-stage Public Investment Interventions Late-stage Public Interventions 13

10 6

11 CONCEPT SCAF Cooperating Fund Agreement (CFA) 7

12 PE Funds Asia FUNDS Contracted Fund Managers Africa VC/PE Hybrid Funds 9

13 Armstrong Asset Management Investment Strategy Asia Fund Focus

14 SL1 SL1 SL2 SL2 PROJECTS Africa Asia Name, Country Tech. Size (MW) Stage Name, Country Tech. Size (MW) Stage Kouga South Africa Wind 80 Financial closing Philippines Wind 48 Financial closing Mapembasi Tanzania Kinangop Kenya Small hydro 10 Financial closing Wind 50 Financial closing Philippines Small hydro 25 Financial closing Philippines Biomass 30 Feasibility Akiira Kenya Geo. 35 Feasibility Philippines Small hydro 24 Feasibility Baringo Kenya Biomass 12 Feasibility India Small hydro 13 Feasibility DSI Rwanda 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 11

15 PROJECTS Example Seed Financed Projects Name, Country Tech. Size (MW) Stage Financing Co-finance Ratio; Leverage Ratio CO2 (MT) Kouga South Africa Mapembasi Tanzania Wind 80 Financial closing Small hydro 10 Financial closing Seed Financed Development Loan - Total: soft quasi R20mn equity dev.; investment, R380mn equity; R800mn debt Fund: interest R10mn free dev. and convertible (20%SCAF); to R90mn equity equity at financial close Total: $720K dev.; $8mn equity; $19mn debt Fund: $350K dev.(20%scaf); $3.5mn equity 4x co-finance 50x fund; 600x total 4x co-finance 55x fund; 400x total * Figures in italics are still to be realised $70K of SCAF Support For: - EIA and technical verification studies. - covers max 50% of any activity 10

16 Thank You!