DANISH CLIMATE INVESTMENT FUND. Torben Huss, Executive Vice President, IFU

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1 DANISH CLIMATE INVESTMENT FUND Torben Huss, Executive Vice President, IFU

2 WHAT IS IFU? Independent government-owned fund, operating on commercial terms Advice and risk capital for globalisation of 800 Danish companies investments in 88 developing countries 46 of years experience Total contracted investments of more than bn DKK invested in share capital and loans bn DKK PAGE Danish Climate Investment Fund

3 A DANISH CLIMATE INITIATIVE Public Private Partnership Operates on commercial terms Provides risk capital for climate investments and climate-related projects Investment with a Danish interest PAGE 3

4 PARTNERS Pædagogernes Pensionskasse (PBU) manages pensions for more than 110,000 kindergarten and nursery teachers. The annual pension payments total DKK 2.5bn, and the total capital is DKK 50bn. PensionDanmark manages collective agreement and company labour market pension funds for 12 unions and 37 employers associations with a total of 642,000 members. The company s capital is DKK 150bn. PKA manages pensions for five pension funds, primarily within the health sector. PKA has invested approx. DKK 13bn in climaterelated projects, including commitments. PKA has 260,000 members and capital of DKK 200bn. Dansk Vækstkapital makes investments on commercial terms in small cap, mid cap and venture funds focusing on small and medium-sized enterprises. The fund was established in 2011 with a total capital of DKK 4.8bn. PAGE 4

5 CHALLENGES INVESTMENTS Private investors do not like investments with: Country risk Political risk Upheavals, conflicts, inefficient or corrupt legal system, etc. Subsidies, competition from dominant state owned enterprises, etc. Unclear timing of cash flows When is cash paid in? When/how is investment repaid? Low returns PAGE 5

6 CHALLENGES INVESTMENT MANAGERS Private investors do not like investment managers who are: Controlled by the government Not investing their own money ( no skin in the game ) IFU s board and CEO is appointed by the Danish government Will the team work hard enough if they have no skin in the game? Not aligned with the incentives of the investors Does the government have the same success criteria for the investments as the private investors, does IFU? PAGE 6

7 SOLUTIONS Challenges investments Country risk Solution Insurance schemes (e.g. MIGA) Political risk Broad geographical scope of fund more choice of countries Unclear timing of cash flows Low returns Private equity type closed-end fund structure Preferred return for private investors Challenges investment manager Controlled by the government No skin in the game Alignment of incentives Solution Independent investment committee IFU track record in climate projects (12% p.a.) + IFU investment in fund Independent investment committee and preferred return PAGE 7

8 DANISH CLIMATE INVESTMENT FUND (1/4) Terms and conditions 160 million in committed capital (expected total investments: 1.4bn) Broad geography Private equity fund structure 90 million Danish pension funds 37 million Danish State 33 million IFU All DAC countries Limited partnership with a 10 year lifespan Preferred return Losses shared equally Up to 6% p.a. private investors Above 6% p.a. state receives more than the private investors Independent investment committee 3 highly experienced and reputable independent members and 2 private investor representatives PAGE 8

9 DANISH CLIMATE INVESTMENT FUND (2/4) Broad definition of climate investment Mitigation: Effectively reducing greenhouse gas emissions Adaptation: At least 50% of the project cost to reduce the consequences of climate change Wind, solar, water, biomass, geothermal Suppliers to renewables Energy efficiency Alternative energy (landfill gas) Materials/equipment (insulation) Transport Water management Agriculture Disaster preparedness Coastal management Insurance schemes Climate change information Consulting services PAGE 9

10 DANISH CLIMATE INVESTMENT FUND (3/4) Reporting to the public CO 2 (or other greenhouse gas) reduction estimated against base case at the time of investment decision Environmental, social and governance impact Development impact Reporting during the lifetime of the fund Independent third party evaluation of sample reporting PAGE 10

11 DANISH CLIMATE INVESTMENT FUND (4/4) Investment strategy highlights Renewable energy projects only in countries where fossil fuel is not significantly subsidised Renewable energy business case must be sound without subsidies for renewables and carbon credits Building in-house developer capability local developers lack skill or are too highly priced Avoid passive or extortionate local ownership stakes, all shareholders must put capital at risk and provide value to the project PAGE 11

12 CASE: DONG ENERGY NEW BIO SOLUTIONS, CHINA KEY FACTS Activity Country Status IFU s share participation Expected total investment Ownership 2G bioethanol China Signed DKK 13m DKK 26m 50% Provides energy efficient refinery technology for the production of 2G bioethanol. The company will develop and establish joint venture projects with large Chinese players. Option to invest in the project developed alongside Dong Energy New Bio Solutions. Exit strategy: Put the shares to Dong Energy New Bio Solutions at a fixed price of 4% p.a. to 11% p.a. depending on number of investment approved by KIF. PAGE 12

13 CASE: MALE WATER AND SEWERAGE COMPANY (MWSC) SOLAR, MALDIVES KEY FACTS Activity Country Status IFU s share participation Expected total investment Ownwership Solar based electricity Maldives Review DKK 25m DKK 55m 45% Up to 8 MW roof top PV solar plant. MWSC is a desalination plant producing and delivering all drinking water to the capital of Male. MWSC wishes to supplement and party replace the diesel-based energy production by solar energy generated by rooftop PV solar plants developed and owned by NPP on the roofs of MWSC s production, warehouse and administration buildings. NPP and MWSC will enter into a 25-years PPA. The Danish hardware content in a solar project can include up to 46% of the equipment package depending on the final equipment configuration. PAGE 13

14 CASE: NORDIC POWER PARTNERS, AN IN-HOUSE DEVELOPER KEY FACTS Activity Country Status IFU s share participation Expected total investment Ownwership Solar and wind projects DAC Developing Countries Signed DKK 10m DKK 19m 53% 60/40 JV between European Energy and IFU. Developer of wind and solar projects as there is a strong need for qualified developers in emerging markets and very good commercial opportunities. NPP investors will be offered to invest in NPP projects. European Energy and IFU provides staff resources to find and develop projects in addition to the capital invested. NPP has a pipeline of 13 projects. PAGE 14

15 TIME FOR QUESTIONS PAGE 15