Financing Renewable Energy in Developing Countries Presentation to the ABA By Judy Siegel, President, Energy & Security Group April 19, 2006
Presentation Overview Focus is on renewable energy financing in the developing world Sources Addressed: q National Governments q Multilateral Funding Sources q International &Domestic Financing Institutions q Bilateral Agencies q Foundations q Conclusions
National Governments Several developing country governments, especially among emerging market economies, have instituted large scale RE programs Examples include: q China targeting 10% of energy supply from RE by 2010, not counting large hydro q India targeting 10% of power supply from RE by 2012 q Brazil has major RE program for electricity: 3,300 MW from wind, biomass, & hydro; and leading bioenergy program q Other countries such as Mexico, Thailand, Malaysia, Philippines, Morocco, Croatia, Egypt, Jordan, South Africa, Tunisia have programs underway/in planning
World Bank Group International Bank for Reconstruction and Development (IBRD) International Development Association (IDA) International Finance Corporation (IFC) Multilateral Investment Guarantee Agency (MIGA) Works with governments in middle income and creditworthy poorer countries Provides loans, guarantees, analytic, and advisory services Works with governments in 81 poorest countries providing highly concessional financing Provides interest-free credits and grants Works with the private sector Invests in private enterprises in developing countries Provides long term loans, guarantees, and risk management and advisory services Provides political risk insurance against noncommercial risks to eligible foreign investors and commercial banks for qualified investments in member countries
Other World Bank-Related Activities in Renewable Energy Energy Sector Management Assistance Program (ESMAP) Asia Sustainable and Alternative Energy Program (ASTAE) Global technical assistance program and knowledge partnership Sponsored by bilateral donors, UNF, UNDP Managed by World Bank Established in 1992 by World Bank and bilateral donors Provides upstream Economic and Sector Work Provides assistance in RE project identification, preparation, and supervision
Carbon Finance Clean Development Mechanism (CDM) & emerging carbon market offer potentially new revenue stream for RE In 10/05, RE accounted for 60% of projects, 20% of total carbon reductions in CDM pipeline CDM projects/credits can be organized at gov t level; & subject to gov t approval, at private enterprise level Large multinationals may choose to organize their own CDM projects Much of carbon investment expected to flow thru carbon funds World Bank Carbon Finance business manages the largest most carbon funds National carbon funds are emerging as are a number of 100% private funds EU Emissions Trading Scheme could be added source of carbon investment
Global Environment Facility GEF established in 1991, to help developing countries fund projects/programs that protect the global environment GEF grants support projects related to biodiversity, climate change, international waters, land degradation, the ozone layer, and persistent organic pollutants Works through implementing agencies: The World Bank, UN Development Program (UNDP), UN Environment Program (UNEP) Considers RE a no-regrets climate change mitigation solution To date, has invested $1billion in RE; plans are to invest at least $100 million per year on RE in future lending program
Inter-American Development Bank: Project Portfolio and Pipeline with direct relation to RE/EE Loan: Small Hidropower US$ 10 Mio (IIC) Loan : Rural Electrification US$ 74 Mio TC: Exploration Geothermal Res. US$ 350.000 / GEF TC: Rural Electrification US$ 110.000 / DFID TC: Market f. Clean Rur.Energy Services US$ 750.000 / Jap Loan : Electric Sector Investment US$: 46 Mio. TC: Wind Power Corn Island US$ 150.000 / CH TC: Wind Power in isolated Systems US$ 300.000 / BID Loan: Small Hidropower US$ 10 Mio (IIC) TC: Sustainable Energy efficiency services US$ 750.000 / Jap TC: Energy Masterplan US$ 149.000 / USA TC:: Support to Rural Electrification Program US$ 100.000 / BID Loan : Rural Electrification US$ 20 Mio Loan: Energy Efficiency II US$ 50 Mio TC: Feasibility Study Ethanol US$ 146.000 / USA Loan : Rural Electrification, US$ 35 Mio. Loan: Small Hidropower US$ 10 Mio (IIC) TC: Feasibility Geothermal US$ 150.000 / USA TC: Rural Electrification US$ 400.000 / JAP MEXIKO GUATEMALA Loan: Small Hidropower US$ 8,5 Mio (IIC) HONDURAS El SALVADOR NICARAGUA COSTA RICA Panama ECUADOR COLUMBIA PERU CHILE Venezuela BOLIVIEN PARAGUAY Argentina Guyana BRASILIEN Uruguay Regional Initiatives (LAC) TC: Energy Sector and Sustainable Development US$ 150.000 / BID TC: Renewable Energy and GHG Mitigation US$ 110.000 / NL TC: Renewable Energy and Energy Efficiency in LAC US$ 1.200.000 / D Regional Initiatives ( Centralamerica ) TC: CAREC Central American Renewable Energy and Cleaner Production Facility US$ 5.500.000 / MIF TC: Expanding Pipeline of energy related carbon credit Projects under PPP (Plan Puebla Panama) US$ 500.000 / Spain Loan: Rural Electrification/CEMAT US$ 114 Mio. Loan: Rural Electrification Minas G. US$ 10 Mio. TC: Business Model for RE Delivery US$ 2.250.000 / MIF TC: Renewable Energy Markets US$ 900.000 / Jap TC: National Board of Energy US$ 148.000 / USA TC: Small Hidropower Pipeline US$ 120.000 / USA TC: Amazonas renewable Energy US$ 90.000 / EEC Loan : Power Transmission and Distribution US$ 80 Mio. Implementation Approved Loan: Rural Electrification US$ 40 Mio Pipeline
Asian Development Bank Asia/Pacific represent 25% of world s energy supply, up from 13% 10 years ago, primarily fossil fuels (not sustainable) ADB is a major lender for infrastructure/environmental development in Asia Previously lent to Governments, but increasing focus on private sector; provides loans and TA support ADB is accelerating focus on RE/EE (or clean energy) q q q q q Conducts country-level activities, sector reform, regional programs In July 2005, created the Clean Energy Initiative to develop a strategy for annual investments of $1 billion/year over next 5 years Mobilized donor funds to support capacity building, institutional development, & project development to grow RE/EE investment In 2006 will review Energy Policy to make clean energy a priority Recently appointed Special Advisor to President on clean energy
ADB Clean Energy Lending: A Snapshot ADB Clean Energy Loans: Past and Future Year No. of Loans Amount (in US$ million) 2000-2005 11 717.40 1 2006-2008 18 1,992.50 2 1 Includes 4 renewable energy and 7 energy efficiency projects. 2 Includes 11 renewable energy and 7 energy efficiency projects.
United Nations Approximately 20 UN agencies have programs supporting renewable energy Activities include: q Technical assistance and training q Institutional development q Capacity building q Policy development q Power sector reform q Energy access and poverty reduction
UN Member Agencies with Renewable Energy Activities Economic Commission for Africa (ECA) Economic Commission for Europe (ECE) Economic Commission for Latin America and the Caribbean (ECLAC) Economic and Social Commission for Asia and the Pacific (ESCAP) Economic and Social Commission for Western Asia (ESCWA) The Food and Agriculture Organisation (FAO) The International Atomic Energy Agency (IAEA) United Nations Human Settlements Programme (HABITAT) United Nations Conference on Trade and Development (UNCTAD) United Nations Development Programme (UNDP) United Nations Educational, Scientific and Cultural Organisation (UNESCO) United Nations Environment Programme (UNEP) United Nations Framework Convention on Climate Change (UNFCCC) United Nations Industrial Development Organisation (UNID) United Nations International Research and Training Institute for the Advancement of Women (INSTRAW) World Health Organisation (WHO) World Meteorological Organisation (WMO) The World Bank Group (WBG) Department of Economic and Social Affairs (DESA) Green: More Active Programs in RE
International & Local Financial Institutions Some international and many domestic financial institutions have been supporting RE in developing countries Several existing and emerging risk-mitigation facilities/instruments aimed at increasing their participation International FIs: q Fortis, Rabobank, Australia and New Zealand Banking Group, AIG offer large scale RE finance in emerging markets, primarily Asia q Triodos Bank investing in RE companies in Africa/Asia Domestic FIs: q More active in financing RE in developing countries, often operating multilateral or bilateral credit lines q Examples include IREDA, Yes Bank, Canara, Syndicate Bank in India; China Development Bank; Development Bank of Philippines; Thai TMP Bank; CABEI in Central America Much more work needed to engage International and Domestic FIs
Bilateral Development Agencies Export Credit Agencies have not been particularly active in LDCs should change; in 4/05 agreed to extend payment terms for RE to 15 years KfW (Germany) one of the most active development banks financing RE q Committed over 470 million euros, 2000-2004 q Set up special facility for RE/EE that will make available 500 million euros in 2005-9 for up to 50 investment projects (low interest loans) q GTZ, development agency also active: providing TA, in-kind support USAID promotes clean energy access (technology neutral) but supports RE projects in a number of developing countries worldwide Other bilaterals active in RE in LDCs are: Australia, Canada, Denmark, French, Germany, UK, Netherlands, Norway, Sweden The EU is a major supporter of RE in developing countries q About $115 million annually over period 1997-2001 q In process of creating a 250 million euro facility to finance RE/EE q Setting up Global RE Fund of Funds (GREFF) to support several investor-financed funds; target capitalization of 75 million euros
Foundations Some Foundations supporting RE in Developing Countries Blue Moon Foundation Energy Foundation Rockefeller Brothers Shell Foundation UN Foundation
Financing RE Projects-More than Investment Policy Issues Financial Issues Institutional Issues Policy bias toward fossil fuels Artificially low end-user prices by utilities Inappropriate/absent regulatory framework Deregulation of energy sector Lack of policies for supply to rural areas Lack of bankable projects Need for early-stage project preparation Limited access to equity Higher project preparation/transaction costs Grant mentality of donors/countries Need for local banker lending for RE/risk mitigation Credit for low-income consumers; patient capital Lack of capacity to develop, implement, operate RE projects Energy links to other sectors
Conclusions Funding is available, but with conditions Tap into local capital markets Design regulations that encourage foreign investment Strengthen legal system to permit enforcement of contracts Be patient and persistent