Investing in climate-smart business: IFC’s experience in Europe & Central Asia

Patrick Avato Lead, IFC Climate Business Europe & Central Asia Istanbul, 23 November 2012

Agenda

 IFC in Context  Climate Smart Business in IFC  Case Study: Renewable Energy in the Balkans

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IFC in context: who we are

We bring global experience… … with a local presence • • • • • •

IFC is the private sector lending arm of the World Bank Group

IFC is the world’s largest private sector IFI investing in developing countries Commitments in FY2012 of approximately US$15.5 billion + $4.9 billion mobilized FY12 Advisory program of $197m Offers a full range of products from advisory to equity, mezzanine to debt S&P / Moody’s AAA rating

IFC FY2012 Highlights

Portfolio Committed (FY12) Mobilized (FY12) # of Companies # of Countries $56.4 billion $15.5 billion $4.9 billion 1,825 102 •Established in 2010, IFC’s Istanbul Operations Centre covers

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countries in EMENA (Europe, Middle East and North Africa) region

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How does IFC define climate business?

IFC Climate business targets: 20% of IFC’s long-term finance and 10% of trade finance by FY15

Solutions for climate mitigation / adaptation and sustainable development ENERGY: Low carbon generation, energy efficiency, storage, smart grids, sustainable energy access TRANSPORTATION: efficient components, fuels and logistics Energy WATER: Capture, treatment, conservation, wastewater treatment, access AIR & ENVIRONMENT: Carbon credits, trading and offsets BUILDINGS: Low carbon strategy, energy efficiency, sustainable materials. MANUFACTURING: Green chemicals, RE/EE supply chain, cleaner production. AGRICULTURE & FORESTRY: strategies, biomass.

Land mgmt, low carbon and adaptation RECYCLING & WASTE: Recycling and waste treatment services

Pioneer investments in early market movers…



Commercial Finance (Equity, Debt and Mezzanine)

• Renewable energy generation and supply chains • Resource efficiency (Energy, Waste, Water) • Credit lines and guarantees for Financial Institutions to lend for RE & EE • Climate Change Private Equity Funds • Cleantech growth capital • Carbon Finance 

Blended Concessional Finance

• Concessional funds for investment and advisory services 

Convening industry players for research / standard setting

…and opening up new markets for Climate Smart Investments

Technical and economic potential for Energy Efficiency & Renewable Energy is huge, but commercial opportunities are often constrained by market barriers

Market Barriers

     Deficiencies in policy and

regulatory framework Limited experience and high

risk perception in the market High development costs for first projects in a country Difficult access to finance, e.g. limited project finance, banks not familiar with the sector, etc.

Project developers lack experience and appropriate balance sheets

IFC Advisory Solutions

    Policy advice: e.g. feed-in tariffs, permits, PPAs, housing efficiency regulations Awareness and skills for firms: e.g. cleaner production audits, capacity building for project developers & banks

Transaction support to demonstrate

new business models, e.g. PPPs for concessions in renewable energy generation/access, energy distribution, solid waste, water

Best practices, industry benchmarks and lessons learned 6

commercial finance

Recent Investment in Efficiency and Clean Supply Chains

Turkey: Trakya Cam glass producer (energy efficiency and solar )

$55m loan

Russia: Borets (energy efficient motors/pumps)

$33m loan

(*) China: Suntech (solar cells)

$50m convertible debt Ghana:

Ashesi University (“green building” incl. biogas use)

$0.2m loan

(*)

Philippines:

Sunpower (solar cells)

$75m loan Mexico:

Optima Energia (hotel ESCO)

US$10m loan

Note (*) financing for climate friendly project; was part of a larger total IFC investment

Tanzania:

Green Resources (biomass/plantation)

$18m loan India:

VicatSagar (cement)

$9m loan

(*) Apollo Tires III (low rolling resistance tires and waste heat recovery)

$30m loan

Jain Irrigation (micro/drip irrigation systems)

$60 million loans/equity 7

Wind

Recent Renewable Energy Investments

Romania Wind Hydropower Georgia Mexico

Eurus $75,000,000 Sub Debt and Debt

Lead Lender of US$375m financing

Cernavoda Wind $60,800,000 Loan Project Financing

Lender

Paravani $52,000,000 Lender

Geothermal Nicaragua Hydro Panama

Electron Investment

Pando Montelirio $40,000,000 Loan Project Financing

Lender

San Jacinto $50,300,000 Loan Project Financing

Lender

Solar Senegal Biomass India

Office National d’Electriciie $750,000 Equity Shalivahana $14,930,000 Equity

Solar Wind Chile

Norvind $30,750,000 Loan Project Financing

Lead Lender of US$60.75m financing

Thailand

Solar Power Company US$2,700,000 Equity

commercial finance

Hydro China

Zhongda Hydro US$23,200,000 Loan Project Financing

Lender

Geothermal Philippines

Energy Dev II US$75,000,000 Loan Project Financing

Lender

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advisory services

IFC Advisory: Opening up new markets for climate smart investment

Russia & Ukraine: Resource eficiency:

Focus on Resource Efficiency in heavy industry, SMEs and Efficient Housing

Renewables

: Support to regional govts on RE legislation & firm-level support for early movers

Balkans: PPPs:

for HPP, Solid Waste & Power Distribution

HPP, Wind, Biomass

regulatory support and capacity building for banks

Mexico: Toluca & Tlalnepantla Hospitals

: Green/EE hospitals buildings with LEED Silver certificate equivalent (Dec /2010*)

Peru: Electrolima

: Sale of electricity generation and Lima distribution system (includes technical losses reduction) (1994/1995*)

Turkey:

GeoFund program supports geothermal power sector

Philippines: Olongapo Power

: Private sector participation in electricity distribution including technical losses reduction goals (Aug/2010*)

Saudi Arabia

: Medina Airport: Green/EE airport terminal building

Liberia

:

LEC

: Management contract for electricity distribution in Monrovia including technical losses reduction goals (April/2010) *

Kenya

:

KMIP

: PPP for various Green/EE special economic zone at Athi River

India:

Solar based power generation through PPP in Gujarat.

Maldives: Solid Waste Management

: SWM concession including waste-to energy power plant (June/2011* )

Male Airport

: Green/EE airport terminal building with LEED Silver certificate equivalent (June/2010* )

9 Solomon Islands:

Tina River 14 MW hydro-power to substitute diesel generation

Case Study: Opening up Western Balkans for RE investment

Opportunity

• • • High cost of electricity, expensive energy imports Significant small-hydro, biomass and wind potential, export potential to EU Interest by government, banks and industry to develop the RE sector

IFC approach

• Comprehensive program in Albania, Bosnia, Kosovo, Macedonia, Montenegro and Serbia:

1.

Regulatory reform: support governments with developing feed-in tariffs,

2.

streamline licensing and standardizing contracts (e.g. PPA, wheeling etc.) Access to Finance: provide long-term financing & risk-sharing to banks for RE credit lines, coupled with technical support on project assessment &

3.

direct investment in individual projects Capacity building: Support project developers with technical advice and access to international partners & finance early mover projects

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Annex

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•Equity

IFC products

• • • • Corporate JV (early equity investments, Infraventures) Typically up to 20% shareholding Long-term investor, typically 6-8 year holding period •Mezzanine /

Subordinated Debt

• • Any number of structures/flavors of subordination Subordinated loans, income participating loans, convertible loans •Senior Debt • • • • • Senior Debt (corporate finance, project finance) Fixed/floating rates, USD, EUR and local currencies available Long maturities: 8-20 years, appropriate grace periods Range of security packages suited to project/country Mobilization of funds from other lenders and investors

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IFC exposure guidelines

• IFC’s investment size on its own account is set by the following criteria:  Greenfield with total cost >= $50 million  Up to 25% of project cost  Greenfield with total cost < $50 million  Up to 35% of project cost  Expansion or rehabilitation  Up to 50% of project cost • IFC can deliver the following complements to its own debt investment  “B loans” – Syndicated loans where IFC is lender of record, typically with funds provided by international commercial bank.

 Parallel loans – IFC can mobilize parallel lenders, typically DFI or local lender • IFC is able to work alongside co-lenders as part of lender group • IFC’s equity investment typically cannot exceed 20% of total share capital

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Cumulative experience of 7.7 GW of RE investments

• Hydro:  Long standing experience, with well over 4,500 MW of HPP investments, across more than 40 projects in all regions.

• Wind:  IFC’s first investment in 2008, with over 1,500 MW since then in over 15 projects; approximately 40% in SEE.

• Solar:  More than 10 PV investments over the last 3 years, totaling 165 MW.

 A pipeline of CSP projects, and further PV investments in development • Geothermal:  A difficult but promising sector in which IFC has made investments totally over 1,300 MW, in Guatemala, Nicaragua, and Philippines.

• Biomass  275 MW of investments, from Brazil to China

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Case Study: Financing HPPs in Armenia 1. Supporting RE and EE financing through local banks

Ameriabank CJSC: AS from ASEF + IFC $15 million

for

small hydropower plant (SHPP) financing



Results:

11 SHPPs financed; installed capacity of 33.2 MW; annual generation of 101.8 GWh; GHG reduction 40,720 tCO2e/year

HSBC Armenia CJSC: AS from ASEF + IFC $15 million

for

SME EE financing



Results:

6 projects in pipeline for $13.05 million; 6.5 GWh/year savings, GHG reduction of ~2,500 tCO2e/year Byblos Bank Armenia CJSC: AS from ASEF + IFC $5 million for

Residential EE financing



Results:

bank has launched a broad marketing campaign and started to provide loans

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