Results Based Financing : Private Sector experiences in Latam

GDF SUEZ ENERGY LATIN AMERICA Philipp Hauser – VP Carbon Markets [email protected]

Tel: +552139745443

The uneven challenge to limit Climate Change to 2˚C

WHAT DO WE NEED TO BRIDGE THE GAP?

Source: IEA 2011 World Energy Outlook.

    Non-OECD countries as they account for 90% of population and energy demand growth and require huge investments in capacity and mitigation; Energy causes 66% of global GHGs & non-OECD account for 100% of growth; The 450 (ppm) scenario requires additional investments of $11.6 trillion; GHG intensive thermal expansion is still the baseline and leads to a technological look in which is capable to close the door to 450 ppm. 2

Market barriers and solutions

According to Economic Theory each market failure requires a specific instrument.

Quantify external cost and benefits Pricing external costs & benefits Inefficient Capital Markets Sound MRV for GHG emissions and emission reductions ensure global comparability CDM & NMM are globally coherent steps to build an international carbon market.

Development Banks & Green Climate Fund can bridge financial barriers. Lack of enabling environment NAMA policies with international support need to improve clean investment environment Lack of access to technology and organizational knowledge CTCN and bilateral organizations are is available to support host countries on request

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Build on and combine existing & emerging policies

Value GHG Reduction

 Carbon Market Instruments (CMIs) identify “least cost options” and assure profitability

CDM → ET MRV

 CDM offers well established principles for MRV & bottom up baseline setting  Unparalelled DOE and PD capability is (still) available

MRV MDBs & GCF Provide Funding in Least and Less DC’s

 MDBs & GCF finance clean growth & attract Private Sector  CDM adds credibility & assures profitability

NAMA Domestic Efforts in



advanced DCs

Advanced DC’s & private sector finance NAMA investments  National policies allow sector wide programs & activities 4

Brazil’s National Policy for Climate Change

Dec. 2009: Brazilian communication about voluntary National Appropriate Mitigation Activities (NAMA’s) to the UNFCCC:

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Voluntary reduction of GHG emissions by 36.1 to 38.9% vs 2020 BAU.

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For the energy sector this translates into (CO 2 e p.a. by 2020):

  

Expansion of Hydropower Complementary Renewables Energy Efficiency: 79 – 99 Mt 26 – 33 Mt 12 – 15 Mt National Policy for Climate Change defined by Law Nº 12.187, on 29 Dec. 2009 defines complementary GHG mitigation policy instruments:

   

i) Preferential loan financing, ii) Tax and fee exemptions, iii) Preferential granting of concessions and energy contracting Iv) Use of the CDM As a consequence of these policies the fossil fuel based expansion of generation capacity could be reversed by contracting 27 GW of new renewable generation capacity (17 GW HPP; 7GW Wind; 3GW Biomass).

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Case Study of Results Based Financing The Jirau HPP:

Project of public interest 1 , developed as PPP with domestic development finance (NAMA) Mitsui (20%) Chesf (20%) Located at Ilha do Padre on the Madeira River, municipality of Porto Velho, Rondônia state Run of River plant off 3.750 MW allows to supply electricity to 10 million households Construction period Q4 2008 – 2016 with COD of 1 st turbine in Q4 2013

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Largest renewable energy project registered with the CDM, in recognition of Brazil’s NAMAs

1 Resolution CNPE Nº 1 6

GDF Suez (40%) Eletrosul (20%)

GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013

Barriers for capital intensive investments:

THE EXAMPLE OF HYDR0POWER DEVELOPMENTS

Barriers :

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high capital demand

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lack of access to financing

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long construction time

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risk of delays and cost overruns

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high interests during construction Proposed Solution

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Reduced interest rates

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Long loan tenor & 5 year grace period during construction

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Higher revenues during financing period to enhance bankability

World Bank Discussion Paper No. 420, “

Financing of Private Hydropower Projects

”, July 2000: GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013

The Jirau The Brazilian approach as a model

The Brazilian Development Bank designed special support conditions to promote the Jirau project:

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5 year grace period with capitalizing interests to finance construction

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Loan Payback period of 20 years

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Reduced interest rate

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CER sales revenues considered as bankable income leverage private sector investment

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Conclusions

If we want transformational change we need to ensure global cooperation to address all market failures at once.

Problem:



Capital Intensity and long term maturity of clean infrastructure is the biggest barrier to green growth.

Results required:

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Ensure preventive mitigation now to avoid huge cost in the future.

Accept measurement against BAU or against political commitments.

Allow comprehensive solutions:

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Ensure that financing, carbon pricing, MRV and national policies interact to overcome barriers and achieve measureable results.

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Establish reliable carbon market regulation which allows to undertake transformational investments

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