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Biogas in South Africa - IDC Finance for Biogas

Biogas in South Africa - IDC Finance for Biogas



#2 of the series of presentations delivered at "Biogas in South Africa Seminar", November 2012, Midrand, South Africa

#2 of the series of presentations delivered at "Biogas in South Africa Seminar", November 2012, Midrand, South Africa



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    Biogas in South Africa - IDC Finance for Biogas Biogas in South Africa - IDC Finance for Biogas Presentation Transcript

    • Biogas SA 2012Organised by BiogasSA Day Month YearFunding for BiogasTowards a green future ...Raoul GoosenGreen Industry SBUIndustrial Development Corporation1 6 Nov 2012
    • There‘s a lot of energy in organic waste 1 ton of biogenic waste = 30‘000 hours of light Äquivalent 1 ton of biogenic waste = 100 Liter petrol-equivalent = 1‘000 km CO2-neutral car drive
    • Biogas in Germany
    • Need incentives to compete with Eskom paid off assets• SA has started to evolve• Waste costs• Eskom price increases• Heating & transport oil prices• Tax incentives – 50:30:20 depreciation – Section 12i EE tax double – Section 12L tax• Eskom IDM – standard at R 5.25 mil/MW – small renewables at ca R 10 mil/MW (1.20 c/kWh 6am-10pm week days)• CDM &/or TREC (Greeness)• DTI incentives
    • IDC Green Energy Efficiency Fund (GEEF) - Competitiveness through energy savings KfW IDC Concessional debt funding Develop Green Industries Technical assistance grant Capacity building in clean energy finance Green Energy Efficiency Fund Reduced interest loan -Prime less 2% Addresses market failure and funding barriers Long payment term (up to 15 years) Stimulate energy efficiency and renewable energy investment Technical assistance to: Promote long term business competitiveness -identify energy efficiency and renewable energy -Modernisation of Contribute to global climate opportunities businesses protection -calculate the economic -Increased company -Measurement of and financial benefits profitability energy savings and -support the selection of -Improved product quality carbon reduction eligible equipment and and production capacity -Enhanced company enhanced performance image due to technologies. -Lower vulnerability to increasing energy prices. contribution to reduction of carbon footprint.
    • Germany : RE Growth plan
    • The Industrial Development Corporationo Established: 1940 Ownership: South African Governmento Type of organisation: Development Finance Institution (DFI)o Total assets: R 112 billion (US$13 billion*) as at March 2012o Funding status: Self financing, pays dividends and income taxo Credit rating: Baa1 (Moody’s) in line with sovereign ratingo Main business area: Providing funding for entrepreneurs and projects that are contributing to industrialisation and job creationo Geographic activities: South Africa and the rest of Africao Products: Wide range of custom financial products to suit a project’s needs including debt, equity, guarantees or a mixture of theseo Stage of investment: Early stage (feasibility), commercialisation, expansiono Project development: Identification and development of projects adding to the industrial baseo Number of employees: 770 * At R6.90 per US$
    • Partnering for industrial developmentIDC Industrialists/ Entrepreneurs• 70 years of experience in industrial • Investment plans development • Projects under development• Appetite to take risk • Technology• Early stage investment • Operating/management expertise• Financial muscle• Targeted funding for specific interventions Long-term view on investments and a commitment for the development of the industry
    • Positioning of DFIs within the financial system Greater importance on social and developmental objectives Greater importance on financial objectives Government / NGOs DFIs (e.g. IDC) Commercial Financiers• Non-commercial focus • Commercial and development • High commercial focus• Fiscal transfers and grants focus • Private sector capital• Development objectives (social) • Sharing risk • Financial objectives • Internally generated funds, • Known risks government funds, loans DFIs should not compete with other institutions, but should instead encourage cooperation to achieve its goals
    • Introducing IDCVision, mission, objective and valuesVision To be “the primary driving force of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent” The IDC is self-financing national development finance institution whose primary objectives are to contributeMission to the generation of balanced, sustainable economic growth in Africa and to the economic empowerment of the South African population, thereby promoting the economic prosperity of all citizens. The IDC achieves this by promoting entrepreneurship through the building of competitive industries and enterprises based on sound business principles.Objective Support industrial capacity development • Facilitate sustainable direct and indirect employmentOutcomes • Regional equity (including development of the rest of Africa) • Growing the entrepreneur and SME sector • Expansionary and/or broad-based black economic empowerment • Environmentally sustainable growth • Grow sectoral diversity and increase localisationValues Passion Professionalism Partnership
    • Introducing IDC Historical perspective 1940s 1950s & 1960s 1970s & 1980s 1990s Early and mid 2000s Late 2000s & 2010s• World War 2 – Shortage • South Africa facing • Decentralisation policy • Change in government • Unemployment • Recession of industrial goods threat of isolation from by government • South Africa introduced • Diversification of • New Growth Path and• South African economy the rest of the world • Increasing isolation to a globalising world economy Industrial policy largely based on • Self sufficiency • Addressing the • Reducing inequalities • Mandate overlap of agricultural production • Balance of payments disparities created by • Infrastructure DFIs and gold mining apartheid constraints • Growing financial sector liquidity • Climate change• IDC established to • Securing energy • Import replacement • Moves to encourage • Job creation • Focus on NGP and provide financing for resources for South • More resource intensive regional integration • Developing rural areas IPAP2 industrial undertakings – Africa a priority industries established – • Black economic and other previously • Phasing out funding to at this stage only in the • Increasing natural mainly to bolster export empowerment underdeveloped regions service industries not manufacturing industry resource beneficiation earnings in non-gold • Export promotion • Downstream industries aligned to priorities • Petroleum sectors • Services related • Entrepreneurial • Job creation through• Food processing; • Fertilizers • Initiation of high-tech industries development development of key• Textiles • Wood processing industries • Investments elsewhere • Sector strategies sectors/value chains • Chemical beneficiation • Agriculture explored as in Africa • Expansionary and • Mining and minerals a foreign exchange • Tourism • Film broad-based BEE earner • ICT • Franchising • Funding to distressed • Industrial real estate • Healthcare companies Over its history, IDC has adapted to development • Financial services • Green-industries South Africa’s changing priorities and • Transport • Phasing out: • Resource beneficiation expanded into new industries as the • Construction – Franchising • Micro-electronics economy developed and policies • Industrial infrastructure – Financial services – Transport evolved – Construction
    • SA’s industrial policy: sector focus Industrial Policy Action Plan (IPAP) Focus sectors of IPAP considering their potential to contribute to growth, employment & equity: Green industries: Forestry, timber, paper & - Development of local wind pulp, furniture: and solar industry via - Accelerate forestry REPP procurement, incl. development and improve components manufacturing productivity of sawmills - Domestic production of - Improve competitiveness of solar water heaters. domestic & office furniture sector - Packaging, paper recycling etc.
    • SA’s New Growth Path: sector focus New Growth Path SA’s national strategy to enhance economic growth, development, employment creation and equity prioritises:Agriculture value Further Expand tourism ‘Green’ economy: Knowledge- Manufacturingchain development, exploitation of offer, including renewable intensive sectors prioritisedincluding mineral reserves, infrastructure energies, energy industries: ICT, by the Industrialsmallholder and more advanced and associated efficiency, cleaner mining related Policy Action Plancommercial downstream support energy, emissions technologies, (IPAP) , aimed atfarming, beneficiation industries and control, natural biotechnology, growing andaquaculture and (beyond refining services resource healthcare etc. diversifying SA’sagro-processing and smelting) management industrial base
    • IDC has aligned its sectoral focus areas with government’s prioritiesTarget investment 2012-2016 R11.2 billion (US$1.6 billion) Logistics Industrial Mining related infrastructure technologies Green and Bio fuels Healthcare energy saving industries Biotechnology ICT R26.7 billion (US$3.9 billion) R7.1 billion (US$1.0 billion) Agro- processing R5.9 billion (US$0.8 billion) Craft and film Business process Automotives, services Tourism Metals fabrication, components, medium capital and transport and heavy commercial equipment vehicles R8.5 billion (US$1.2 billion) Advanced Plastics and Clothing, textiles, manufacturing chemicals footwear, leather Mining Downstream mineral Forestry, paper & Pharmaceuti- beneficiation pulp, furniture cals Oil and gas R22.1 billion (US$3.2 billion) R20.6 billion (US$3.0 billion)
    • Highlights of FY 2011/12 Value of Funding Approvals• Record levels of funding activity: 16 Value of funding approvals 14 • 55% increase in the value of funding approved to 12 ZAR13.5 billion (USD1.6 billion) in FY 2011/12. Value (Rbn) 10 8 • Reaching more businesses, with a 33% increase in 6 the number of funding approvals to 293 funding 4 approvals in FY 2011/12. 2• Increasing impact on employment: 0 05/06 06/07 07/08 08/09 09/10 10/11 11/12 • 45 900 jobs expected to be created and saved in Impact on Jobs 55 South Africa compared to 39 400 in 2010/11. Direct impact on 2nd economy jobs Full-time equivalent jobs (thousands) 50 Saved 45 Expected to be created • 48% of these expected jobs will be in rural areas. 40 35• Financial sustainability underpinned by profits of 30 25 ZAR3.3 billion (USD382 million) – i.e. a 22% increase 20 from previous financial year. 15 10 5 - 05/06 06/07 07/08 08/09 09/10 10/11 11/12
    • Green industries and technologies: Context • SA GHG emissions – one of the higher producers of carbon equivalents per capita and per GDP (higher than USA) – Lagging behind in carbon credits generation, ie RE & EE – lost opportunities of CDM – Leadership role in Copenhagen COP 15 and COP 17 in Durban in Dec 2011 – Energy has been used wastefully in past – low cost electricity, low cost coal • Potential - Good sun, some areas of good wind, limited hydro, waste not utilised • Single electricity utility and multinational oil companies– opportunity and constraint • Need implementation – new industries opportunity for SA - focus sector in NGP • SA developing country – green technologies expensive (upfront capital mainly) • Local production opportunities if SA/Africa become significant buyers Opportunity and role for IDC , so
    • Green Industries SBU: Established April 2011- Clusters Renewable Energy: Non-Fuel Power Energy efficiency Services related to renewable energy Wind Power Concentrated Solar Heat, Cleaner Transport Generation Power Electricity & production / Efficiency & energy building Industrial efficiency Solar Photo Voltaic efficiency Efficiency Power Local manufacturing related to Fuel Based Energy renewable energy & energyBiomass efficiencyWaste to EnergyCo-generation Emission and pollution mitigation Bio FuelsCombined Heat Power Waste Air pollution control Clean stoves Bio Ethanol Bio DieselBiogas Management/ RecyclingHydro
    • Renewable energy: Fuel based power: Waste /Biomass Grown biomass Combustion Steam Electricity Incineration or Waste heat Organic waste Internal gas combustion Anaerobic Animal litter Digestion On-site heating Sewage sludge Gas Cleaning Gasification Municipal solid Liquefied Compressed Piped waste or Biomass or Tyres Pyrolysis Biogas (LBG) Biogas (CBG) gas Sorting Recycling Vehicle fuel Industrial fuel Feedstock Primary Process Secondary Process End Use
    • Fuel Based Green Energy Biomass, Waste to energy and Co-generation To achieve TARGET ZONE: 1. FEEDSTOCK (FUEL) SECURITY! – No Feedstock security, no start! Feedstock – Feedstock security means quantity, quality, price, period! 2. PROCESS/INVESTMENT options – largely driven by FEEDSTOCK Process QUALITIES, QUANTITIES, TERM various Offtakes and OFFTAKE OPTIONS options Revenue – Typical R 15-35 mil per MW Investment decision – High load factors eg 90 % (base load), or peaking for gas, hydro 3. High RATIO of OFFTAKE:FEEDSTOCK prices Project (includes external factors) - Low O&M, so capital can be repaid if Scale sufficient & Offtake/Feedstock price ratio strong
    • Introducing Green Industries SBUHow we operate … Product development life-cycle Commercialization SPII - dti TVC -dti IDC Green SBU IDC Venture Capital Unit Development Unit Testing Market Testing Operations/Expansion First prototype Pre Production Prototype Final Product – Scalable Concept
    • Introducing GREEN SBUHow we operate … Funding instruments … • Equity • Debt - across spectrum • Quasi-equity • Working capital • Revolving facilities • Guarantees • Export finance Lending principles … • Project development • Project finance • Corporate finance
    • Project Development Approach Example.... Project (business) development phasesPre-scoping stage Scoping stage Pre feasibility study Feasibility study Implementation•Fit IDC mandate •Desktop financial •Technology checks •Pilot Study •Plant commission and model and report operation•Fit ICT mandate •Operating partner •Financial model •Outline scope of work•Potentially viable to implementation stage •Regulations (e.g. Carbon credits) •Request project development budget – •SA plant location used to carry out subsequent stages •Raw material security (e.g. Refrigerator supply vs. breakeven volumes) •Financial model Approximately 2% of Approximately 5-10% of project cost project cost
    • Context: SA Electricity Prices Eskom Residential prices in cents per kwh. 300 250 200 150 100 50 0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 www.economists.co.za
    • Context : Electricity in SA still cheap (ex coal) Coal Natural Gas Diesel (methane) (liquid fuels) R/ton 200 2500 7000+ GJ/ton 20 50 44 R/GJ 10 50-100 150-200 c/ liter (diesel equiv) _ 180-360 550 c/kWh elec 10 45+ 150+• Coal local new mine – local jobs• Low cost of electricity (based on cheap coal) – makes green elec less viable in ST• Transport market is attractive – pricing and local jobs benefits• SA should not use Gas or diesel for electricity generation• If have engine/turbine already, then run on gas (cleaner, cheaper) rather than diesel• Biogas should go to liquid fuel applications (transport) not electricity generation, unless own use/CHP
    • Support for Green Energy in South Africa c/kWh1 R/GJ R/litre petrol eq. Comments ELECTRICITY USAGE Locally produced Wind 50 140 4.40 Unreliable, low jobs PV/CSP 200 560 17.6 Day time, low jobs Biomass 56 157 4.93 Reliable Land fill gas 42 116 3.70 Flexible (can peak) Biogas 30 84 2.64 Jobs, flexible (can peak) LIQUID/TRANSPORT FUELS Imported at margin Biogas ? ? ? Jobs – high for crops Bio- ethanol/diesel2 28 77 2.50 High jobs (ca R20kpa/job) 1. REIPP tender less Eskom cost of generation (base load 50 c/kWh); Eskom peaking is 5x! 2. In development (indicative) and Fuel tax issues eg. none now for LPG, CNG
    • Gas Vehicles in ST: SA Benefits• Vehicle technology exists• NG for CNG back-up readily available in Gauteng , parts of Mpumalanga & KZNSo, we can create jobs AND go green by replacing imported fuels like diesel, petrol – Balance of Payment benefits – Local tax base grows from employment – Substantially lower emissions and associated public health cost savings – Waste management solutions & fertiliser as co-product Landfills Sewage works Manure/ agriculture – Local jobs Biogas through crop raising Rural communities
    • IDC position on Green Transport Fuels (ST)1. IDC promotes the introduction of biogas and CNG driven Taxis and Buses for public transport – significantly reduce harmful emissions – assist with the development of a green fuels industry – import substitution of oil and fuel imports – contribute to local economic development and sustainable job creation2. IDC foresees projects to supply biogas/ CNG to operators3. IDC will fund and develop private biogas producers at the back end4. IDC will fund any associated infrastructure development projects5. Recovers the capital outlay in the gas supply marginIn this process continual evaluation and addressing constraints....
    • Renewable energy – Realistic Agricultural Options Grown biomass IC Engine or Fuel CHP on site (IDM) Cell Anaerobic Organic waste Digestion Gas Cleaning Animal litter Liquefied Biogas (LBG) Vehicle fuel
    • Electricity Allocations (Determinations ito IRP 2010)Ministerial Oct 2012: Additional 3200MW renewable energy capacity includes:• CSP – 400MW; Wind – 1470MW; Solar PV – 1075MW;• Biogas – 47.5MW• Biomass – 47.5MW• Small hydro (≤40) – 60MW;• Small projects (≤5MW based on the six renewable energy sources above) – 100MWMedium Term Risk Mitigation Plan 2012 (1274MW capacity to be procured) includes:• 474MW to be generated from natural gas included under the IRP 2010-2030 new build options for the years 2019 to 2020.• 800MW to be generated from industrial cogeneration sourcesBaseload 2012: 7761MW to be procured includes:• 2500MW from coal under the IRP 2010-2030 new build options for 2014 to 2024• 2609MW to be generated from hydro, IRP2010 imported hydro option• 2652MW to be generated from Natural Gas (CCGT & OCGT)
    • General: Regulatory and Incentive IssuesELECTRICITY:• Renewable Energy Feed-in or Bidding Tariff: – Selection criteria and procurement process, Power Purchase Agreements• Co-generation programme (COBID)• Independent Power Producers framework – Development of legislation for the creation of the Independent Systems and Market Operator• Standard Offer Programme under Energy Efficiency / Demand Side Management• EIA’s, License application process, Capacity at local Designated National AuthorityLIQUID FUELS AND GASES:• Taxes and incentives are main issues
    • Biomass utilization in Energy in SA – views unchangedfrom 2010• Low cost of competing coal makes SA a follower, so expect limited investments in next few years (unless robust CoBid process)• Initial project likely to be with: – “waste” or co-products as feedstock (HOW TO GUARANTEE FOR FUNDERS?) – owner/host linked to offtake or neighbours – combined heat and power• Transport fuel market is technologically challenging, but more attractive in SA – Biomethane as CNG/CMG – Fuel Cells (can also replace off-grid diesel gensets)• Resource prices lifting, so longer term greater adoption – Prices for energy rising (but can fluctuate widely) – International utilization of biomass for energy (with subsidies generally)IDC views its role as development funder important for next five years: – Long term view with equity and longer term debt
    • www.idc.co.za/greenecomyEmail: greeneconomy@idc.co.za Thank you Industrial Development Corporation 19 Fredman Drive, Sandown PO Box 784055, Sandton, 2146 Sandton, South Africa Telephone 011 269 3000 Facsimile 011 269 2116 E-mail callcentre@idc.co.za
    • Germany: RE Jobs trends