Forum on Sustainable Energy, Good Governance and Electricity Regulation The Need for an Effective Regulatory Regime: The Case for Increasing Clean Energy Investments 18 March 2008 Center for Asia and Globalization Samuel Tumiwa Senior Energy Specialist Regional and Sustainable Development Department

Developing Asia’s Share in Global CO 2 Emissions from Energy Consumption 2005 Actual 2030 (Projection) Rest of the World 71% 42% Developing Asia 29% Rest of the World 58%

Corporate Investment Debt Finance Equity Finance Domestic Capital FDI Mezzanine Finance Infrastructure Funds Capital Markets – portfolio investments Carbon Finance It is all about scale !

Corporate Investment

Debt Finance

Equity Finance

Domestic Capital

FDI

Mezzanine Finance

Infrastructure Funds

Capital Markets – portfolio investments

Carbon Finance

Tech Development ‘Capital & Skills Gap’ Project Development ‘Capital & Skills Gap’ Investment Development Lifecycle Corporate & Compliance Investors Angel Capital Project Development Lifecycle Technology Development Lifecycle Development Construction Commissioning Operation Early-stage Mid-stage Late-stage R&D Commercial Scale Project Development Seed Capital Start-up Financing Proof of Concept Early Stage Technology Development Pilot Plant Financing Funding Source Innovator Entrepreneur Sponsor / Developer R&D Grants Venture Capital Private Equity Corporate Investors Capital Markets Private Equity & Infrastructure Funds Capital Markets Mezzanine Capital Angel Capital 1 Carbon Finance 2

Clean Energy Equity Source ―Stage―Return Relationship MoU Development Financing Activities Financial Close Construction Operations Testing & Commissioning Project Phase time Friends & Family Angel Capital Venture Capital Private Equity Institutional Investors Investor Class Return Requirement Ease of Attracting Funds ROI (%)

Counterparty Credit – too low Risks (perceived)– too high Returns (perceived)– to low Deal Size/Volume – too small/too few (low) Transaction Costs – too high CONCLUSION = All TOO HARD! Result = capital migrates to other sectors/regions CE Financiers “highs” & “lows”?

Counterparty Credit – too low

Risks (perceived)– too high

Returns (perceived)– to low

Deal Size/Volume – too small/too few (low)

Transaction Costs – too high

CONCLUSION = All TOO HARD!

Result = capital migrates to other sectors/regions

Counterparty Credit – OK Risks (perceived)– OK Returns (perceived)– OK Deal Size – Aggregated & OK Transaction Costs – OK CONCLUSION = “Lets do it!” Result = capital migrates to Asian Clean Energy CE financiers “highs” & “lows”?

Counterparty Credit – OK

Risks (perceived)– OK

Returns (perceived)– OK

Deal Size – Aggregated & OK

Transaction Costs – OK

CONCLUSION = “Lets do it!”

Result = capital migrates to Asian Clean Energy

Partial Credit Guarantees Performance Guarantees Other Risk Mitigation Products Risk Sharing amongst public sector, IFIs & private sector risk takers Increase availability of finance Increase terms of finance What can be done: Risks?

Partial Credit Guarantees

Performance Guarantees

Other Risk Mitigation Products

Risk Sharing amongst public sector, IFIs & private sector risk takers

Increase availability of finance

Increase terms of finance

Enhanced price signal & incentives Market Based Approaches: Stepped tariffs Local management charges Dedicated public RE funds Tax related incentives Enhanced carbon price Incentives must be enhanced at national level (negative subsidiary removal) “ Ability to pay” issues Big expectations on CDM. What can be done: Returns?

Enhanced price signal & incentives

Market Based Approaches:

Stepped tariffs

Local management charges

Dedicated public RE funds

Tax related incentives

Enhanced carbon price

Incentives must be enhanced at national level (negative subsidiary removal)

“ Ability to pay” issues

Big expectations on CDM.

ADB’s Objective Increase Program in Clean Energy to $1 billion Clean Energy Financing Partnership Facility Target Size: $250 million Currently: $100 million in commitments and another $100 million under discussions Grant Components of Loans Technical Assistance Climate Investment Facility Funds Target Size: $10 billion Currently: about $5.6 billion Implemented by all MDBs Clean Energy Fund Climate Resilience Pilot Program Fund Forestry and Land Use Fund Resources Available

ADB’s Objective

Increase Program in Clean Energy to $1 billion

Clean Energy Financing Partnership Facility

Target Size: $250 million

Currently: $100 million in commitments and another $100 million under discussions

Grant Components of Loans

Technical Assistance

Climate Investment Facility Funds

Target Size: $10 billion

Currently: about $5.6 billion

Implemented by all MDBs

Clean Energy Fund

Climate Resilience Pilot Program Fund

Forestry and Land Use Fund

Email: stumiwa@adb.org Web site: www.adb.org /clean-energy For More Information