Presentation by Anat Prapasawad


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Presentation by Anat Prapasawad, Managing Director - Advance Energy Plus Co., Ltd. - Thailand.

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Presentation by Anat Prapasawad

  1. 1. Mr. Anat Prapasawad Executive Officer Business Development Department TMB Bank Public Company Limited Financing Sustainable Energy Projects - A Lender Point of View Present ed by
  2. 2. <ul><li>Opportunities </li></ul><ul><li>Overview of the barriers and/or risks affecting investment in RE projects </li></ul><ul><li>Risk / Return analysis to asses each major risk and the means to mitigate its potential impact on the project </li></ul><ul><li>Financial risk management instruments currently supporting RE projects and those that could be developed to reduce uncertainty as barriers </li></ul><ul><li>Innovative financial services </li></ul><ul><li>CDM </li></ul>Topics
  3. 3. Opportunities Advantages <ul><li>Making more profit with acceptable risk </li></ul><ul><li>Differentiate from other banks through innovative financial services </li></ul><ul><li>Enable to access new customers while maintain existing customers </li></ul><ul><li>Good image for the bank; </li></ul><ul><ul><li>Better partner, better value </li></ul></ul><ul><ul><li>While supporting government policy </li></ul></ul>
  4. 4. Opportunities Technologies Distribution <ul><li>Renewable </li></ul><ul><li>Biofuel (biodiesel ethanol) </li></ul><ul><li>PV </li></ul><ul><li>Biomass gen, Co-gen </li></ul><ul><li>Waste to energy </li></ul><ul><li>Wind Turbine </li></ul><ul><li>Hydro </li></ul><ul><li>Geothermal </li></ul><ul><li>Etc. </li></ul><ul><li>Energy Efficiency </li></ul><ul><li>Controling </li></ul><ul><li>Replacing </li></ul><ul><li>Modifying </li></ul>Fuel Switching Conventional fuel Biofuel/NG
  5. 5. TE = Traditional Energy NRE = New & Renewable Energy 2011 NRE 0.5% TE 16.5% Commercial Energy 83.0 . % 2002 52,939 KTOE 81,753 KTOE TE 11% NRE 8% Commercial Energy 81 % TARGET 4
  6. 6. Thailand T argets in 2011 RE Power 1,060 KTOE (2,400 MW*) Liquid Biofuel 1,570 KTOE Heat 3,910 KTOE 6,540 KTOE 8% of final energy use in 2011 (81,753 KTOE) * Existing 560 MW <ul><li>Industry </li></ul><ul><li>Agriculture </li></ul><ul><li>Transport </li></ul><ul><li>Agriculture </li></ul>
  7. 7. RE Power Production Solar 200 MW Wind 100 MW MSW( ขยะ ) 100 MW Biomass 740 MW Small Hydro 350 MW Solar Home System 50 MW SPP 300 MW 1840 MW* (+560 MW) * Existing SPP 560 MW RPS 5% Obligation for new fossil power plant <ul><li>Incentives </li></ul><ul><ul><li>Guaranteed buy back </li></ul></ul><ul><ul><li>Soft loan </li></ul></ul><ul><ul><li>Tax incentive </li></ul></ul>MSW=Municipal Solid Waste
  8. 8. Thailand Target of RE 2003 2012 5% 8% Electricity 2,400 MW (1,060 KTOE) Heat 4,000 KTOE ; Industry + Agri. Biofuel 1,570 KTOE ; Transport + Agri. Measures: 1. RPS 5% (Renewable Portfolio Standard) 2. Incentives 3. R&D 970 Ethanol 600 Biodiesel
  9. 9. Case Study Nan Y ang Cogeneration Project Start Savings: Oct 05 Energy Conservation Measure (ECM) Project Investment Cost = 154.6 MB Energy Cost Savings = 49.2 MB/Year Payback Period = 3.1 Years IRR = 31.7 % NPV (DR @ 4%) = 333.7 MB <ul><li>Cogeneration 22 tph Boiler and 1.8 MW Steam Turbine-Generator (Fuel: Coal) </li></ul>Located: Samutsakhon Province
  10. 10. Case Study Energy Conservation Measure (ECM) Project Investment Cost = 170 MB Energy Cost Savings = 35 MB/Year Payback Period = 5 Years IRR (15 years) = 19 % NPV (DR @ 6%) = 186 MB <ul><li>Cogeneration 3 MW Steam Turbine Generator and 35 TPH Boiler (Fuel: Palm Residue) </li></ul>Start Savings: 2007 Siam Modern Palm Located: Krabi Province
  11. 11. Case Study Energy Conservation Measure (ECM) <ul><li>Biogas system with Gas E ngine 3 MW </li></ul>Project Investment Cost = 167 MB Energy Cost Savings = 119 MB/Year Payback Period = 1.4 Years SANGUAN WONGSE INDUSTRIES
  12. 12. Case Study Sofitel Central Huahin Resort Start Savings: Sep 04 Energy Conservation Measure (ECM) Project Investment Cost = 8.9 MB Energy Cost Savings = 3.2 MB/Year Payback Period = 2.94 Years IRR = 34.83 % NPV (DR@ 3%) = 19.0 MB <ul><li>Ozone for Laundry </li></ul><ul><li>Heat Pump </li></ul><ul><li>Chiller Replacement </li></ul>Located: Prachuab Khirikhan Province
  13. 13. Barriers risks? <ul><li>“ Financial risk management is a key element of any commercial investment in conventional energy …, yet little attention has been paid to its use in the development of renewable energy technologies, particularly in developing countries, … if used transfer certain types of risks away from investors and lender.” </li></ul><ul><li>Monique Barbut </li></ul><ul><li>Director </li></ul><ul><li>Division of Technology, Industry and Economics </li></ul><ul><li>UNEP </li></ul>
  14. 14. <ul><li>“ The financial incentive package for each country is carefully crafted to suit its economic, legal, and fiscal system. The types of incentives used include concessional import duties, excise tax benefits, corporate and income tax benefits (including tax exemptions, holidays, credits, and deduction as well as depreciation), subsidies against investment cost, low interest loans, and premium power purchase prices.” </li></ul><ul><li>World Bank Discussion Paper No. 391 </li></ul>
  15. 15. Project Finance (PF) <ul><li>Funding of major capital </li></ul><ul><li>Cashflow of the project as sources of fund for repayment </li></ul><ul><li>Asset of the project as collateral </li></ul><ul><li>Risk management through transference (allocate to parties best able and willing to accept) </li></ul>
  16. 16. Corporate Finance Comparison with Project Finance < Corporate Finance> Financiers Company Project Assets < Project Finance> Sponsor Companies Financiers Government Contractors Suppliers Customers Managers Insurers Limited resourse Contractual Assignment Project Entity Project Assets Finance Risk transference to contract Consultants ESCO
  17. 17. Major Risk & Management <ul><li>Major risk categories </li></ul><ul><li>(throughout project cycle) </li></ul><ul><li>Control of risks </li></ul><ul><li>(identifying, analyzing, allocating) </li></ul>
  18. 18. Major Risk Categories (throughout project cycle) Project Cycle Project Identification Project Development Project Appraisal Project Implementation Project Operation
  19. 19. Typical Barriers <ul><li>High transaction </li></ul><ul><li>Relatively small size </li></ul><ul><li>Low marginal return </li></ul><ul><li>Perceived weak credit worthiness of companies </li></ul><ul><li>Resource availability and supply risk </li></ul><ul><li>Country risk (political & economy instability) </li></ul><ul><li>Other priority investment </li></ul><ul><li>Unfamiliarity with technologies </li></ul><ul><li>Collateral problem </li></ul><ul><li>Lack of expertise in company </li></ul><ul><li>FI lack of knowledge </li></ul><ul><li>Benefit sharing </li></ul>
  20. 20. Risk Management <ul><li>Identifying prepare risk / return analysis </li></ul><ul><li>Analyzing assess major risks </li></ul><ul><li>Allocating means to mitigate its impact </li></ul>
  21. 21. Risk Management Instruments <ul><li>Contracts (gov., suppliers, consultant, ESCO) </li></ul><ul><li>Insurance / Reinsurance </li></ul><ul><li>Credit enhancement products </li></ul><ul><li>Alternative risk transfer instruments </li></ul><ul><li>Guarantee fund </li></ul><ul><li>Private sector risk management </li></ul><ul><li>Risk pooling </li></ul><ul><li>Securitization structure </li></ul><ul><li>Bundling small projects (reduce transaction cost) </li></ul>
  22. 22. How to build portfolio? Lesson Learned Barriers <ul><li>1. 1 Access ability to financial resources </li></ul><ul><li>1.2 Low priority projects </li></ul><ul><li>2. Technical Barriers </li></ul><ul><li>2.1 Unfamiliarity with technologies </li></ul><ul><li>2.2 Lack of capacity to develop projects </li></ul><ul><li>2.3 Bad experience with consultants/suppliers </li></ul><ul><li>3. Management Barriers </li></ul><ul><li>3.1 Lack of time </li></ul><ul><li>3.2 No policy to invest </li></ul>1. Financial Barriers
  23. 23. Lesson Learned Removal of Barriers <ul><li>1. 1 Access ability to financial resources PFI </li></ul><ul><li>1.2 Low priority projects PFI </li></ul><ul><li>Technical Barriers </li></ul><ul><li>2.1 Unfamiliarity with technologies ESCO </li></ul><ul><li>2.2 Lack of capacity to develop projects ESCO </li></ul><ul><li>2.3 Bad experience with consultants/suppliers FI </li></ul><ul><li>Management Barriers </li></ul><ul><li>3.1 Lack of time PFI </li></ul><ul><li>3.2 No policy to invest PFI </li></ul>Financial Barriers
  24. 24. Private Finance Initiatives (PFI) <ul><li>Loan + ESCO (+ CDM) </li></ul><ul><li>Energy Finance + Plus </li></ul>2. Equity + ESCO + BOT (+CDM) Energy Partner + Plus <ul><li>Loan </li></ul><ul><li>Energy Finance </li></ul>PFI : with proper design can eliminate all barriers
  25. 25. <ul><li>ESCO : E nergy S ervice Co mpany </li></ul>TMB Energy Finance +Plus (Soft Loan + ESCO + CDM) Enterprise Loan Repayment Machinery supplier ESCO Buy machinery Investment Grade Audit Procurement Saving Guarantee EPC contract
  26. 26. <ul><li>SPC : S pecial P urpose C ompany </li></ul>SP C ( share by Fund 70-100%) Benefit from SPC operation Loan Repayment Fund Enterprise Invest in SPC Sell energy Transfer SPC TMB Energy Partner +Plus ( Equity + ESCO + CDM)
  27. 27. Project Cycle How to develop projects (FI views) PI : Project Identification (financial & technical screening) PD : Project Development (feasibility & engineering design) PA : Project Approval (FI + Shareholders) PR : Procurement OM : Operation + Maintenance (Repayment) PG : Performance Guarantee PDD : Project Due Diligence
  28. 28. TMB’s experiences in RE projects <ul><li>Existing renewable Energy Projects: </li></ul><ul><ul><li>BIOGAS : </li></ul></ul><ul><ul><ul><li>US$ 3.70 Million for 6 projects in swine farms sector </li></ul></ul></ul><ul><ul><ul><li>US$ 14.95 Million for 10 projects in starch industries </li></ul></ul></ul><ul><ul><ul><li>US$ 1.90 Million for 2 projects in palm oil industries </li></ul></ul></ul><ul><ul><li>BIOMASS : </li></ul></ul><ul><ul><ul><li>US$ 60.72 Million for 3 Projects in power plant </li></ul></ul></ul><ul><ul><ul><li>US$ 8.25 Million for 2 Projects in Co-generation plant </li></ul></ul></ul>
  29. 29. TMB’s experiences in RE projects <ul><li>Projects in pipeline </li></ul><ul><ul><li>BIOGAS : </li></ul></ul><ul><ul><ul><li>US$ 4.38 Million for 3 projects in swine farms sector </li></ul></ul></ul><ul><ul><li>BIOMASS : </li></ul></ul><ul><ul><ul><li>US$ 70.90 Million for 9 projects in rice mill </li></ul></ul></ul><ul><ul><ul><li>US$ 1.13 Million for 1 project in seed plant </li></ul></ul></ul><ul><ul><ul><li>US$ 4.5 Million for 1 project in palm oil industry </li></ul></ul></ul><ul><ul><ul><li>US$ 1.25 Million for 1 project in rubber glove industry </li></ul></ul></ul>
  30. 30. Clean Development Mechanism (CDM)
  31. 31. Global Warming
  32. 32. Introduction <ul><li>Climate change the most profound environmental Treats to human future (drought, rain, flood, deceases, low crops, disasters). </li></ul><ul><li>Reducing emissions of CO 2 and GHGs is a key challenge. </li></ul><ul><li>The Kyoto Protocol and ETS provide an opportunity for OECD countries to reduce GHG and help developing countries invest in environmentally friendly technologies. </li></ul>
  33. 33. The Kyoto Protocol <ul><li>UNFCCC adopted in Rio de Janeiro, Brazil in 1992 </li></ul><ul><li>Adoption took place at COP convention, held at Kyoto, Japan December 11, 1997 </li></ul><ul><li>Enter into force since… forcing Annex 1 countries to reduce emissions to a total cut of at least 5% from 1990 levels in the commitment period 2008-2012 </li></ul><ul><li>The Mechanism of the Kyoto Protocol namely JI,ET,CDM </li></ul>
  34. 34. CDM Overviews <ul><li>CDM are project based mechanisms and involve developing and implementing projects that reduce greenhouse gas emission overseas, thereby generating carbon credits that could be sold on carbon market to Annex 1 (39 developed countries). </li></ul>Clean Development Mechanism (CDM)
  35. 35. Technologies distribution of CDM projects <ul><li>Biofuel (biodiesel, ethanol) </li></ul><ul><li>PV </li></ul><ul><li>Biomass </li></ul><ul><li>Energy Efficiency </li></ul><ul><li>Waste management </li></ul><ul><li>Gas flaring </li></ul><ul><li>Wind </li></ul><ul><li>Small Hydro </li></ul><ul><li>Geothermal </li></ul><ul><li>Etc. </li></ul>
  36. 36. CDM and renewables <ul><li>CDM a mechanism to monetize the carbon benefits or environmental value of renewables. </li></ul><ul><li>The projects will be more attractive to investors and financiers with CDM benefit. </li></ul>
  37. 37. Certified Emission Reductions (CERs) <ul><li>Represent GHG mitigation contribution of a project, Measured in tonnes of CO 2 </li></ul><ul><li>A second product produced by RE, EE projects </li></ul><ul><li>CERs can be sold in exchange of hard currency </li></ul><ul><li>Reduction before 2008 (1 st year of commitment period) can be included </li></ul><ul><li>Can be counted towards Kyoto compliance and bought by Annex I countries (Mostly OECD countries with GHG targets under Kyoto) </li></ul>
  38. 38. Simplified CDM Project Cycle <ul><li>Portfolio analysis </li></ul><ul><li>Identification of projects </li></ul><ul><li>Quantify potential GHG benefits </li></ul><ul><li>Identify host government requirements </li></ul><ul><li>Develop Project Design Document (PDD) </li></ul><ul><li>Obtain host country government approval </li></ul><ul><li>Project validation </li></ul><ul><li>Registration </li></ul><ul><li>Install additional monitoring equipment (if necessary) </li></ul><ul><li>Monitor project (and baseline) performance </li></ul><ul><li>Have emission reductions verified and certified, after which the carbon credits can be issued and sold </li></ul>Project identification Project feasibility Project development Project implementation Monitoring Verification/ Certification/ Issue of credits
  39. 39. Crediting Period <ul><li>Two choices </li></ul><ul><ul><li>7 years with an option for renewal at most 2 times </li></ul></ul><ul><ul><li>A maximum of 10 years with no option of renewal </li></ul></ul>
  40. 40. Price and Payment <ul><li>Price of CERs in non-Annex I is $ 3- $ 6 per ton CO 2 </li></ul><ul><li>Price will be determined by supply and demand </li></ul><ul><li>Contract types and pricing varies </li></ul>
  41. 41. CDM Requirements and Costs <ul><li>The CDM status will be given only to projects which cannot be implemented without it </li></ul><ul><li>Those projects which can be implemented as business as usual are disqualified </li></ul>Additionality
  42. 42. Carbon Revenues Can Augment Cash Flow Carbon Sales Can Add Alternative Revenue Source: Project Assets Energy Revenue Emission Reductions
  43. 43. IRR Impact <ul><li>Country Project Type %IRR %IRR IRR increase % IRR w/o w/cer’s (% points) increase </li></ul>Romania District heating 10.5 11.4 0.9 9 Costa Rica Wind 9.7 10.6 0.9 9 Hydro 7.1 9.7 2.6 37 Nicaragua Bagasse 14.6 18.2 3.6 25 Guyana Bagasse 7.2 7.7 0.5 7 Brazil Biomass 8.3 13.5 5.2 63 Latvia Methane 11.4 18.8 7.4 65 India Methane 13.8 18.7 4.9 36 Malaysia Biomass 7.7 17.7 10.0 130 Thailand Methane 2.2 11.8 9.6 436
  44. 44. How Carbon Cash Flow Can Improve Capital Structures <ul><li>Applying Carbon Cash Flow to Debt Service Can Result in more favorable Capital Structures </li></ul><ul><ul><li>Higher DSCR (More Debt Carrying Capacity) means less Equity Requirement – Thereby Increasing ROE </li></ul></ul><ul><ul><li>Allows Project to be Financed Because Increases DSCR past Predetermined Threshold set by the Lender </li></ul></ul><ul><li>Either Way, Both Project Developer and Project Lender are Better Off </li></ul>Carbon Cash Flow Can Improve Debt Service