Financing Sustainable Energy 
in Asia

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Talk given by Clive Mason at Senior Advisor, Asia Sustainable and Alternative Energy Program

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Financing Sustainable Energy 
in Asia

  1. 1. Financing Sustainable Energy in Asia May 30 th , 2008 Clive Mason Senior Advisor, Asia Sustainable and Alternative Energy Program (ASTAE) World Bank Group
  2. 2. Mobilizing Commercial Lending for Sustainable Energy <ul><li>World Bank and IFC Experience </li></ul><ul><li>Financing Sustainable Energy </li></ul><ul><li>Programmatic Carbon Approach </li></ul><ul><li>Risk Sharing </li></ul>
  3. 3. <ul><li>What we can do </li></ul><ul><li>Mobilize commercial funding for sustainable energy investments by way of specialized banking instruments </li></ul><ul><li>Enhancement of entrepreneurs creditworthiness through an innovative programmatic carbon credit approach </li></ul><ul><li>Capacity building, market development and targeted technical assistance </li></ul><ul><li>Awareness raising and marketing activities </li></ul><ul><li>Scaling up business: development of financing structures that can be replicated </li></ul>Working with Banks
  4. 4. Chronology 1997 Hungary Energy Efficiency Co - Financing Program (HEECP): partial credit guarantee plus advisory services 2001 HEECP2: IFC contributes $ 12 million from its own funds 2003 Commercializing Energy Efficiency Finance Program (CEEF): Czech Republic, Slovakia, Lithuania, Latvia, Estonia 2005 Russia Sustainable Energy Finance program (RSEFP) credit lines plus extensive advisory program 2006 China Utility based Energy Efficiency program (CHUEE): Risk sharing facility plus advisory program 2007 WB signs first Carbon Credit agreement with Thailand
  5. 5. Program Execution
  6. 6. Overall <ul><li>Energy commitments over FY06-FY08 to exceed $10 billion, up by 40% as compared to previous three year period. </li></ul><ul><li>FY06 lending for renewable and energy efficiency: $668 million; more than double the Bonn target (increase 20% per year) and should continue to increase </li></ul><ul><li>Carbon finance: In collaboration with public and private sector participants, WBG played a critical role in creating the carbon market, With $2 billion of carbon funds under its management </li></ul>
  7. 7. Mobilizing Finance <ul><li>Sector often unfamiliar to financial institutions so: </li></ul><ul><ul><li>provision of credit lines coupled with technical assistance </li></ul></ul><ul><ul><li>provision of partial risk guarantees, with TA </li></ul></ul><ul><li>Banking sector largely unfamiliar with the sector, or risks, and usually unwilling to provide project debt finance in excess of 30% </li></ul><ul><li>Increase term of loan </li></ul><ul><li>Collateral </li></ul><ul><li>Interest rate </li></ul>
  8. 8. CHUEE Project China <ul><li>Working with Industrial Bank (May 2006) and recently Bank of Beijing (June 2007) </li></ul><ul><li>January 2007 – first deal approved </li></ul><ul><li>Technical assistance (overcoming the technical risk barrier):- </li></ul><ul><li>- training on energy efficiency and EE credit underwriting </li></ul><ul><li>- due diligence studies, risk assessment and control in EE projects </li></ul><ul><li>- marketing support </li></ul><ul><li>- development of new EE financing products </li></ul><ul><li>In just 1 year; portfolio of 134 projects, totaling US$700m </li></ul>
  9. 9. Typical Guarantee Program Structure Guarantee Facility Agreement Transaction or Portfolio Guarantees Grant $ SE Project Loans Lease Energy Services Agreements Investment $ Technical Assistance GEF IFC/GEF IFC LOCAL FINANCIAL INSTITUTION End-user ESCO End-user End-user Vendor LOCAL FINANCIAL INSTITUTION
  10. 10. Global Recognition – Industrial Bank of China nominated by the Financial Times, for 2 sustainable banking awards (2007)
  11. 11. Proposed Guarantee Structure for Thailand <ul><li>Creation of a risk sharing facility (RSF) to cover a percentage of loss contingencies. </li></ul><ul><li>RSF supports $80m of local bank debt financing for renewable energy investment. </li></ul><ul><li>Assuming a prospective 1:1 debt/equity ratio, equates to support for new total project investment of $160m. </li></ul><ul><li>Integrated TA to banks to enhance sectoral skills in; credit risk assessment, risk pricing, project design, appropriate technology, selection of bankable projects, and carbon credit documentation. </li></ul><ul><li>Prospective generation of $3m/year (for 10 years) of carbon credits produced by renewable energy capacity or EE investments. </li></ul>
  12. 12. Risk Sharing Structure – Guarantee facility to support $80m line of credit 2 nd Loss for 90% of portfolio amount 1 st Loss for 10% of portfolio amount Local Bank 25% WB 75% WB 40% Local CommercialBank 60% In case of guarantee call, repayment from RSF
  13. 13. Outline Program Structure Guarantee Agreement Transaction or Portfolio Guarantees Loan $XXm SE Project Loans Lease Energy Services Agreements Technical Assistance Repayment GUARANTEE FUND (RSF) Held by local FI Interest bearing Carbon Credits Deposit $XXm Re-flows $Xm $Xm $ Thai Govt WB GEF/Donors LOCAL FINANCIAL INSTITUTION End-user ESCO End-user PPs Vendor LOCAL BANK(s)
  14. 14. Pipeline <ul><li>Thailand - $80m risk sharing facility. </li></ul><ul><li>China – CHUEE2, $300m. </li></ul><ul><li>Cambodia – $6m Renewable energy financing facility </li></ul><ul><li>Pacific Islands REFP </li></ul><ul><li>Vietnam – $100m proposed energy efficiency and cleaner production financing facility </li></ul><ul><li>Philippines and Indonesia – proposed programs </li></ul>
  15. 15. THANK YOU Further information from [email_address]

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