Investing in climate-smart business: IFC

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Investing in climate-smart business IFCs
experience in Europe Central Asia
Patrick Avato Lead, IFC Climate Business Europe
Central Asia
Istanbul, 23 November 2012
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Agenda

• IFC in Context
• Climate Smart Business in IFC
• Case Study Renewable Energy in the Balkans

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IFC in context who we are
We bring global experience
with a local presence

• IFC is the private sector lending arm of the
  World Bank Group
• IFC is the worlds largest private sector IFI
  investing in developing countries
• Commitments in FY2012 of approximately US15.5
  billion 4.9 billion mobilized
• FY12 Advisory program of 197m
• Offers a full range of products from advisory to
  equity, mezzanine to debt
• SP / Moodys AAA rating

IFC FY2012 Highlights IFC FY2012 Highlights
Portfolio 56.4 billion
Committed (FY12) 15.5 billion
Mobilized (FY12) 4.9 billion
of Companies 1,825
of Countries 102

• Established in 2010, IFCs Istanbul Operations
  Centre covers 50 countries in EMENA (Europe,
  Middle East and North Africa) region

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How does IFC define climate business?
IFC Climate business targets 20 of IFCs
long-term finance and 10 of trade finance by FY15
Solutions for climate mitigation / adaptation and
sustainable development
ENERGY Low carbon generation, energy efficiency,
storage, smart grids, sustainable energy access
TRANSPORTATION Energy efficient components,
fuels and logistics
WATER Capture, treatment, conservation,
wastewater treatment, access
AIR ENVIRONMENT Carbon credits, trading and
offsets
BUILDINGS Low carbon strategy, energy
efficiency, sustainable materials.
MANUFACTURING Green chemicals, RE/EE supply
chain, cleaner production.
AGRICULTURE FORESTRY Land mgmt, low carbon and
adaptation strategies, biomass.
RECYCLING WASTE Recycling and waste treatment
services
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Pioneer investments in early market movers

• Commercial Finance (Equity, Debt and Mezzanine)
• Renewable energy generation and supply chains
• Resource efficiency (Energy, Waste, Water)
• Credit lines and guarantees for Financial
  Institutions to lend for RE EE
• Climate Change Private Equity Funds
• Cleantech growth capital
• Carbon Finance
• Blended Concessional Finance
• Concessional funds for investment and advisory
  services
• Convening industry players for research /
  standard setting

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and opening up new markets for Climate Smart
Investments

• Technical and economic potential for Energy
  Efficiency Renewable Energy is huge, but
  commercial opportunities are often constrained by
  market barriers

• Market Barriers

• IFC Advisory Solutions

• Deficiencies in policy and regulatory framework
• Limited experience and high risk perception in
  the market
• High development costs for first projects in a
  country
• Difficult access to finance, e.g. limited project
  finance, banks not familiar with the sector, etc.
• Project developers lack experience and
  appropriate balance sheets

• Policy advice e.g. feed-in tariffs, permits,
  PPAs, housing efficiency regulations
• Awareness and skills for firms e.g. cleaner
  production audits, capacity building for project
  developers banks
• Transaction support to demonstrate new business
  models, e.g. PPPs for concessions in renewable
  energy generation/access, energy distribution,
  solid waste, water
• Best practices, industry benchmarks and lessons
  learned

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Recent Investment in Efficiency and Clean Supply
Chains
commercial finance
Russia Borets (energy efficient
motors/pumps) 33m loan()
Turkey Trakya Cam glass producer (energy
efficiency and solar ) 55m loan
China Suntech (solar cells) 50m convertible
debt
Ghana Ashesi University (green building incl.
biogas use) 0.2m loan()
Philippines Sunpower (solar cells) 75m loan
Mexico Optima Energia (hotel ESCO) US10m loan
India VicatSagar (cement) 9m loan() Apollo
Tires III (low rolling resistance tires and
waste heat recovery) 30m loan Jain Irrigation
(micro/drip irrigation systems) 60 million
loans/equity
Tanzania Green Resources (biomass/plantation) 18
m loan
Note () financing for climate friendly project
was part of a larger total IFC investment
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Recent Renewable Energy Investments
commercial finance
Zhongda Hydro
Lead Lender of US375m financing
Electron Investment
Energy Dev II
Solar
Senegal
Office National dElectriciie
750,000 Equity
Chile
Wind
Norvind
30,750,000 Loan Project Financing
Lead Lender of US60.75m financing
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advisory services
IFC Advisory Opening up new markets for
climate-smart investment
Balkans PPPs for HPP, Solid Waste Power
Distribution HPP, Wind, Biomass regulatory
support and capacity building for banks
Russia Ukraine Resource eficiency Focus on
Resource Efficiency in heavy industry, SMEs and
Efficient Housing Renewables Support to regional
govts on RE legislation firm-level support for
early movers
Mexico Toluca Tlalnepantla Hospitals
Green/EE hospitals buildings with LEED Silver
certificate equivalent (Dec /2010)
Turkey GeoFund program supports geothermal power
sector
Philippines Olongapo Power Private sector
participation in electricity distribution
including technical losses reduction goals
(Aug/2010)
Saudi Arabia Medina Airport Green/EE airport
terminal building
Liberia LEC Management contract for
electricity distribution in Monrovia including
technical losses reduction goals (April/2010)
India Solar-based power generation through PPP
in Gujarat.
Peru Electrolima Sale of electricity
generation and Lima distribution system (includes
technical losses reduction) (1994/1995)
Kenya KMIP PPP for various Green/EE special
economic zone at Athi River
Maldives Solid Waste Management SWM concession
including waste-to-energy power plant (June/2011
) Male Airport Green/EE airport terminal
building with LEED Silver certificate equivalent
(June/2010 )
Solomon Islands Tina River 14 MW hydro-power to
substitute diesel generation
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Case Study Opening up Western Balkans for RE
investment

• Opportunity
• High cost of electricity, expensive energy
  imports
• Significant small-hydro, biomass and wind
  potential, export potential to EU
• Interest by government, banks and industry to
  develop the RE sector
• IFC approach
• Comprehensive program in Albania, Bosnia, Kosovo,
  Macedonia, Montenegro and Serbia
• Regulatory reform support governments with
  developing feed-in tariffs, streamline licensing
  and standardizing contracts (e.g. PPA, wheeling
  etc.)
• Access to Finance provide long-term financing
  risk-sharing to banks for RE credit lines,
  coupled with technical support on project
  assessment direct investment in individual
  projects
• Capacity building Support project developers
  with technical advice and access to international
  partners finance early mover projects

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Annex
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IFC products

• Corporate
• JV (early equity investments, Infraventures)
• Typically up to 20 shareholding
• Long-term investor, typically 6-8 year holding
  period

• Any number of structures/flavors of
  subordination
• Subordinated loans, income participating loans,
  convertible loans

• Senior Debt (corporate finance, project finance)
• Fixed/floating rates, USD, EUR and local
  currencies available
• Long maturities 8-20 years, appropriate grace
  periods
• Range of security packages suited to
  project/country
• Mobilization of funds from other lenders and
  investors

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IFC exposure guidelines

• IFCs investment size on its own account is set
  by the following criteria
• Greenfield with total cost gt 50 million ? Up to
  25 of project cost
• Greenfield with total cost lt 50 million ? Up to
  35 of project cost
• Expansion or rehabilitation ? Up to 50 of
  project cost
• IFC can deliver the following complements to its
  own debt investment
• B loans Syndicated loans where IFC is lender
  of record, typically with funds provided by
  international commercial bank.
• Parallel loans IFC can mobilize parallel
  lenders, typically DFI or local lender
• IFC is able to work alongside co-lenders as part
  of lender group
• IFCs equity investment typically cannot exceed
  20 of total share capital

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Cumulative experience of 7.7 GW of RE investments

• Hydro
• Long standing experience, with well over 4,500 MW
  of HPP investments, across more than 40 projects
  in all regions.
• Wind
• IFCs first investment in 2008, with over 1,500
  MW since then in over 15 projects approximately
  40 in SEE.
• Solar
• More than 10 PV investments over the last 3
  years, totaling 165 MW.
• A pipeline of CSP projects, and further PV
  investments in development
• Geothermal
• A difficult but promising sector in which IFC has
  made investments totally over 1,300 MW, in
  Guatemala, Nicaragua, and Philippines.
• Biomass
• 275 MW of investments, from Brazil to China

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Case Study Financing HPPs in Armenia

• 1. Supporting RE and EE financing through local
  banks
• Ameriabank CJSC AS from ASEF IFC 15 million
  for small hydropower plant (SHPP) financing
• Results 11 SHPPs financed installed capacity of
  33.2 MW annual generation of 101.8 GWh GHG
  reduction 40,720 tCO2e/year
• HSBC Armenia CJSC AS from ASEF IFC 15
  million for SME EE financing
• Results 6 projects in pipeline for 13.05
  million 6.5 GWh/year savings, GHG reduction of
  2,500 tCO2e/year
• Byblos Bank Armenia CJSC AS from ASEF IFC 5
  million for Residential EE financing
• Results bank has launched a broad marketing
  campaign and started to provide loans