IFC and Emerging Market Wind Energy Financing Financing Green Growth in a Time of Financial Crisis Mr. Dana R. Younger Chief Renewable Energy Specialist March 15, 2011 EWEA 2011 Brussels

1
IFC and Emerging Market Wind Energy
FinancingFinancing Green Growth in a Time of
Financial Crisis Mr. Dana R. Younger Chief
Renewable Energy SpecialistMarch 15, 2011
EWEA 2011 Brussels
2
Table of Contents

• IFC Who We Are, What We Do
• IFC and Renewable Energy
• Investment Experience and Deal Criteria
• Other IFC Products and Services

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IFC Who We Are, What We Do

• Deep industry experience

• Deep industry experience

4
IFC is a Member of the World Bank Group
MIGA Multilateral Investment and Guarantee Agency
IBRD International Bank for Reconstruction and
Development
IDA International Development Association
IFC International Finance Corporation
Est. 1945
Est. 1960
Est. 1956
Est. 1988
Role
To promote institutional, legal and regulatory
reform Governments of poorest countries with per
capita income of less than 1,025 - Technical
assistance - Interest Free Loans - Policy Advice
To promote private sector development Private
companies in member countries -
Equity/Quasi-Equity - Long-term Loans - Risk
Management - Advisory Services
To reduce political investment risk Foreign
investors in member countries - Political Risk
Insurance
To promote institutional, legal and regulatory
reform Governments of member countries with per
capita income between 1,025 and 6,055. -
Technical assistance - Loans - Policy Advice
Clients
Products
Shared Mission To Promote Economic Development
and Reduce Poverty
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Who We Are, What We Do

• Founded in 1956 12 years after the Bretton Woods
  Conference created the World Bank to finance
  post-WWII reconstruction and development by
  lending to governments
• Owned by 182 member countries
• IFC is the worlds largest multilateral
  institution focused on private sector
  development, widely seen as an essential source
  of job creation, growth, and poverty reduction -
  it is the global leader in private sector
  development finance
• IFC invests, advises, mobilizes capital and
  manages assets providing solutions for an
  inclusive and sustainable world
• Global Headquartered in Washington, D.C.
• Local More than 100 offices worldwide in 86
  countries

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IFCs Global Reach
100 country and regional advisory services
offices worldwide
Moscow
7
IFCs Purpose
IFCs Purpose is to create opportunity for people
to escape poverty and improve their lives by

• Last year our clients provided
• 2.2 million jobs
• 112 billion in micro, small, and medium
  enterprise loans
• 8 million patients with health care treatment
• 35 million people with clean water
• 29 million people with power connections
• 1.4 million students with education services

• Supporting companies and other private sector
  partners where there is a funding gap
• Helping to generate productive jobs and deliver
  essential services to the underserved
• Catalyzing and mobilizing other sources of
  finance for private enterprise development

To achieve its purpose, IFC offers development
impact solutions through firm-level interventions
(direct investments,advisory services, and the
Asset Management Company), standard-setting and
business enabling environment work.
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IFCs Three Main Business Lines

• Loans/ Equity
• Syndications
• Trade finance/ Securitized finance
• Client risk management services
• Treasury services
• Liquidity management

IFC Investment Services

• Access to finance
• Sustainable Business
• Investment Climate
• Public-Private Partnerships

IFC Advisory Services

• Wholly owned subsidiary of IFC that invests
  third-party capital alongside IFC, with
  approximately US4 billion under management as of
  June 30, 2010

IFC AssetManagementCompany
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Financial Products - From Equity to Debt

• Corporate and JV
• Typically 5-15 shareholding (not to exceed 20
  of total equity)
• Long-term investor, typically 6-8 year holding
  period
• Not just financial investor, adding to
  shareholder value
• Usually no seat on board
• Infraventures (early equity investments)

Equity

• Subordinated loans
• Income participating loans
• Convertibles
• Other hybrid instruments

Mezzanine / Quasi Equity

• Senior Debt (corporate finance, project
  finance)
• Fixed/floating rates, US, Euro and local
  currencies available
• Commercial rates, repayment tailored to
  project/company needs
• Long maturities 8-20 years, appropriate grace
  periods
• Range of security packages suited to
  project/country
• Mobilization of funds from other lenders and
  investors, through
• cofinancings, syndications, underwritings and
  guarantees

Senior Debt Equivalents
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How We Finance Projects
Project Type
IFC Investment

• Greenfield, total costless than 50 million
• Greenfield, total costmore than 50 million
• Expansion or rehabilitation

• Up to 35 of project cost for IFCs account
• Up to 25 of project cost for IFCs account
• Up to 50 of project cost

• Umbrella for participants in IFCs syndication
  program IFC lender of record, immunity from
  taxation and provisioning requirements.
• IFCs total financing (for its own account) must
  be less than 25 of total company capitalization,
  and IFC does not manage or have largest stake.

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Investing with IFC The Process
Negotiation
Monitoring

• Annual review of project performance

We agree on a specific timeline to meet clients
needs
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What makes IFC unique

• Clients Value IFCs Global Expertise
• Knowledge of global industries and local markets
• Financial sector influence
• Long-term partnerships countercyclical role
• Sustainable investments
• Leadership on corporate governance
• Value-adding expertise along the entire value
  chain

• IFC Unique Offering Includes
• Emphasis on development impact
• World Bank affiliation
• Market discipline
• Risk-taking and risk management
• Preferred creditor status
• Political risk cover
• Environment and social insurance value-addition
  

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Fiscal Year 2010 Highlights

• Investments 18 billion in total financing
  12.7 billion for IFCs own account in 528 new
  projects in 103 countries 5.3 billion mobilized
• Portfolio 48.8 billion portfolio, representing
  investments in 1,656 firms

Investments by Industry and Region,
FY10 Commitments for IFCs Account 12.7
Billion
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IFC and Renewable Energy
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Why Renewables Fueling Growth and Combating
Climate Change

• Developing countries have a clear need to power
  economic growth and to improve the quality of
  life of their citizens (e.g. access to lighting
  and communications)
• Need to diversify generating sources and where
  possible, deploy indigenous power rather than
  using foreign exchange to import fuel
• Climate change and environmental concerns given
  diminishing resources or reserves of coal, gas
  and even water
• Solar, wind and other forms of renewable energy
  pose great opportunities for private investors in
  emerging markets if capital can be raised and
  risks overcome.

In 2010, IFC invested 1.6 billion in climate
change business, which is a 60 percent increase
from the previous year. By 2013, IFC aims to
increase its climate change business to at least
20 of its total annual commitments
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IFC Investments to Date in Renewables
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IFC View of Local Regulatory Frameworks

• IFC realizes that countries offer incentives
  (feed-in tariffs, tax credits), establish
  renewable targets or create legislation (import
  duties, local content rules) to encourage the
  growth of a local renewable industry
• IFC supports competition and fair market access
  however, we note that in the renewables sector,
  governments can influence the market
• As such, IFC evaluates the merit of each project
  on a case-by-case basis, looking each companys
  inherent cost competitiveness (i.e. would the
  company be able to compete if incentives were not
  in place)
• The World Bank also engages with governments to
  improve their energy policy and improve market
  access.

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The outlook for renewable energy generation is
promising, with increased deployment expected
By 2030, renewable energy is expected to account
for 22 of electricity generation in emerging
markets, with the biggest contributions from
hydro and wind
Projected Generation Costs of Renewable Energy
Technologies
2007 US / MWh
Source International Energy Agency, World Energy
Outlook 2008
Growth in renewable energy investments is
expected to be driven by declining investment
costs, government support and response to climate
change concerns
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Working Across the Wind Power Value Chain

• IFC finances projects across the wind value chain
  from upstream equipment manufacturers to
  downstream power projects
• Deep industry experience in clean tech,
  manufacturing, services and power investments
• In-house investment, environmental and social,
  legal and product expertise

COMPONENT SERVICE SUPPLIERS (e.g. suppliers of
blades, towers, transformers, controller
software, etc.)
WIND FARMS (captive, IPPs or utilities)
TURBINE MANUFACTURERS
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Strategy - Downstream

• Work with global renewables developers and
  utilities expanding their asset base in emerging
  markets
• Finance leading local renewables developers and
  utilities that are knowledgeable and can play an
  important role in furthering the adoption of
  renewable energy based electricity generation
• Work with global and local corporates in other
  sectors (e.g. cement, oil gas, mining, etc.)
  seeking to develop and own renewable energy
  projects in emerging market countries
• Finance fund managers involved in clean energy,
  cleantech and carbon private equity funds that
  also finance smaller renewable energy projects
  and earlier stage companies

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Strategy - Upstream

• IFCs approach is to invest in technology and
  scale, so as to bring down the cost of renewable
  energy to grid parity so that it is a widely used
  source of electricity generation in the emerging
  markets. To achieve this, IFC will invest in
• Global renewables companies expanding their
  manufacturing footprint in emerging markets
• Leading local players that are cost competitive
  and can play an important role in (i) deepening
  the adoption of renewable power and (ii) lower
  the cost of renewables energy
• Both global and local component suppliers (e.g.
  blade, gearbox, towers, bearings, generators)
  with a manufacturing presence in the emerging
  markets
• Technology leaders building new, innovative
  solutions
• IFC is supporting private sector companies that
  are cost competitive and / or technology leaders
  in renewable energy, to combat pollution,
  environmental degradation and the negative
  impacts of climate change and to create or
  sustain employment in poor countries.

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IFC Investment Experience and Deal Criteria
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IFC Investments in Wind Power

• AES GEO Energy (Bulgaria, 2008) EUR 40 million
  IFC A loan and EUR 32 million B loans for 156
  MW St. Nikola Wind Farm near Kavarna using Vestas
  V90 3 MW turbines AES is IFCs largest utility
  client in wind energy and power sectors
• China Windpower Group (China, 2010) US10
  million in equity along with US45 million A
  loan and US95 million in B loans to construct
  a US 150 million 201 MW greenfield wind farm in
  Gansu using Sinovel 1.5 MW turbines
• EDF-EN La Ventosa/La Mata (Mexico, 2010) 310
  million Mexican Pesos investment to finance the
  67.5 MW greenfield wind project in Oaxaca using
  2.5 MW Clipper turbines CTF concessional loan of
  US15 million
• Acciona Eurus (Mexico, 2010) US71 million in
  senior and mezzanine debt to finance US560
  million 250 MW wind farm using Acciona 1.5 MW
  turbines CTF concessional loan of US30 million
• Zorlu Enerji Rotor (Turkey, 2010) EUR55 million
  in long term debt to finance 135 MW greenfield
  wind project using GE 2.5 MW turbines

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Norvind S.A. Case Study

• Investment Summary
• Timing
• Why Norvind
• IFC Value Added

US30.75 million senior A loan and arranged
US30.75 million B loan package among
co-lenders to fund US140 million 46 MW project
Nine months from mandate letter to first funds
disbursement for Totoral wind farm in Chile SN
Power is highly experienced and efficient hydro
utility with some wind experience in Norway
Vestas V90 turbine technology (2 MW geared
turbines, Class III wind) and 3 year services
agreement Centinela was strong local development
partner Experience with Chilean power sector
Very long loan maturities (18 years) First
merchant wind project with very limited recourse
Creative financial structuring of debt package
with B loan fully subscribed by DnB Nor
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IFC Investments in the Equipment Supply Chain

• Moser Baer Photovoltaic (India, 2007) Existing
  IFC client, since 1996 US22.5 million (debt) to
  construct an 80 MW greenfield PV facility
• ENN Solar (China, 2008) Existing IFC client
  XinAo Group in the gas distribution and clean
  coal sectors US45 million in debt and US15
  million in equity for a greenfield thin film line
  using AMAT equipment IFC finance was not
  disbursed
• Nitol Solar (Russia, 2008) US50 million equity
  and US25 million debt to finance the
  construction of a polysilicon facility in Russia
• Suntech (China, 2009) US50 million in
  convertible debt to finance the expansion of the
  companys manufacturing capacity to 1 GW
• SunPower Corporation (Philippines, 2010) US75
  million in debt to finance capex and working
  capital needs for the companies solar cell and
  module facilities in the Philippines
• Goldwind (China, 2010) US75 million equity
  investment to finance the companys facilities in
  Chinas frontier regions and for RD
• Gamesa (India, 2011) Euro 11 million to finance
  the companys manufacturing operations in
  Chennai, India. Transaction in process.

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Goldwind Case Study

• Investment Summary
• Timing
• Why Goldwind
• IFC Value Added

US75 million equity investment as part of the
companys Hong Kong IPO to fund capital
expenditure and RD in China Due diligence in
the third week of July documents signed and
funds disbursed in September Headquartered in
and strong manufacturing presence in Xinjiang in
western China largest private sector Chinese
wind company with strong technology (direct drive
turbines), manufacturing experience and
downstream operations strong growth potential
Compliance with IFC / World Bank environmental
and social guidelines
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Gamesa Case Study

• Investment Summary
• Why Gamesa
• IFC Value Added

Proposed Euro 11 million loan to help finance
Gamesas new wind turbine manufacturing facility
in Chennai, India Global wind turbine
manufacturer with the goal of expanding its
operations in the emerging markets and developing
a local supply chain. Compliance with IFC /
World Bank environmental and social guidelines
guidance on local financing and currency
requirements ability to work with IFC (on both
manufacturing and wind farm projects) in other
emerging markets.
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IFC Deal Criteria in Renewable Energy Projects
Sponsor Strong sponsor, with a track record in sector Good reputation Financial strength and technical experience Long term commitment to success of the project Potential to add scale and support
Project Cost competitive in sector without considering an existing/ anticipated incentive structure with solid project fundamentals Experienced project development team Sales potential
Financing Solid equity contribution Debt Equity ratio of at least 5050 Financing structure aligned with investment needs/ project outlook
Technology Technology leaders with tested technology Providing innovative solutions that improve the quality of products
Market Existing or anticipated demand for product
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Creating Effective Partnerships

• Project Guidelines
• Must be in the private sector
• Commercially, economically, environmentally,
  socially sound and cost competitive
• Majority shareholder exit strategy
• Sponsor should have long-term strategy and
  successful track record in the industry

• Financial Structure
• Debt/equity ratio (at least 50/50)
• IFC can provide corporate finance or project
  finance
• Sponsor needs to invest into the project
  (cash/in-kind contribution)
• Profit oriented IFC shares same risks with
  other investors
• Possible security structures for long-term loans
• Completion support from sponsor
• Guarantee from sponsor or
• Mortgage on land/equipment to be financed

Allows clients to diversify funding, extend
maturities, and obtain financing in currency of
choice
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Other IFC Products and Services
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IFC also focuses on growth-stage opportunities
across major cleantech sectors

• The cleantech investment team within IFCs
  Climate Business Group, will focus on
  growth-stage opportunities involving innovative
  technologies/ products/services/projects in
  climate change
• CleanTech penetration into addressable market is
  small but growing rapidly total addressable
  market size is close to US 6 trillion but
  current market size is under US1 trillion with
  tremendous upside in this market

CAGR, 10-15
Opportunities
5
8
5
15
18
10
9
9
13
Energy
Materials
Power generation
214
470
Environmentally friendly nano, bio, chemical
materials for various applications
Energy Generation, Storage, Infrastructure,
Efficiency
Water
147
470
Fuels
88
1,100
Recycling Waste
Manufacturing
Industrial efficiency
60
120
Recycling services Waste treatment Waste to fuel
Energy efficiency Monitoring/controls Smart
production
Transportation
58
2,200
Waste management
34
Water
Agriculture
150
Land management Natural pesticides natural
fertilizers Cold chain logistics
Filtration purification Water conservation
Wastewater treatment
Energy use buildings
30
240
29
Energy grid infrastructure
Air Environment
Transportation
Remediation emission control trading and offsets
Electric vehicles Fuels, batteries,
capacitors Battery management
20
1,000
Materials
678
Total
5,800
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The CleanTech Group focuses on growth stage
investments
Incubation
Early-stage
Growth
Mature
Angel investors, friends/family
Late stage VCs, PE, some debt investors
PE, debt investors, public markets
Investor profile
Venture Capital
Very high, Speculative
Risk profile
High
Medium
Low
Deal size
lt US 5 mm
US 1- 10 mm
US 5-25 mm
gt US 30 mm
Market execution risks no technology risk
Market, execution and exit risks, some technology
risk
Technology risk, very limited exits
Investment risk
Pricing, MA, margins
IFC investment instrument
Preferred common equity, mezz and debt
Grant, Preferred equity, CT Pilot
Preferred equity
Common equity debt
IDA countries frontier regions
Limited, perhapsCleantech facility
Not likely
BRIC MIC
CleanTech focus
The CleanTech Group focuses on early to growth
stage cleantech investment deals
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Cleantech and Innovation Funds

• Private Equity Funds --- 150 million in nine
  funds
• 22.5 million equity investment in 150 million
  Aloe Environment 2 Fund managed by Aloe Private
  Equity
• 15 million to 150 million China Environment
  Fund III LP managed by Tsing Capital (ex-Tsinghua
  Venture Capital)
• 20 million equity investment in 200 million
  South Asia Clean Energy Fund with Global
  Environment Fund
• Clean Technology Demonstrations
• - e.g. Externally fired Combined Cycle using
  bagasse feedstock, Biomass harvesting technology
• Programs Supporting Technologies Business
  Models e.g. Fuel Cells for Stationary
  Applications off-grid solar PV,
• and energy efficiency financing for
  small to medium sized
• investments with ESCOs
• Equity investments in clean technology start-ups
• - e.g. micro-turbine manufacturer, black
  liquor processing

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IFC Post-2012 Carbon Facility

• 150M Facility to forward purchase carbon credits
  up to 2020
• Purchase Certified Emission Reductions (CERs)
  from projects being financed directly or
  indirectly by IFC
• Capitalizes on IFCs due diligence as financier
  to projects
• Uncertainty beyond 2012 has led to a decline in
  climate friendly investments that could benefit
  from the carbon markets
• Longer term high quality carbon revenue stream
  increases financing options
• IFC will contribute up to 15M of the Facilitys
  capital
• Balance mobilized primarily from 6-7 European
  power utilities energy companies
• Launched in February 2011 with 3 anchor investors
  including IFC
• Facility to be managed by IFC
• Expected to be operational in March 2011

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IFCs management of Concessional Donor Funds for
Climate Solutions Projects
IFC, through its Financial Mechanisms for
Sustainability (FinMech) unit, manages and
invests concessional donor funds to catalyze
climate solutions projects
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Donor Funds for Climate Solution ProjectsManaged
by IFC
Project Example EdF La Ventosa

• The Global Environment Facility
• IFC has used GEF funds for concessional
  investments and Advisory Services for 15 years
  (www.gefweb.org)
• The Climate Investment Funds (CIFs) which
  includes (www.climateinvestmentfunds.org)
• The Clean Technology Fund (CTF), to scale-up
  deployment clean technologies in high emitter
  countries
• The Forestry Investment Program (FIP), to reduce
  emissions from deforestation and forest
  degradation
• Pilot Program for Climate Resilience (PPCR), to
  support climate adaptation
• The Scaling up Renewable Energy Program (SREP),
  to support small scale RE in low income countries
• Bi-lateral Donor Funding

IFC has used concessional financing from the CTF
to support the development of a 67.5MW wind power
plant in the State of Oaxaca (Mexico) Despite the
fact that the Isthmus of Tehuantepec has a
world-class wind resource, Mexico had only 88 MW
of fully-commissioned and operational wind
projects at the end of 2008 This project,
together with additional CTF-supported wind
projects, expects to have a demonstration effect
and send a market signal to global wind power
developers that the Mexican wind power market is
viable and ready for scale-up
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For more information www.ifc.org Key Contacts
for IFC

• Power/Renewable Energy
• Mr. Morgan Landy ltmlandy_at_ifc.orggt
• Senior Manager, Power Renewables
• Mr. Dana R. Younger lt dyounger_at_ifc.orggt
• Chief Renewable Energy Adviser
• Global Manufacturing
• Ms. Stephanie Miller ltsjmiller_at_ifc.orggt
• Global Head, Climate Business
• Ms. Faheen Allibhoy lt fallibhoy_at_ifc.orggt
• Senior Investment Officer, Renewable Energy
  Equipment
• Carbon Finance
• Mr. Vikram Widge ltvwidge_at_ifc.orggt Program Manager