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Financing Clean Energy In Asia Singapore, 20 June 2008

Financing Clean Energy In Asia Singapore, 20 June 2008. Opening the Flood Gates. Samuel Tumiwa Senior Energy Specialist Regional and Sustainable Development Department. Outline. ADB and How it Works The Problem The Target What Can be Done What ADB is Doing About it

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Financing Clean Energy In Asia Singapore, 20 June 2008

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  1. Financing Clean Energy In Asia Singapore, 20 June 2008 Opening the Flood Gates Samuel Tumiwa Senior Energy Specialist Regional and Sustainable Development Department

  2. Outline • ADB and How it Works • The Problem • The Target • What Can be Done • What ADB is Doing About it • How Can We Work Together

  3. ADB’s Mission To help our developing member countries (DMCs) reduce poverty and improve their living conditions and quality of life ADB’s Core Business • Finance and advice for • development solutions

  4. How it Works • Two types of financing • Asian Development Fund • Concessional Funds • From Donor Government to Least Developed Member Countries • Ordinary Capital Resources • AAA Rating backed by Donor Member Countries • Borrow from the Market • Relend to both Sovereign and Non-Sovereign Entities

  5. Rest of the World 58% Rest of the World 71% Developing Asia 29% 42% The Problem Developing Asia’s Share in Global CO2 Emissions from Energy Consumption 2005 Actual 2030 (Projection)

  6. The Problem

  7. The Target

  8. The Target - It is all about scale ! • Corporate Investment • Debt Finance • Equity Finance • Domestic Capital • FDI • Mezzanine Finance • Infrastructure Funds • Capital Markets – portfolio investments • Carbon Finance

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

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

  11. What Can be Done

  12. 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

  13. 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

  14. 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

  15. 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.

  16. ADB’s Climate Change Program Mitigation Adaptation Energy Efficiency Initiative (EEI) Increase investments for energy efficiency and clean energy to min $1 billion/yr through loans, guarantees, TAs and grants ADB Adaptation Mainstreaming Incorporating Vulnerability Risks into Country Partnership Strategies “Portfolio at Risk” analysis, integration of adaptation Country Partnership Strategies to incorporate climate change impacts and adaptation needs considerations into the CPS process, information dissemination, and staff development Carbon Market Initiative (CMI) Use of carbon market to leverage financing resources to new GHG mitigation investments Sustainable Transport Initiative Capacity development and support to advance sustainable transport policy, planning, investment and services Adjusting Sector Strategies to Climate Change Realities National Adaptation Plans & Actions Technical support for climate resilient development, including plans and actions to reduce risks from floods, droughts, storm surge, heat waves, etc. Country-level sector roadmaps to incorporate climate change considerations Energy for All Develop new strategic approaches to mainstream and scale up energy access projects for the poor Knowledge Hubs Serve as key partners and information sources Screening of Pipeline ProjectsDisaster-Adaptation Integration Analysis of climate change risks considered in future project designs Climate change risks fully integrated with planning and profiling for natural disaster preparedness and response, including associated actions Emerging Reduced Emission from Deforestation and Degradation Program Provide incentives for developing countries to cut emissions by preserving forests or having better forest management practices Social Dimensions Regional Cooperation/Partnerships Manage social risks associated with climate changePromote sustainable development and environmental management, particularly helping people cope with increased threats to livelihoods and well-being GHG Inventory Pursue carbon neutral corporate footprint as well as to monitor and report on net GHG emissions for ADB’s portfolio

  17. ADB’s Climate Change Program Supporting Funds Mitigation Adaptation EEI: Clean Energy Financing Partnership Facility Water Financing Partnership Facility Water-related Disaster Management (proposed) CMI: Asia Pacific Carbon Fund Future Carbon Fund (proposed) Renewable Energy, Energy Efficiency and Climate Change (REACH) Climate Change Fund Global Environment Facility (various funds) Special Climate Change Fund Strategic Priority on Adaptation Least Developed Countries Fund Adaptation Fund Climate Investment Funds (proposed) Climate Resilience Pilot Programme Clean Technology Fund Forest Investment Fund

  18. On track to reach a clean energy investment target of $1 billion a year starting in 2008 * Several projects deferred to 2008 ** Based on Project Processing Information System which is a record of all projects under discussion with DMCs – Reality is about 30-40% realization

  19. Leveraging Private Sector Investments

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

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