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Sustainable Energy and Practice - Financing Issues

Sustainable Energy and Practice - Financing Issues. Present ed by. Mr. Anat Prapasawad Executive Officer Business Development Department TMB Bank Public Company Limited. Topics. Opportunities Overview of the barriers and/or risks affecting investment in RE projects

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Sustainable Energy and Practice - Financing Issues

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  1. Sustainable Energy and Practice-Financing Issues Presented by Mr. Anat Prapasawad Executive Officer Business Development Department TMB Bank Public Company Limited

  2. Topics • Opportunities • Overview of the barriers and/or risks affecting investment in RE projects • Risk / Return analysis to asses each major risk and the means to mitigate its potential impact on the project • Financial risk management instruments currently supporting RE projects and those that could be developed to reduce uncertainty as barriers • Innovative financial services

  3. Opportunities Technologies Distribution Energy Efficiency • Controling • Replacing • Modifying Fuel Switching Conventional fuel Biofuel/NG Renewable • Biofuel (biodiesel ethanol) • PV • Biomass gen, Co-gen • Waste to energy • Wind Turbine • Hydro • Geothermal • Etc.

  4. TARGET TE = Traditional Energy NRE = New & Renewable Energy Commercial Energy TE 16.5% 83.0 . % NRE TE 0.5% 11% 2002 Commercial Energy 52,939 KTOE NRE 8% % 81 2011 4 81,753 KTOE

  5. Thailand Targets in 2011 RE Power 1,060 KTOE (2,400 MW*) 6,540 KTOE 8% of final energy use in 2011 (81,753 KTOE) Heat 3,910 KTOE Liquid Biofuel 1,570 KTOE Industry Agriculture Transport Agriculture * Existing 560 MW

  6. RE Power Production RPS 5% Obligation for new fossil power plant Solar 200 MW Wind 100 MW MSW 100 MW 1840 MW* (+560 MW) Biomass 740 MW Small Hydro 350 MW Solar Home System 50 MW SPP 300 MW • Incentives • Guaranteed buy back • Soft loan • Tax incentive * Existing SPP 560 MW MSW=Municipal Solid Waste

  7. Thailand Target of RE Electricity 2,400 MW (1,060 KTOE) Heat 4,000 KTOE ; Industry + Agri. Biofuel 1,570 KTOE ; Transport + Agri. 2003 2012 5%8% 600 Biodiesel 970 Ethanol Measures:1. RPS 5% (Renewable Portfolio Standard) 2. Incentives 3. R&D

  8. Barriers risks? “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.” Monique Barbut Director Division of Technology, Industry and Economics UNEP

  9. “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.” World Bank Discussion Paper No. 391

  10. Type of Finance • Funding of major capital • Cashflow of the project as sources of fund for repayment • Asset of the project as collateral • Risk management through transference (allocate to parties best able and willing to accept) Project Finance (PF)

  11. Corporate Finance Comparison with Project Finance < Corporate Finance> < Project Finance> Limited resourse Sponsor Companies Financiers Financiers Finance Contractual Assignment Government Company Contractors Project Entity Suppliers Risk transference to contract Customers Managers Project Assets Project Assets Insurers Consultants ESCO

  12. Major Risk & Management • Major risk categories (throughout project cycle) • Control of risks (identifying, analyzing, allocating)

  13. Project Feasibility Analysis • Financial aspect • Marketing aspect • Technical aspect • Management aspect

  14. Project Identification Project Development Project Appraisal Project Implementation Project Operation Major Risk Categories(throughout project cycle) Project Cycle

  15. High transaction Relatively small size Low marginal return Perceived weak credit worthiness of companies Resource availability and supply risk Country risk (political & economy instability) Lack of legal and Institutional Frameworks to support RE projects Analytical barriers (quality&availability information) Cognitive barriers Other priority investment Unfamiliarity with technologies Collateral problem Lack of expertise in company FI lack of knowledge Benefit sharing Cultural Typical Barriers

  16. Risk Management Instruments • Contracts (gov., suppliers, consultant, ESCO) • Insurance / Reinsurance • Credit enhancement products (Guarantee) • Alternative risk transfer instruments (various type of asset backed securities) • Private sector risk management • Risk pooling • Securitization structure • Bundling small projects (reduce transaction cost) • Carbon Finance Guarantee

  17. How to build portfolio? : Lesson LearnedBarriers 1. 1 Access ability to financial resources 1.2 Low priority projects 2. Technical Barriers 2.1 Unfamiliarity with technologies 2.2 Lack of capacity to develop projects 2.3 Bad experience with consultants/suppliers 3. Management Barriers 3.1 Lack of time 3.2 No policy to invest 1. Financial Barriers

  18. Lesson LearnedRemoval of Barriers 1. 1 Access ability to financial resources PFI 1.2 Low priority projects PFI Technical Barriers 2.1 Unfamiliarity with technologies ESCO 2.2 Lack of capacity to develop projects ESCO 2.3 Bad experience with consultants/suppliers FI Management Barriers 3.1 Lack of time PFI 3.2 No policy to invest PFI Financial Barriers

  19. PI: Project Identification (financial & technical screening) PD: Project Development (feasibility & engineering design) PDD: Project Due Diligence PA: Project Approval (FI + Shareholders) PR: Procurement OM : Operation + Maintenance (Repayment) PG : Performance Guarantee How to develop projects (FI views) Project Cycle

  20. Case Study Ethanol Project: Demand • Government policy : deplete all of UPG 95* consumption with gasohol (comprising a mixture of gasoline and ethanol) by yr.2007 UPG 95: Unlead Petroleum Gasoline with 95% octane

  21. Ethanol Project: Supply • Total licensee 24 plants, registered capacity 4.985 Million litres/day • Yr.2006 : operate only 3 plants with total production capacity 0.285 Million litres/day

  22. Ethanol Project: Case Study • Plant capacity : 200,000 litres/day • Raw material : tapioca • Investment cost : 35 M. US$ • Land and land improvement 3.25 M. US$ • Building 0.75 M. US$ • Machinery 24.13M. US$ • Pre-operation 1.63M. US$ • Stock of raw material 0.50 M. US$ • Working capital 4.25 M. US$ • Contingency 0.50 M. US$

  23. Ethanol Project: Project IRR

  24. Ethanol Project: Barriers Project Barriers • Security of raw material • Technology • Proven technology • Efficiency • Contractor • EPC (Turn-key) • Marketing • Uncertainty price • Buying agreement (non-firmed) • High Investment Cost

  25. Ethanol Project: Barriers External Barriers • Government Policy • Commercial Bank Policy

  26. Ethanol Project: Barriers Removal of Barriers • Security of raw material Through Contracts • Technology Through proven technologies/ Bank guideline • Marketing Through Contracts • High Investment Cost Equity Fund

  27. Thank you Presented by Mr. Anat Prapasawad Executive Officer Business Development Department TMB Bank Public Company Limited

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