Forum on Sustainable Energy, Good Forum on Sustainable Energy, Good Governance and Electricity RegulationGovernance and Electricity Regulation

The Need for an Effective The Need for an Effective Regulatory Regime: The Case for Regulatory Regime: The Case for

Increasing Clean Energy Increasing Clean Energy InvestmentsInvestments

18 March 200818 March 2008Center for Asia and GlobalizationCenter for Asia and Globalization

Samuel TumiwaSamuel TumiwaSenior Energy SpecialistSenior Energy Specialist

Regional and Sustainable Development DepartmentRegional and Sustainable Development Department

Rest of the

World 71%

42%

Developing Asia

29%

Rest of the

World 58%

Developing Asia’s Share in Global CO2 Emissions from Energy Consumption

2005 Actual

2030 (Projection)

112%

23%

55%

0%

20%

40%

60%

80%

100%

120%

Asia OECD World

Growth Rates in Energy Consumption (2005-2030)

1995 2005 2015

160,796

58,191

21,059

0

50000

100000

150000

200000

In U

S$ b

illio

n

Growth of Holdings by Institutional Investors (assuming 10.70% growth)

• Corporate Investment• Debt Finance • Equity Finance• Domestic Capital• FDI• Mezzanine Finance• Infrastructure Funds• Capital Markets – portfolio

investments • Carbon Finance

It is all about scale !It is all about scale !

Corporate & Compliance Investors

Angel Capital

Project Development Lifecycle

Technology Development Lifecycle

Development

Construction

Commissioning

Operation

Early-stage Mid-stage Late-stage

R&D Commercial Scale

Project Development

Seed Capital Start-up Financing

Proof of C

oncept

Early Stage Technology

Development

Pilot Plant

Financing

Fu

nd

ing

So

urc

e

Innovator Entrepreneur

Sponsor / Developer

R&D Grants Venture Capital

Private Equity

Corporate Investors

Capital Markets

Private Equity & Infrastructure Funds

Capital Markets

Mezzanine Capital

Angel Capital 1 Carbon Finance 2

Tech Development ‘Capital & Skills

Gap’

Project Development ‘Capital & Skills Gap’

Investment Development Investment Development LifecycleLifecycle

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Ro

E R

equ

ired

0

10

20

30

40

50

60

70

80

90

100

Eas

e o

f A

ttra

ctin

g E

qu

ity

Fu

nd

s

Required Return Ease of Raising Funds

MoU

Development

Financing Activities

Financial Close

Construction Operations

Testing & Commissioning

Pro

jec

t P

ha

se

time

Friends & Family

Angel Capital

Venture Capital

Private Equity

Institutional Investors

Inv

es

tor

Cla

ss

Ret

urn

Req

uir

emen

t

Eas

e o

f A

ttra

ctin

g

Fu

nd

s

ROI (%)

Clean Energy Equity Clean Energy Equity SourceSource―Stage―Return ―Stage―Return RelationshipRelationship

Early-stage Mid-stage Late-stage

DFI

DFI support forDevCO

DFI Co-investment, risk mitigation and loan products catalyse private investment

DevCo RecirculatesInvestment in new

project developmentsPrivate Capital

Early-stage Mid-stage Late-stage

DFI

DFI support forDevCO

DFI Co-investment, risk mitigation and loan products catalyse private investment

DevCo RecirculatesInvestment in new

project developmentsPrivate Capital

• 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

CE Financiers “highs” & “lows”?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

CE financiers “highs” & “lows”?CE financiers “highs” & “lows”?

• 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

What can be done: Risks?What can be done: Risks?

• 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.

What can be done: Returns?What can be done: Returns?

• ADB’s Objective– Increase Program in Clean Energy to $1 billion

• Clean Energy Financing Partnership Facility– Target Size: $250 million– Currently: $100 million in commitments and another $100

million under discussions– Grant Components of Loans– Technical Assistance

• Climate Investment Facility Funds– Target Size: $10 billion– Currently: about $5.6 billion– Implemented by all MDBs– Clean Energy Fund– Climate Resilience Pilot Program Fund– Forestry and Land Use Fund

Resources AvailableResources Available

Email: stumiwa@adb.org

Web site: www.adb.org/clean-energy

For More InformationFor More Information