IDC and it’s approach to develop Green Industries

Day Month Year

Presented by:

Rentia van Tonder

Industrial Development Corporation

14 March 2011

The IDC: Corporate profile

The IDC’s Head Office in Sandton (Johannesburg)

Established in 1940, the IDC is a self -financing, State-owned development finance institution

Provides financing to entrepreneurs engaged in competitive industries and enterprises based on sound business principles

Pays income tax at corporate rates and dividendsto the shareholder

The vision of the IDC is to be the primary source of commercially sustainable industrial development and innovation to the benefit ofSouth Africa and the rest of the African continent

Aims to maximise developmental and financial returns within an acceptable risk profile

Growing sectoral diversity

The Role of IDC in the South African Economy

Vis

ion

Mis

sion

Obj

ectiv

esO

utco

mes

To be “the primary driving force of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent”

The IDC is a self-financing national development finance institution whose primary objectives are to contribute to the generation of balanced, sustainable economic growth in Africa and to the economic

empowerment of the South African population, thereby promoting the economic prosperity of all citizens. The IDC achieves this by promoting entrepreneurship through the building of competitive industries and

enterprises based on sound business principles.

Supporting industrial development capacity

Promoting entrepreneurship

Sustainable employment

Broad-based black economic empowerment

New entrepreneurs

Growing SME sectorRegional equity

Industrialisation in the rest of Africa

Environmentally sustainable growth

Industrial development approach

IDC addresses market failures / gaps by supporting investments, which may otherwise not happen, in partnership with private sector companies

IDC investments are for development purposes, with the ideal investment being one that generates developmental as well as financial returns

This entails taking a higher risk profile than commercial financiersin order to support the development of sectors and new entrepreneurs through …� Diversifying the economy through supporting a range of sectors� Encouraging the introduction and development of new industries and

products� Developing internationally competitive companies� Supporting the establishment of greenfield developments� Supporting expansions of existing businesses� Facilitating the entry of new entrepreneurs and supporting their

development� Supporting the growth and development of small and medium

businesses into competitive players� Encouraging regional development by supporting companies with

regional comparative advantages

Development

impactFinancialreturn

Risk

5

Differentiation: IDC vs. commercial financiers

Financial instruments

Flexible deal structuring

– Equity– Quasi-equity– Commercial debt – Wholesale & bridging finance– Share warehousing– Export/import finance– Short-term trade finance– Venture capital

IDC offers a wide array of financial instrumentsto SMEs, including :

These may be provided singly or in combination

Role in project development

• Co-sponsors feasibility studies• Identifies project opportunities• Provides and arranges funding (e.g. export and import finance,

equity and loan funding)• Shares project risk with the sponsors and financial partners• Identifies strong operating partners• Off-take and supply agreements

• Assists with the early negotiations of project agreements toimprove and ensure their bankability and shorten the funding schedule

• Structures appropriate limited recourse funding packages by allocating project risk to the appropriate stakeholders

• Assists with implementation via steering committee

• Serves on board of directors

• IDC does not seek shareholding control or management participation

New/emerging industries being financed by the IDC

In the 2000s and in the future:• Berries

• Cherries

• Persimmon

• Community pay-phones

• Motion pictures

• Diamond cutting & polishing

• Bio-fuels

• Pebble-bed Modular Reactor

• Composites

• Biomass

• New technologies

• Owner-driver schemes

• Boat-building

IDC also envisages a major role in funding:Green industries through investment in

energy, including renewable & energy efficiency & local manufacturing

Suppliers to state owned enterprisesResource beneficiationNew industry developmentExpansionary black economic empowermentImplementation of NIPF and IPAP

Green industries and technologies:Context

• SA one of the higher producers of carbon equivalents

• SA lagging behind in carbon credits generation – lost opportunities

• Leadership role in Copenhagen

• Need to lead in implementation

• Good sun, some areas of good wind

• Single electricity utility – opportunity and constraint

• SA developing country – green technologies expensive

• Opportunity to develop new industries

• Local production opportunities if SA become significant buyers

• Low cost of local electricity (based on cheap coal) – sometimes makes greening non-viable – but cost growing (for new coal generation capacity and new coalmines)

Opportunity and role for IDC & establishment of Green Industries SBU

Waste to Energy Waste to Energy NuclearNuclear

Energy efficiencyEnergy efficiency

Fuel Based PowerFuel Based Power

Heat, Electricity & building efficiency

Heat, Electricity & building efficiency

Cleaner production / Industrial Efficiency

Cleaner production / Industrial Efficiency

Transport EfficiencyTransport Efficiency

Efficient lighting

SWH & Heat pumps

Energy monitoring

Metering

Efficient lighting

SWH & Heat pumps

Energy monitoring

Metering

Industrial processes & efficiency

Retrofitting of buildings

High efficiency engines

Industrial processes & efficiency

Retrofitting of buildings

High efficiency engines

Emission and pollution mitigationEmission and pollution mitigation

Air pollution controlAir pollution control

Water & soil TreatmentWater & soil Treatment

Waste Management/Recycling

Waste Management/Recycling

Energy AuditsEnergy Audits

Energy Servicing Companies (ESCOs)Energy Servicing Companies (ESCOs)

Research & associationsResearch & associations

Carbon MarketsCarbon Markets

Certification & verificationCertification & verification

Co-generationCo-generation

Services related to RE &EE

Services related to RE &EE

Clean stovesClean stovesWaste to Energy types:

Landfills Anaerobic digestion

Biomass combustion Pyrolysis/Gasification

Waste to Energy types:

Landfills Anaerobic digestion

Biomass combustion Pyrolysis/Gasification

Bio FuelsBio Fuels

Bio EthanolBio Ethanol Bio DieselBio Diesel

Renewable Energy: Non-Fuel Power Renewable Energy: Non-Fuel Power

Wind Power GenerationWind Power Generation

Concentrated Solar PowerConcentrated Solar Power

Hydroelectric & Oceanic PowerHydroelectric & Oceanic Power

Solar Photo Voltaic PowerSolar Photo Voltaic Power

Industries related to Renewable EnergyIndustries related to Renewable Energy

PV cell and Panel ManufacturingPV cell and Panel Manufacturing

Industry AssociationsIndustry Associations

Turbine & Tower ManufacturingTurbine & Tower Manufacturing

O & M ServicesO & M Services

R&D for localisationR&D for localisation

Examples of EE interventionsExamples of EE interventions

Green Industries SBUIDC’s approach towards green industries

LOCAL MANUFACTURING, PROCUREMENT & CONSULTINGLOCAL MANUFACTURING, PROCUREMENT & CONSULTING

Solar Water HeatersSolar Water Heaters Wind turbinesWind turbines PV PanelsPV Panels Thin FilmThin Film Heat PumpsHeat Pumps Green VehiclesGreen VehiclesCurrent focus:Current focus:

Funding mechanisms and options for green projects

GREEN INDUSTRIES

& TECHNOLOGIES

• Renewable Energy

• Energy efficiency

• Technologies for RE & EE

• Commercial Banks

• Development Finance Institutions

• Carbon buyers

• (Traders of carbon credits)

• Government

• Green Funds (venture capital)

• Commercial Banks

• Development Finance Institutions

• Carbon buyers

• (Traders of carbon credits)

• Government

• Green Funds (venture capital)

Typical / potential funders

• Equity

• Debt

• Carbon finance (carbon credits)

• REFIT (Renewable feed in tariff)

• Carbon tax

• Subsidies

• Regulatory barriers and support

• Equity

• Debt

• Carbon finance (carbon credits)

• REFIT (Renewable feed in tariff)

• Carbon tax

• Subsidies

• Regulatory barriers and support

Funding instruments / Type

Challenges for green funding• Long tenure• Low margins• Limits on market (need Power Purchase Agreements)• Low security

Need to have innovative funding structures and sources of funding, especially DFI & government involvement

IDC is currently mainly involved in project develop ment, funding of Pre-feasibility and Feasibility studies

IDC roles in funding Green Industries

• IDC direct funding

• Leveraging funding from other investors

• Development of new projects in green arena

• Demonstrating viability of investments – leading the way

• Exploring and accessing international sources of green funding

• Development and utilisation of carbon credits –assisting in establishing market

• Co-ordinating with other agencies

IDC Funding possibilities

• Participation and cost sharing of bankable feasibil ity studies

• Equity participation– Minimum: Meaningful 10% with minority protection

– Maximum: Not majority, 30%

• BEE and BBBEE funding– Lending to Community Trust or BEE shareholder to invest in project

– Repayment with dividends

– Will allow some cash for shareholders, i.e. not a 100% cash sweep

– Very keen on community trust concept

• Debt participation– Senior debt with tenure of 15 years post commercial operation date (COD)

– Interest capitalisation during construction

Focus and progress

Conclusion

• IDC is committed to play a leading role in the devel opment of Green

Industries

• The enabling environment remains very important to st imulate investment

• IDC’s approach to take early phase project risk through project

development funding remains important

• Role in facilitating BEE and BBBEE funding

• Participation in Industry Foundations

• Establishment of new industries

Industrial Development CorporationIndustrial Development Corporation

19 Fredman Drive, Sandown19 Fredman Drive, Sandown

PO Box 784055, Sandton, 2146PO Box 784055, Sandton, 2146

South AfricaSouth Africa

Telephone 011 269 3000Telephone 011 269 3000

Facsimile 011 269 2116Facsimile 011 269 2116

EE--mail callcentre@idc.co.zamail callcentre@idc.co.za

Thank youThank you