Financing Clean Energy In AsiaFinancing Clean Energy In Asia

Singapore, 20 June 2008Singapore, 20 June 2008

Opening the Flood GatesOpening the Flood Gates

Samuel TumiwaSamuel TumiwaSenior Energy SpecialistSenior Energy Specialist

Regional and Sustainable Development DepartmentRegional and Sustainable Development Department

• ADB and How it Works

• The Problem

• The Target

• What Can be Done

• What ADB is Doing About it

• How Can We Work Together

OutlineOutline

ADB’s MissionADB’s MissionTo help our developing To help our developing

member countries member countries (DMCs) reduce poverty (DMCs) reduce poverty and improve their living and improve their living conditions and quality conditions and quality

of lifeof life

ADB’s Core BusinessADB’s Core Business

• Finance and advice for Finance and advice for • development solutionsdevelopment solutions

How it WorksHow it Works• Two types of financingTwo types of financing

– Asian Development FundAsian Development Fund• Concessional Funds Concessional Funds • From Donor Government to Least Developed Member From Donor Government to Least Developed Member

CountriesCountries– Ordinary Capital ResourcesOrdinary Capital Resources

• AAA Rating backed by Donor Member CountriesAAA Rating backed by Donor Member Countries• Borrow from the Market Borrow from the Market • Relend to both Sovereign and Non-Sovereign EntitiesRelend to both Sovereign and Non-Sovereign Entities

Rest of the

World 71%

42%

Developing Asia

29%

Rest of the

World 58%

The ProblemThe Problem

2005 Actual

2030 (Projection)

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

112%

23%

55%

0%

20%

40%

60%

80%

100%

120%

Asia OECD World

Growth Rates in Energy Consumption (2005-2030)

The ProblemThe Problem

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)

The TargetThe Target

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

investments • Carbon Finance

The Target - It is all about scale !The Target - 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

What Can be DoneWhat Can be Done

• 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?

Energy Efficiency Initiative (EEI)

Increase investments for energy efficiency and clean energy to min $1 billion/yr through loans, guarantees, TAs and

grants

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

Energy for All

Develop new strategic approaches to mainstream and scale up energy access projects for the poor

Knowledge Hubs

Serve askey partners and information sources

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

GHG Inventory

Pursue carbon neutral corporate footprint as well as to monitor and report on net GHG emissions for ADB’s

portfolio

Mitigation Adaptation

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

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

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

ADB’s Climate Change Program

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

EEI:Clean Energy Financing Partnership

Facility

CMI:Asia Pacific Carbon Fund

Future Carbon Fund (proposed)

Climate Change Fund

Water Financing Partnership Facility

Water-related Disaster Management (proposed)

Climate Investment Funds (proposed)

Clean Technology Fund Climate Resilience Pilot Programme

Forest Investment Fund

Global Environment Facility (various funds)

Strategic Priority on Adaptation

Least Developed Countries Fund

Special Climate Change Fund

Adaptation Fund

Renewable Energy, Energy Efficiency and Climate Change (REACH)

Mitigation Adaptation

ADB’s Climate Change Program Supporting Funds

On track to reach a clean energy investment On track to reach a clean energy investment target of $1 billion a year starting in 2008target of $1 billion a year starting in 2008

Total Approved

Loans

CE Component

$ million $ million2003 1,263 226 2004 1,431 381 2005 1,685 637 2006 1,812 834 2007* 1,801 668 2008** 5,671 2,543 2009** 4,085 1,224 2010** 4,187 1,090

Year

* 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

Leveraging Private Sector InvestmentsLeveraging Private Sector Investments

Email: stumiwa@adb.org

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

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