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1
Financing Financing EnergEnergy Services y Services forforRural and Rural and Urban Urban Poor withinPoor within
German Financial German Financial Co-Co-operationoperation
Rolf Seifried Kreditanstalt für Wiederaufbau
Frankfurt am Main
Energy for Sustainable Development:A Partnership InitiativeBrussels, July 23, 2002
2 Energy for Sustainable Development
Overview of PresentationOverview of Presentation
� Energy and Development:� Objectives of German
Development Co-Operation
� Energy Financing by KfW� Historical Record
� Project Examples
� Financing Instruments andServices
3 Energy for Sustainable Development
KfW -KfW - Overview Overview
Established by law in 1948Legal Status Corporation Under Public
LawShareholders 80 % Federal Republic,
20 % Federal StatesSeat Frankfurt am MainBranch Office BerlinLiable Equity** € 7.827 billion*Balance Sheet Total** € 246 billion*Rating AAA / AaaEmployees 2 190 *KfW Group
**preliminary figures
4 Energy for Sustainable Development
KfW KfW groupgroup: : Areas of ActivityAreas of Activity
InvestmentFinance
Exportand ProjectFinance
Promotion ofthe GermanEconomy
Promotion ofDevelopingCountries andEconomies inTransition(FinancialCo-operation)
Advisory andother Services
Equity andMezzanineFinancing
5 Energy for Sustainable Development
EnergyEnergy SupplySupply andand Demand onDemand on a Global a Global ScaleScale
� Future increase of global primary energyconsumption determined by the growingshare of developing countries� By the year 2020 developing countries will account for
some 45% (1997: 34%)� Reasons:
� high population growth� increased urbanisation� restructuring of economy
� Increase in future electricity consumptioneven more dynamic:� Doubling of electricity consumption in developing
countries expected between 1995 und 2020� Increase in Industrialised Countries: only 50%-60%
6 Energy for Sustainable Development
PrimaryPrimary EnergyEnergy Demand Demand – – Past and Past and FutureFuture
10
12
14
16
18
20Gtoe
Developing countriesFSU/CEEOECD
0
2
4
6
8
1860 1880 1900 19801940 20201920 20001960 2040 2060Source: World Energy Council, World Bank., Based on Current Trends
7 Energy for Sustainable Development
Perspectives of Supply and DemandPerspectives of Supply and Demand
� Fossil energy reserves:limited but sufficient forthe next twenty years ona global scale
� Issues:� security of supply
� spatial distributionof reserves do notmatch demand
� Oligopolisticstructure for oil andgas markets
� energy prices
� ... and what are theimpacts on theenvironment andclimate change?
8 Energy for Sustainable Development
Energy Energy and and Sustainable DevelopmentSustainable Development
� Energy and Development� energy is vital for social end economic
development� Access to affordable energy is a pre-requisite for
economic development and poverty reduction� Energy and Climate Change:
� Future energy mix is crucial for ecologicalsustainability
� Provision of energy is a cross-cutting issueimpacting on different sectors
9 Energy for Sustainable Development
No access toelectricity
Less time tostudy
Low educationalachievement &labor particip.
Reduced accessto
info/education
Education
No access tomodern fuels
High indoor airpollution
High rate ofchild mortality
Health
No access tomodern fuels
Women spendan hour per day
gatheringfirewood
Low laborparticipation
rate
Gender
Unreliableelectricity supply
Firms need tobuy back-upgenerators
Small enterprisescannot afford
cost
Low growth &low labordemand
Macro
Corruption inenergy sector
Low recordedrevenues
Supplyinterruptionsw/ anti-poor
bias
Negativeimpact on
welfare of poorhousehold
Social
Energy Energy and and Poverty Linkages Poverty Linkages - - ExamplesExamples
Source World Bank, 2001
10 Energy for Sustainable Development
Access to Access to Electricity Electricity (in % of Population)(in % of Population)
Red 3 - 33%Green 33 - 66%
Blue >66%
Source World Bank, 2001
11 Energy for Sustainable Development
Infrastructure Endowment Infrastructure Endowment and Incomeand Income
12 Energy for Sustainable Development
How do we perceive the role of RenewableHow do we perceive the role of RenewableEnergies (RE)?Energies (RE)?
� Objectives:� cost-effective supply of energy at least costs� security of supply� sustainable in terms of economic, ecological and social impacts
� trade-offs???
� What should we do?� Improve the rational use of energy in all stages of supply and
transformations, as well as all areas of energy use� Fuel substitution: use less polluting and carbon-intensive energy
sources� Technological advancement: use more environmentally benign
technologies� Remove carbon from fuels and exhaust gases (carbon
sequestration)
Increased use of renewable energies is crucial toachieve these goals
13 Energy for Sustainable Development
SupportSupport for Renewable Energy by for Renewable Energy by KfWKfWin in Developing and Transition Developing and Transition Countries (FC)Countries (FC)
� Past Achievements(1997 – 2001)
Total: € 583 million� 44% of energy sector
commitments for newprojects
„New“ Renewables(excluding hydro-power):€ 250 million� 19% of energy sector
commitments
� Future project pipeline(as of end of 2001)
Total: € 613 million� 71% of energy sector
commitments
„New“ Renewables(excluding hydro-power):€ 240 million� 28 % of energy sector
commitments
14 Energy for Sustainable Development
Commitments for Energy ProjectsCommitments for Energy Projects in in Developing DevelopingCountriesCountries, 1997 – 2001, 1997 – 2001 by Sub by Sub--SectorsSectors
Total commitments for energy sector projects: 1.4 billion Euro
0 50 100 150 200 250 300 350 400 450EUR million
Sector Policy
Training and Education
Transmission & Distrib.
Oil-fired PP
Gas-fired PP
Coal-Fired PP.
Generation (Non-RE)
Generation RE
Hydro
Solar
Wind
Biomass
15 Energy for Sustainable Development
Commitments for EnergyCommitments for Energy ProjectsProjects in in DevelopingDevelopingCountriesCountries, 1997 – 2001, 1997 – 2001 by Regions by Regions
16 Energy for Sustainable Development
Zusagen (FZ- und Marktmittel) nach LändernZusagen (FZ- und Marktmittel) nach LändernEnergiesektor 1997-2001Energiesektor 1997-2001
17 Energy for Sustainable Development
Energy PortfolioEnergy PortfolioTargetting RuralTargetting Rural End- End-Users Users (1)(1)
� Rural Electrification by Photovoltaic Solar Home System� Morocco
� currently under execution in co-operation with PVMTI� electrification of some 7,000 households� KfW-financing: 5 million €
� Republic of South Africa� prequalification for fee-for service-contractors under way� electrification of some 27,000 households� KfW-financing: 16 million €
� Brazil (planned)� Financing volume: 5 million €
� Ecuador, Bolivia, Peru� Under preparation
5
18 Energy for Sustainable Development
Energy PortfolioEnergy PortfolioTargetting RuralTargetting Rural End- End-Users Users (2)(2)
� PV-applications in other sectors� solar water pumps for water supply� solar cooling and lighting for health stations and schools� solar electricity for communication� Total KfW-Financing: > 20 million €
� Bank-to-bank Credit line for IREDA, India� refinancing facility for of wind, bagasse and photovoltaic
installations� KfW-Financing: 61 million €
� PV-diesel hybrid Systems for Rural Mini-Grids� China (planned)
� Mini grids for more than 200 villages in 4 provinces� KfW-financing: 16 million €
� Small Hydro Development in Mongolia (under preparation)
5
19 Energy for Sustainable Development
Other Energy Other Energy ServicesServices
�� „„Communism is Soviet Communism is Soviet Power plus Power plus ElectrificationElectrification““((Lenin Lenin aka Vladimir Ilch Uljanovaka Vladimir Ilch Uljanov))... but
� improvement of energy services goes beyondelectric power supply
� Priorities in rural communities:� cooking and heating
� wood, cow-dung, crop residues, etc.� traction energy
� animal power, human labour
20 Energy for Sustainable Development
Biogas Support Programme (BSM) in NepalBiogas Support Programme (BSM) in NepalProblem DefinitionProblem Definition
� Energy Supply Probems� Only 18% pf population with access to electricity� Energy imports use up some 35% of annual foreign exchange
earnings� „Traditional“ enery supply satisfies 90% of energy needs In rural
areas� Health and Sanitation Problems
� indoor pollution (respiratory problems, eye-illness)� no indoor latrines
� Environmental Problems� High population growth together with growing energy demand
exerts pressure on remaining forests� deforestation and erosion increasing
21 Energy for Sustainable Development
Biogas Support Programme (BSM) in NepalBiogas Support Programme (BSM) in NepalProject Project CharacteristicsCharacteristics
� Joint project� by Nepalese banks and the Governments of Nepal (HMG/N), the
Netherlands (DGIS, SNV/N) and Germany (BMZ/KfW)� Programme target
� About 100,000 biogas plants to be constructed by 2003 in ruralareas of Nepal for farmer families with more than 2 cattle
� Technology� simple and robust, consisting of
� underground ‘digester’, fed with cow dung, produces biogas� pipe system feeds cooking devices and lamps and in the house
� plants constructed by local firms and farmers� material mainly from Nepal (with the exception of main valve)
22 Energy for Sustainable Development
BiogasBiogas support programme support programme in Nepal in NepalTechnology: Biogas Technology: Biogas DigesterDigester Construction Construction
23 Energy for Sustainable Development
BiogasBiogas support programme support programme in Nepal in NepalBiogas Plant Biogas Plant Use Use (1)(1)
Childrenpour waterto dilutethe cowdung...
24 Energy for Sustainable Development
BiogasBiogas support programme support programme in Nepal in NepalBiogas Plant Biogas Plant UseUse (2) (2)
...whichproducesmethane inthe tank...
25 Energy for Sustainable Development
BiogasBiogas support programme support programme in Nepal in NepalTechnology: Biogas Plant Technology: Biogas Plant UseUse (3) (3)
...transferredto the kitchenas an energysource forcooking andlighting
26 Energy for Sustainable Development
BiogasBiogas support programme support programme in Nepal in NepalPartners in Partners in DevelopmentDevelopment
� Nepalese Government� subsidy contribution to the amount of more than 20%� tax exemption for biogas appliances.
� Nepalese Banks and NGOs� grants and credits to end-users farmer families
� Farmer families� contribution of own funds, contribution in kind (manpower)
� Netherland´s contribution� Management support for the programme (TA)� training for construction firms, the banks and farmers� contribution to subsidy components
� KfW group contribution� refinancing of approx. 15 million Euros in total for grants and credits (BSP
III); 7.5 million Euros envisaged for BSP IV-Phase I
27 Energy for Sustainable Development
BiogasBiogas support programme support programme in Nepal in NepalBenefitsBenefits
� Economic and ecological benefits� significantly reduced deforestation of the Himalayas,� reduced CO2 emission levels (some 2 tons CO2/a/plant)� know-how-transfer and employment creation for local
construction companies� End-user benefits
� less indoor pollution ���� improved health conditions� average savings per family and year:
� about 1,600 kg of firewood, 300 kg agricultural waste� about 25 litres of kerosene� about 3 hours of daily work
� use of biogas slurry ���� improved soil fertility� connection of latrine ���� improved sanitation
28 Energy for Sustainable Development
Biogas Support ProgrammeBiogas Support ProgrammeTangible and Intangible BenefitsTangible and Intangible BenefitsMICRO MESO MACRO2 Reduced indoor smoke-induced illnesses. Reduced risk of landslides. Reduction of illness-induced production
losses.
Reduced poor-sanitation induced illnesses (mainly in case of toilet connection)
Improved forest quality and quantity. Improved biodiversity.
Reduced drudgery fuelwood collection) Reduced sanitary pollution. Increased non-marketable (NT) FP availability.
Reduction drudgery weeding.
Increased productivity.
Reduced workload for food-preparation. Reduced mortality.
Reduced soil degradation. Improved human resource base.
Improved opportunity for education. Reduced global warming effects.
Increased productivity. Improved employment opportunities. Reduced health system expenses. Reduced (forex) cost on medication.
Reduced direct medical costs. Improved service quality of biogas companies.
Reduced (forex) costs on chemical fertilizer. Reduced (forex) costs on kerosene.
Reduced fuelwood & kerosene expenditures.
Improved access to credit for biogas. Increased availability marketable (NT)FP.
Increased opportunity for organic agriculture.
Increased agricultural production.
Improved agricultural yields. Increased tax revenues. Increased family income. Generating CDM revenues.
29 Energy for Sustainable Development
BiogasBiogas support programme support programme in Nepal in NepalTangible EconomicsTangible Economics
� Costs of Biogas Digesters� average cost of biogas plant approx. 450 USD
for an average plant size of 5,7 m3
� via subsidy the cost of a plant to individual user is lower than forthe society
� Cost Allocation (BSP IV)InvestmentsSubsidies 20%In-kind contrib. 19%Cash 21%Bank-Credit 35%Programme costs 5%equiv. 4.6 mill. €
� Subsidy AllocationInvestmentsHMG Nepal 24%KfW 68%Netherlands-DGIS 8%Programme costsparticipation fee 45%Netherlands-DGIS 55%
30 Energy for Sustainable Development
Biogas Support Programme in NepalBiogas Support Programme in NepalPerspectivesPerspectives
� Technical potential some 2 million biogas plants� BSP IV targets
� construction of some 200,000 plants in 2003-2006� „commercialisation“ of biogas programmes
� phasing out of subsidies for bigger plants� focus on lower income strata and les accessible areas� establishment of micro-credits via revolving fund� tap additional funds from Clean Development Mechanism
� institutional strenghtening� Alternative Energy Promotion Centre (AEPC) to be
endowed with regulatory power and own finance� improved use of digested slurry
31 Energy for Sustainable Development
Rural Electrification by Solar Home SystemsRural Electrification by Solar Home SystemsBringing power to rural areas of South AfricaBringing power to rural areas of South Africa
� Fee-for-service project approach derived from keyissues in off-grid electrification� Very high transaction costs for infrastructure
services in rural areas� Pre-paid meter systems to reduce transactions
costs� Affordability problems of rural end-users
� Service provision instead of household ownershipof solar home systems
� Lack of sustainable financing mechanisms:substantial subsidies needed� International tender of energy services: maximise
service outreach for given amount of subsidies
32 Energy for Sustainable Development
Key Key characteristics characteristics of of the project the project (1)(1)
� Target groups:� rural households� health clinics, schools, community centres� small productive activities
� Technology Choice� standard system: 50 Wp SHS capable of delivering
200 Wh per day� installation of 27,000 PV-SHS for households
� larger systems to health centres, productive centresand other clients. These systems would typicallyinclude inverters (220 V AC output power)
� Total Installed Capacity:about 1.5 MWp
33 Energy for Sustainable Development
Key Key characteristics characteristics of of the project the project (2)(2)DeliveryDelivery approach approach: : PublicPublic Private Private PartnershipPartnership
� Public sector:� Rural electrification policy, regulation, funding of
subsidised investment� Public-private interface (conceding party)
� Supervision of energy service, disbursement ofsubsidies, mediation of conflicts
� Private concessionaire� Investing own capital� Contracting customers� Purchasing, installation and owning of SHSs� Servicing of SHSs and customer service� Fee collection
34 Energy for Sustainable Development
Key Key characteristics characteristics of of the project the project (3)(3)EconomicsEconomics and and FinancingFinancing
� System costs about 4.500 Rands (500 US$)� Affordability limits for household users:
� Maximum monthly fee around 50 Rands (5-6 US$)(in comparison to present energy expenditures)
� Key parameters for profitability as seen from theconcessionaire:� Subsidies of about 80%� Total number of customers > 25.000� Cost-effective and reliable fee collection to be introduced
(pre-paid chip card)� Effective prevention of theft and destruction� Additional energy services offered (LPG etc.)
35 Energy for Sustainable Development
AssessmentAssessment of of the approachthe approach::transferabilitytransferability to to other countries limitedother countries limited
� Economic conditions in RSA comparatively favourable� Average per capita income: 2880 US$/a (1998)� Poverty limit: 1600 Rand/month (160 US$/month)� Developed formal sector generates transfer incomes in rural areas� Estimated average household income in target areas: 100 - 150
US$/month
� Rural Electrification Policy favourable� Rural Off-Grid Electrification forms part of the Reconstruction and
Development Programme (Target: 1.5 million SHS by 2010)� Public Private Partnership integral part of strategy for off-grid-
electrification in the RSA� investment subsidy is provided to allow for low tariffs/fees
36 Energy for Sustainable Development
AssessmentAssessment of of the approachthe approach::generic problemsgeneric problems
� Political pressure to reduce fees� „free electricity tariff“ on grid connections up to
50 kWh per month (Basic Electricity Support Tariff)� extent of off-grid subsidy under discussion
� Funding issues for off-grid subsidy still unresolved� Central Government allocation to provinces sufficient
for competing needs (water, energy)?� Sustainability of approach threatened
� concessionaire: government transfer secured on thelong term?
� Government: budget sufficient in the medium term?� Users: free-riders without real interest attracted
37 Energy for Sustainable Development
Income Classes in Eastern Cape ProvinceIncome Classes in Eastern Cape ProvinceIncome Classes Eastern Cape
27%
32%
30%
11%
0%
5%
10%
15%
20%
25%
30%
35%
50 100 188 >188USD/month
Shar
e
38 Energy for Sustainable Development
Rural Energy SupplyRural Energy Supply Models and Models andTargetTarget Income Income GroupsGroups
� cash delivery� consumer credit� leasing� fee for service
� heavily subsidisedprojects: distribution for„free“ (pilot anddemonstration projects)
0
20
40
60
80
100
Income Class
HighMiddleLow
39 Energy for Sustainable Development
Source: World Bank, Energy Services for the World‘s Poor, ESMAP,Energy and Development Report 2000
Expenditures forExpenditures for electricityelectricity byby incomeincome classesclasses
40 Energy for Sustainable Development
Income and Energy ExpendituresIncome and Energy Expenditures
41 Energy for Sustainable Development
Annäherndwettbewerbsfähig
Bei weitem nichtwettbewerbsfähig
Netz-gebundeneStrom-erzeugung
A) Kredite zu Markt-konditionen/ evtl.gekoppelt mit „soft loans“,sowie Risikoabsicherung,Verbriefung
C) Spezielle Fonds zurTechnologieentwick-lung, „soft loans“,Carbon credits, „grüneEntwicklungs-zertifikate“ ?
NetzferneStrom-erzeugung
B)Sonderfonds, ODA,neues Förderinstrument„grüne Entwicklungs-zertifikate“?
D)Unter wirtschaftl. undtechnologischen Ge-sichtspunkten nur inEinzelfällen vertretbar
Differenzierte FinanzierungsstrategienDifferenzierte Finanzierungsstrategienfür Erneuerbare Energienfür Erneuerbare Energien
42 Energy for Sustainable Development 5
PhotovoltaicPhotovoltaic PumpingPumping Systems Systems for Ruralfor RuralWater SupplyWater Supply
� Country experience:� Burkina Faso, Eritrea, Guinea, Mali, Namibia and Indonesia
� Planned:� China, Chad, Senegal and Bolivia
� Characteristics:� High specific investment costs� High reliability and low cost in operation� Economically viable in areas where
� power grid extension too costly� high transport costs for diesel
� Preferable for power capacity of less than 4 kWp,(equivalent to some 3500 inhabitants)
43 Energy for Sustainable Development
Promotion of Promotion of RenewableRenewable EnergyEnergy throughthrough a aBank to BankBank to Bank Credit Credit Line to IREDA, Line to IREDA, India India (1)(1)
� Project-executing agency:� Indian Renewable Energy Development Agency
(IREDA) - founded 1987� financed some 1500 projects since 1987
� financing volume: 1,1 billion €;� capacity of 1,720 MW
(equivalent to about 50%of total capacity in RET,excluding hydro)
� finances more than 1/3 of all investments of privateentities in renewable energies in India
44 Energy for Sustainable Development
Promotion of Promotion of RenewableRenewable EnergyEnergy throughthrough a aBank to BankBank to Bank Credit Credit Line to IREDA, Line to IREDA, India India (2)(2)
� Loan amount and conditions to IREDA:� composite loan consisting of:
� FC soft loan: 35,8 million Euro� 0.75% interest p.a., 10 y grace period,
repayment 40 y� Commercial Funds: 25,6 million Euro
� 5 y grace period, repayment 10 y
� Loan conditions of end-credits:� commercial loans:
� 13 - 16% interest p.a., repayment: 5 - 10 y grace period: 1- 3
� preferred rates for PV� Projects to be approved by KfW
� 50% of wind energy loans tied to German supply
45 Energy for Sustainable Development
Promotion of Promotion of RenewableRenewable EnergyEnergy throughthrough a aBank to BankBank to Bank Credit Credit Line to IREDA, Line to IREDA, India India (3)(3)
� Refinancing of loans to commercial borrowers forprojects in the areas of:� Wind energy (targeted capacity: 40 MW)
� approved: 8 wind parks� total installed capacity: 40 MW� total financing provided: 18,2 million Euro� total investment costs: ~ 41 million Euro� CO2-abatement: ~ 80.000 t/a
� Biomass (bagasse) co-generation of electricity andheat (targeted capacity: 40 MW)
� Photovoltaics (targeted capacity: 1 MW)� solar lighting and solar pumps
46 Energy for Sustainable Development
Promotion of Promotion of RenewableRenewable EnergyEnergy throughthrough a aBank to BankBank to Bank Credit Credit Line to IREDA, Line to IREDA, India India (4)(4)
� Refinancing of loans to commercialborrowers for projects in the areas of:� Biomass (bagasse) co-generation of electricity and heat
(targeted capacity: 40 MW)� approved: 2 plants� total installed capacity: 29 MW� total financing provided: ~8 million Euro� total investment costs: ~ 17 million Euro� CO2-abatement: ~ unknown
� Photovoltaics (targeted capacity: 1 MW)� approved: 9 projects� total installed capacity: 210 kWp
47 Energy for Sustainable Development
Promotion of Promotion of RenewableRenewable EnergyEnergy::Bank to BankBank to Bank Credit Credit to IREDA, to IREDA, India India (4)(4)
� Regulatory conditions in India:� Ministry for Non-Conventional Energy Sources (MNES)� Renewable Energy Plan 2012 targets quota of 10% RET in electricity
generation� Special incentives in place since 1992/93
� minimum purchase rate for power from RET� tax depreciation (up to 100% in the first year), tax holidays� „Power banking“� investment subsidies (some states)
but ...� uncertainty about future sector conditions� non-performing State Electricity Boards (SEB)� low payment morale of customers
� current payments overdue with Ireda: > 25%� overall collection rate < 55%
48 Energy for Sustainable Development
Barriers to the Barriers to the widespread use widespread use of REof RE (1) (1)
� Lack of economic competitiveness and/orcommercial attractiveness in particular ingrid-connected applications
� Time profile of costs: higher up-front costs for investments,lowerOMR costs in comparison to conventional technologies
� Hígh exploration and preparation costs (e.g. hydro, geothermal)� Long payback times� High perceived risk� No “level-playing field”: custom duties, direct and indirect
subsidies to fossil fuels, no internalisation of external costs
49 Energy for Sustainable Development
Barriers to the Barriers to the widespread use widespread use of REof RE (2) (2)
� Additional barriers in niche areas, where RE iscompetitive
� High transaction costs: build-up of sales distribution network and after-sales service
� Limited ability to pay by potential users� in some cases high specific costs� insufficient financing possibilities
� Lack of awareness for environmental impacts� local impacts vs. global environmental effects� external costs not taken seriously
� Knowledge gaps and information deficits� Lack of knowledge about existence of technologies� Lack of know-how to operate and service RE-applications� Mistrust in new technologies (quality, price worthiness, etc.)
50 Energy for Sustainable Development
Market Barriers of Renewable TechnologiesMarket Barriers of Renewable TechnologiesThe “5P” - ChallengeThe “5P” - Challenge
� Price/Cost of Technology
� Purchasing Power of End Users
� “Level Playing Field”
� Political Support
� Product Marketing/Market Aggregation
51 Energy for Sustainable Development
SubsidiesSubsidies: : thethe Financial Dimension Financial Dimension
� Electricity: ~ 2 billion people without access� some 400 million households
� PV-costs per year: ~ 200 USD� Total financing requirements: ~ 80 billion USD per
year� Total net ODA: 53 billion USD (2000)
� Priorities ??� 1.2 billion people living in absolute poverty:
� subsidy requirements ~ 20 - 30 billion USD/a� 1.5 billion people w/o access to safe drinking water� 1.8 billion people w/o access to sanitation
52 Energy for Sustainable Development
Lessons from theLessons from the Monterrey Monterrey ConferenceConference forforDevelopmentDevelopment FinancingFinancing
� Official Development Aid is only one field of action� Private foreign and local investments are needed to
meet development goals� Trade barriers and indebtedness are serious
obstacles for development processes� Developing countries share responsibilities (“new
partnership“) for sustainable development� The creation of a reliable legal, sectoral, macro-
economic and financial national frameworks is vitalfor attracting private investors� existence of laws and regulations on offtake
mechanisms and other incentives not sufficient
53 Energy for Sustainable Development
PerspectivesPerspectives forfor Financial Financial InstitutionsInstitutions
� Build up innovative approaches to tap commercial markets� enhanced risk sharing models: e.g. securitisation, partial risk
guarantees
� Use Flexible Mechanisms of the Kyoto Protoco� primarily project-based “Joint Implementation“, “Clean
Development Mechanism“
� Strengthen strategic partnership with the GlobalEnvironment Facility (GEF), UNEP and other donors
� Expand development partnerships with the private sector
54 Energy for Sustainable Development
KfWKfW--GroupGroup: : Establishing Financing ServicesEstablishing Financing Servicesand Structures for Renewable Energiesand Structures for Renewable Energies
� Concessionary Financing� Financial Co-operation (Government Budget Soft Loans)� Blending of soft loans with commercial funding� Co-operation with other international organisations (e.g.
World Bank / IFC/ GEF / AFD / FFEM)� Commercial Financing
� Export and Project-Financing (KfW)� Equity participation and mezzanine-loans (DEG)
� Innovative Financing Instruments� Carbon-Credits (under consideration)
� Preparatory investigations and analyses� PPP-Facility – Private Sector Particiption
55 Energy for Sustainable Development
A) A) ContinuedContinued ...... ......
� Carbon credits (Kyoto instruments favortechnologies with low CO2 reduction costs)
� Refinancing facilities (bank-to-bank loans)� New models of risk sharing: securitization, partial
risk guarantee (World Bank), export credit agencyor multilateral investment guarantee agency cover
56 Energy for Sustainable Development
ConclusionsConclusions
� There are diverse adequate financing instruments for differenttechnologies and framework conditions.
� Risk mitigation methods become increasingly important forcommercial financing.
� “Smart subsidy“ schemes can contribute considerably to thesustainability of renewable energy projects.
� Flexible Kyoto mechanisms can increase IRR of RE projects incategory A, but application in least developed countries, smallprojects and rural areas will be difficult.
� Strengthening strategic partnerships with the Global EnvironmentFacility (GEF), UNEP and other donors
� Improving legal and macroeconomic framework conditions forrenewable energy technologies
� Expanding development partnerships with the private sector
57 Energy for Sustainable Development
Approaches for broadApproaches for broad--scalescale Support (1) Support (1)
� Concerted and concentrated action required� Improved coordination among the various national
and international promotional programmes� Special programme for broad-scale use of
adjusted renewable energy technologies indeveloping countries
58 Energy for Sustainable Development
Implications for DevelopingImplications for Developing Countries CountriesFramework Framework conditionsconditions
� limited scope for subsidies
� climate protection no priority in many countries
� utilities often financially weak
� Cost effectiveness of suport measures overridingconcern
� sector reforms require financial discipline
� support measures conform with administrativecapabilities
59 Energy for Sustainable Development
PrinciplesPrinciples forfor thethe Promotion of Promotion ofRenewable EnergyRenewable Energy
� Promoting a specific renewable energytechnology is not an end in itself� Promotion according to cost-effectiveness is the
decisive criterion for selecting a certain technology
� Higher (life cycle) costs in comparison with theapplication of conventional technologies areaccepted to a limited degree� Standard of measure: specific costs of preventing
CO2
60 Energy for Sustainable Development
PerspectivesPerspectives of of RenewableRenewable EnergyEnergy (1) (1)
� Hydropower� in the medium term the most important source to
meet electricity demand, large potential stilluntapped
� Wind energy� already today close to the competitivity in grid-
connected operation at good wind sites� off-shore development still costly
� Solar-thermal applications� in the medium term they make a noteworthy and
cost-efficient contribution to energy supply:power, hot water and heat both from CSP and solarcollectors
61 Energy for Sustainable Development
PerspectivesPerspectives of of Renewable Energy Renewable Energy (2) (2)
� Geothermal� often competitive already today to generate electricity and to heat
buildings� high exploration and development costs
� Biogas and biomass� of increasing economic interest for both on-grid and
decentralized/distributed heat and power generation� in particular where:
� site is located close to biomass source (wood, other plantresidues, organic waste) and biomass is readily available
� use contributes to methane abatement
� Photovoltaics� presently primarily for distributed generation in niche areas� high cost reduction potential for new technologies
62 Energy for Sustainable Development 11
Financing Financing of RETof RETCoConclusionsnclusions - - for further discussion for further discussion
� Large segments of RE-Technologies still not able to attractcommercial financing
� subsidies needed for kick-start over a limited period until marketdistortions and barriers will be eliminated to a large extent
but ...� In the longer run (... „we are all dead“ ...), wide-spread use and
dissemination of RE can not be financed through subsidy schemesor concessionary financing
� Sustainable market penetration must rely on commercial operations� Cost reduction is the key issue for widespread use of RE-
Technologiestogether with
� “Enabling activities”� market preparation, market assessment� technical assistance� sector conditions > “level playing field”
63 Energy for Sustainable Development
OutlookOutlook
� Build up innovative approaches to tap commercialmarkets
� Use flexible mechanisms of the Kyoto Protocol,primarily “Joint Implementation“, “Clean DevelopmentMechanism“
� Strengthen strategic partnership with the GlobalEnvironment Facility (GEF), UNEP and other donors
� Improve conditions for the application of renewableenergy technology
� Expand development partnerships with the privatesector
64 Energy for Sustainable Development
Support for Renewable Energy by Support for Renewable Energy by KfWKfWIn Germany – concessionary financingIn Germany – concessionary financing
� 100,000 Roofs Solar Power Programme for PhotovoltaicInstallations (Target: 300 MWp until 2004)� Commitments 2001: € 425 million
� Programme to promote Renewable Energies (solar,biomass, biogas, hydropower, geothermal energy)� Commitments 2001: € 126 million
� CO2 – mitigation programme (including renewables)� Commitments 2001: € 900 million
� CO2 Building Rehabilitation Programme (incl. renewables)� Commitments 2001: € 500 million
65 Energy for Sustainable Development
KfWKfW--GroupGroup: : Establishing Financing ServicesEstablishing Financing Servicesand Structures for Renewable Energiesand Structures for Renewable Energies
� Concessionary Financing� Financial Co-operation (Government Budget Soft Loans)� Blending of soft loans with commercial funding� Co-operation with other international organisations (e.g.
World Bank / IFC/ GEF / AFD / FFEM)
� Commercial Financing� Export and Project-Financing� Equity participation and mezzanine-loans (DEG)
� Innovative Financing Instruments� Carbon-Credits (under consideration)
� Preparatory investigations and analyses� PPP-Facility – Private Sector Particiption
66 Energy for Sustainable Development
FinancialFinancial Co- Co-operationoperation: : Terms and ConditionsTerms and Conditions
Grants� for all projects in least developed countries (LDC)
(countries with per-capita income of less than 699 US$)� also possible for projects aiming at environmental protection
in other developing countries
Loans� at 0.75% interest over 40 years repayment period including 10
years grace period (IDA-conditions)� non-LDC developing countries with a per-capita income of up
to 1,445 US $� concessionary share of composite financing
� Loans at 2% interest over 30 years including 10 years grace� all other developing countries
67 Energy for Sustainable Development
Blending Blending of of Concessionary FinanceConcessionary Financeand Market Fundsand Market Funds
� Mixed finance scheme� Risk for market funds covered by Hermes� Eligible countries: if cover available for export loan guarantees� Loan conditions for concessionary funds according to country
classification� Composite finance scheme
� Risk for market funds covered by a special government-backedguarantee scheme
� Eligible countries: up to medium-risk rating� IDA conditions for budgetary funds
� Loans at lower than market interest rates� Risk for market funds covered by KfW� Low-risk countries� Flexible financing conditions
68 Energy for Sustainable Development
� Smaller project sizes ���� Higher transaction costs� Longer lead times ���� Higher development costs� Higher ratio of capital ���� Need for longer-term costs to operating costs financing at reasonable rates� Newer technologies ���� Higher operating risks� Less experienced sponsors ���� Higher completion and
operating risks� Unfamiliar to financiers ���� Scarce/higher-cost capital� Either excess or absence ���� Over-subsidized or of concessional funding under-competitive
PotentialPotential Transaction Barriers Transaction Barriers
69 Energy for Sustainable Development
Public Private Public Private PartnershipPartnership in in FinancingFinancing
Partnerships with the private sector� Risk sharing with regard to preparatory measures via PPP facilities� Systematic review of the projects and conditions in order to specify
possibilities of a participation by the private sector
Objective� Mobilization of private capital and entrepreneurial competence for the
partner countries
Interim status report� Growing number of new projects with a PPP component
(16 new projects amounting to EUR 257 million)
70 Energy for Sustainable Development
FC FC Promotional LoansPromotional Loans
� Sourced entirely from market funds
� Risk covered entirely by KfW
� Restricted to low-risk countries
� Financing at market conditions
71 Energy for Sustainable Development
KfW - KfW - Further informationFurther information::
Development Co-operation:http://www.kfw.de/EN/Entwicklungszusammenarbeit/Inhalt.jsp
Export- and Project Finance:http://www.kfw.de/EN/Export-%20und%20Projektfinanzierung/Products46/Inhalt.jsp
Other loan programmes:http://www.kfw.de/EN/Unsere%20Kreditprogramme/Factsworth28/Inhalt.jsp