BANKABILITY OF RENEWABLE & CLEANER ENERGY IN AFRICA

Prepared by Marc J.M. Buiting (m.buiting@fmo.nl)

2.

Renewable Energy

Low impact hydro, run of river or with small storage, seldom > 20MW

Geothermal, wind, solar

Agricultural and forestry wastes, energy crops

Waste derived – landfill gas, sewage gas, mass-burn municipal solid waste

Sometimes cogeneration is included

3.

Renewable Energy 5.5 TW in 2020

1997 2020

Capacity Capacity

703 1,036

8 63

31 54

8 17

1 8

751 1,178

23% 21%

3,221 5,515

Total RESAs share of World

Wind

Biomass

Geothermal

Hydro

Solar/Other

Total World

Source: EIA base case expectations; World Economic Outlook 2000/01.

in GW in GW

333

55

23

9

8

Increase

in GW in %

47

688

74

113

700

3,079

667

2,436 3,103 5,515

0

1,000

2,000

3,000

4,000

5,000

6,000

1995 Year 2020

Cap

acit

y in

GW

Repla-cement

1995

Cap

acit

y

2020

Cap

acit

y re

qu

irem

ent

Cap

acit

y A

dd

itio

ns

1995

- 2

020

Cap

acit

y G

row

th19

95 -

202

0

$3,103 billion market of which renewables are likely to represent some 20% (being a market for new-build of some $500 billion).

Energy Demand 1995 - 2020

4.

Future holds stronger Role Developing Countries

Increase

Installed Capacity in 1997 2020 in GW in %

North America 185 GW 212 GW 27 15%

Increase

Installed Capacity in 1997 2020 in GW in %

Latin America 115 GW 203 GW 88 76%

Increase

Installed Capacity in 1997 2020 in GW in %

Europe 183 GW 257 GW 74 40%

Increase

Installed Capacity in 1997 2020 in GW in %

Africa 20 GW 32 GW 11 55%

Increase

Installed Capacity in 1997 2020 in GW in %

Transition Economies 89 GW 105 GW 17 19%

Increase

Installed Capacity in 1997 2020 in GW in %

China 61 GW 175 GW 115 190%

Increase

Installed Capacity in 1997 2020 in GW in %

South Asia 29 GW 69 GW 40 136%

Increase

Installed Capacity in 1997 2020 in GW in %

East Asia 33 GW 67 GW 34 102%

Increase

Installed Capacity in 1997 2020 in GW in %

Middle East 6 GW 10 GW 4 70%

Increase

Installed Capacity in 1997 2020 in GW in %

Pacific 31 GW 48 GW 17 55%

Source: EIA base case expectations; World Economic Outlook 2000/01.

5.

Renewables still less Economic in Cost/kWh

Sou

rce:

PB

Pow

er.

6.

Renewables and Direct Government Support EU

LOW

HIGH

BANKABLEPROJECT

HIGH

LOW

Per

ceiv

ed R

isk

Bankability

IR

Tendering

Obligation

Fiscal

Feed-in Tariffs

G

Fr

ESNL

Gr

Sw

At

It

BL Pt

UK

NON-BANKABLEPROJECT

DK

T

7.

Governmental Policy Matters

Sou

rce:

Wor

ld B

ank.

8.

Where is Wind Power supposed to be Installed in 2020?

Sou

rce:

Win

d F

orce

12,

Gre

enpe

ace

& E

WE

A.

85% of 2001 wind capacity is in OECD countries whereas it is foreseen that half of 2020’s capacity will be in non-OECD countries.

Total Globally Installed Wind Energy 2001: 25GW

67%

17%

6%

1%2%7%

Western Europe

USA

South Asia (India)

East Asia (Japan)

China

Other

Total Globally Installed Wind Energy 2020: 1,260GW

18%

25%

7%8%

6%

5%

15%

2%

12%2%

OECD Europe

OECD North America

OECD Pacif ic

Latin America

East Asia

South Asia

China

Middle East

Transition Economies

Africa

9.

BANKABILITYLOW HIGH

HIGH

LOW

PE

RCEIVED

RISK

BANKABLE

PUBLIC SECTOR:WORLD BANK

PRIVATE SECTOR: DFI’s

EXPORT CREDIT AGENCIES

INSURANCECOMPANIES

COMMERCIAL BANKS

INSTITUTIONAL INVESTORS

CAPITAL MARKETS

Who will Finance the Developing World Projects?

Different institutions address different risks:

Only development banks and specific funds available for projects in developing countries.

10.

The General Project (Finance) Feasibility Matrix

LOW

HIGH

BANKABLEPROJECT

HIGH

LOW

SPONSORSUPPORT

SECURITYPACKAGE

CONTRACTSTRUCTURE

PROJECT ECONOMICS

Per

ceiv

ed R

isk

Bankability

FINANCIAL STRUCTURIN

G

Financial market-forms / financial products

Bond Investor / Lender requirements

Project Sponsor requirements

MARKET ECONOMICS

GOVERNMENT SUPPORTNON-BANKABLE

PROJECT

11.

Renewable Energy: Main Banking Risks

• Acceptable country risk?• Regulatory framework IPP’s bankable?• Kyoto signed? (Carbon credits possible?) What scheme to support renewables?

• Electricity shortages? Base load opportunity? Supportive industry?• Specific sources (such as hydro) available that make other RES less-bankable?• How does specific windpower project compare to other windpower projects?

• Technology to be used, efficiencies and track record turbines? Costs per MW?• Use of carbon credits and subsidies from support scheme?• Financing options?

• Single borrower? Long term PPA possible with validity exceeding longest debt tenor?• Turnkey contractor under fixed price date certain contract?• Reputable O&M contractor? (in windparks often equipment vendor)

• Product warranties? (in windparks generally a minimum of 5 years)• Comprehensive risk coverage available from equipment vendors?• Mortage possible on land or other assets?

• Reputable and experienced sponsor? • Level of equity investment?• Level of contingent equity available for completion?

GOVERNMENT

SUPPORT

MARKET ECONOMICS

PROJECT ECONOMICS

CONTRACTSTRUCTURE

SECURITYPACKAGE

SPONSORSUPPORT

12.

Our Approach is Twofold

FMO takes leading positions in wind and biofuel projects in Africa

through structuring projects in a ‘template’ manner

(portfolio approach); we support or create developers: o Conventional technologies: Aldwych Internationalo Renewables Wind: Aeolus Africa Development

Corporationo Renewables Biofuels: Dutch Jatropha Consortium

FMO focuses on sustainable renewable CDM projects (private

sector only) in (non-exclusive) co-operation with the Dutch Ministry

VROM.

13.

FMOs Co-operation with the Dutch Ministry of VROM

FMO can make available convertible grants in the feasibility phase of the project

(early equity), equity, subordinated loan or senior debt, not necessarily in hard currency.

FMO operates as a fully untied institution. Through the facility FMO offers to a Project a choice is given to the project

company in a ‘net’ or ‘gross’ amount. The gross amount includes a facility that will

be made available by VROM. In return for the carbon credits of a project VROM contemplates to fund upfront

the net present value of 25% of 70% of the carbon credits cash flow. The other

75% of the 70% are paid against delivery of the carbon credits in the future. The upfront

amount need not to be paid back when the rights accompanying this payment are actually

delivered. VROM obtaines a purchase option for the remainder 30% of the future

carbon credits. Contractual period is preferably 7 or 14 years. VROM assumes all responsibility for the accreditation process, including the cost

involved. In addition, if needed VROM makes capacity development available for

the recipient country.

14.

- 1

-0.5

0

0.1

0.2

0.3

- 0 2 4 6 8 10 12

Investment

bio US$

Cash flow for debt service and dividends

O&M costs

year

illustrative

After Tax

Ministry of VROMs involvement Illustrative

VROM provides an AAA-income

stream to a project:

- 75% of 70% of potential carbon

credits contracted (quantity*price)

- 30% against future price (option)

VROM provides a possibility to lower project cost: 25% of 70% of potential carbon

credits contracted (quantity*price)

15.

Renewables in Africa differ in Reference Point: Load Curve less important vs cost of HFO/Diesel fired Stations

At reference prices of

HFO/Diesel fired stations quite some

renewable projects can be made bankable,

the more with use of CDM. Power purchase agreements can

be structured with Independent Power

Producers at prices of EURct 6 to 9/kWh

which still represent a good deal for both

parties. Thank you.

Average Generation Price in Africa?