DEG‘s experience in small-scale renewable energy projects in developing countriesrisks – mitigants - carbon credits

Workshop on tools for risk mitigation in small-scale clean infrastructure projects Paris, 19th and 20th November 2003

David RusnokDEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH

Overview

1. DEG - Basic information

2. DEG‘s small-scale renewable energy portfolio

3. Risk mitigation in renewable energy projects

4. DEG and carbon credits

5. Next steps

1. DEG – Basic information

Founded: 1962

Owner: KfW (Kreditanstalt für Wiederaufbau)

Headquarter: Cologne

Capital: EUR 932 million

Employees: 314

Commitments 2002: EUR 464 million / 66 projects

2. DEG‘s small-scale renewable energy portfolio

Windpower(1) 15 MW Brazil(2) 16 MW China(3) 10 MW Turkey Hydropower(4) 5 x 20 MW Brazil (5) 18 MW Costa Rica (6) 10 MW Costa Rica (7) 15 MW Peru(8) 36 MW Nepal (Renewable Energy Fund)

8 Projects

58m EUR commitments

About 300m EUR total investments

2. DEG‘s small-scale renewable energy portfolio

0

18

0 20 40 60 80 100 120Developmental outcome (scale: CPPR-Points - max. 150 Points)

DEG's ROE, in percent

Average CPPR-points Infrastructure projects

Expected DEG's ROE

6% Main message:

Renewable energy projects are „win-win“-projects: They

generate high developmental outcome and adequate return

on equity for DEG.

3. Risk mitigation in renewable energy projects

- Risks Mitigants

(1) Technology risks

Track-record Feasibility study

Performance guarantees

(2) Exchange-rate risk

PPA nominated in/linked to fx Equity

Carbon Credits (!)

(3) Force Majeure

Insurance

(4) Construction risks

Turn-key-contracts

(5) Political risk, including

PPA risks

Political cooperation/

pressure

(6) Partner risks, including

operation and management risk

Due diligence

Long-term co-operation

4. DEG and carbon credits

Promotion of renewable energy- / energy-efficiency projects

Strengthening financial capacity of DEG‘s project companies

Reduction of exchange-rate risks of DEG‘s project companies

Additional income for DEG

4. DEG and carbon credits

ProjectCompany DEG

(1)

(2)

(3)

(1) Project finance (2) CO2-Consultancy(3) CO2-Mandate(4) Intermediation

KfW-

Carbon Fund

(4)

4. DEG and carbon credits

DEG-Pipeline: windparks and geothermal project No DEG-certification without DEG-financing DEG‘s commitment > 500.000 EUR No sinks, no nuclear power, no large hydro-projects Additionality could become a major issue Taxation of carbon-credit cash flows Eligibility of carbon credits for JV/FDI

5. Next steps – Preliminary ideas for DFI co-operations

Exchange of know-how (meetings and internet platform)(1) baselines(2) new technologies (3) additionality(4) taxation of carbon credit cash-flows(5) eligibility Project finance

Further questions:

David Rusnok, DEGTel: (0049)-221-4986-591E-Mail: rk@deginvest.de