1. Ci-Dev ERPA pre- finance fund World Bank RBCF Dialogue, Paris, 2 June 2016

2. 2 Ci-Dev ERPA pre-finance fund  Ci-Dev – compensating for failures of the carbon markets – guarantees CER off- take at fixed prices in order to support low-carbon energy access programs in least developed countries (mainly PoAs)  Programs (or rather the > 200 project ideas submitted to Ci-Dev) often face equity constraints – especially for the initial set-up  Pre-finance of future CER revenues could close the initial equity gap, and facilitate a scale-up of Ci-Dev (carbon finance) activities  Design of a (structured?) fund to pre-finance a portfolio of “Ci-Dev-like” ERPAs – to correct other market imperfections (capital)  Identification of delivery risk mitigation strategies and potential private investor classes  Definition of steps for fund operationalization Context

3. 3 Analysis of current Ci-Dev portfolio Stakeholder chart End- user CPA I(s) CMECi-Dev Off- taker Project-level financing Consum er financin g Business development, support services, admin, etc Carbon revenues Carbon revenues (optional) CERs CER rights

4. 4 Ci-Dev ERPA pre-finance fund Situation without Ci-Dev  Discounted project cash flows < initially required investment  Viability gap Current challenges – an illustrative example Situation with Ci-Dev  Additional results-based payments close viability gap  Yet initial equity gap might remain  to be closed by pre-finance fund

5. 5 Ci-Dev ERPA pre-finance fund 1.“Ci-Dev-like” portfolio: PoA vs. stand-alone projects, asset/technology classes  adjustment of Ci-Dev eligibility criteria and priority areas. 2.Risk allocation and exposure to different stakeholders – as well as risk mitigation strategies on ERPA level and fund level. 3.Potential target investors (public and private) – including their respective risk appetite and risk-return expectations. 4.Fund volume, depending on pre-finance needs of supported asset/project types, size of underlying carbon fund, and interest of investors. Moving targets of fund structuring

6. 6 “Ci-Dev-like” portfolio  Under PoA, investment financing needs usually increase over time, along with the number of installations (see following figures); a full pre-financing of the projected CER revenues to year 1 appears not necessary, and would rather create unproductive cash buffers.  To what extent can/should the pre-finance fund target projects different from the current portfolio (energy access PoAs)?  What are the carbon pre-finance needs of different project approaches (stand- alone projects vs. PoA) and different asset/technology types? Eligibility criteria and priority areas

7. 7 Analysis of current Ci-Dev portfolio Contracted yearly CER volumes (indexed to 100% in year 1) “Ci-Dev-like” portfolio

8. 8 Analysis of current Ci-Dev portfolio Financing needs on asset and program level “Ci-Dev-like” portfolio

9. 9 Risk allocation, exposure and mitigation Status quo and possible strategies  Under Ci-Dev, CER delivery risk – that is market and performance risk – lies with CME; no contractual recourse to CPA implementers; yet CER delivery is an inherent interest of CPA implementers.  Delivery risk can be significant for Ci-Dev-like (PoA) projects, and varies across and among CDM project categories; UNEP DTU data shows that solar project are least risky, while cook-stove projects come along with highest risk.  Development of smart risk allocation and mitigation strategy on 2 levels:  ERPA level: ideally alignment of interest between fund, CME, CPA implementer by means of pricing and/or CER shares for pre-finance;  Fund level: first loss by public sector investors; bundling and diversi-fication of portfolio; necessity for other delivery risk mitigation instruments.

10. 10 Risk allocation, exposure and mitigation Status quo and possible strategies  What could be an appropriate fund structure (costs / benefits)  Role of underlying portfolio  (Promotional) purpose  Securitization ?  Issues related to structured fund (waterfall)  Option to have an equity (first loss) tranche (held by public institution?) - Could be used to incentivise ?  “Value” of first loss buffer to other tranches strongly influenced by correlation of underlying assets (consequences for appropriate portfolio) - Could be used to generate “tailor-made” securities  …

11. 11 Way forward  Challenge: Many parameter can be optimized (subject to others given)  Possible way forward  Generate some scenarios (alternative concepts/narratives)  Connect to an appropriate fund option in that specific case

12. 12 Frankfurt School – UNEP Collaborating Centre for Climate & Sustainable Energy Finance Frankfurt School of Finance & Management Sonnemannstrasse 9-11 60314 Frankfurt am Main http://fs-unep-centre.org www.frankfurt-school.de E-Mail:fs_unep@fs.de Phone: +49 (0)69 154008-604 Fax:+49 (0)69 154008-4604 CONTACT