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Presentation on theme: "BANKABILITY OF RENEWABLE & CLEANER ENERGY IN AFRICA Prepared by Marc J.M. Buiting"— Presentation transcript:


2 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 3. Renewable Energy 5.5 TW in Capacity 7031, ,178 23%21% 3,2215,515 Total RES As share of World Wind Biomass Geothermal Hydro Solar/Other Total World Source: EIA base case expectations; World Economic Outlook 2000/01. in GW Increase in GWin % , ,436 3,103 5, ,000 2,000 3,000 4,000 5,000 6, Year2020 Capacity in GW Repla- cement 1995 Capacity 2020 Capacity requirement Capacity Additions Capacity Growth $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

4 4. Future holds stronger Role Developing Countries Source: EIA base case expectations; World Economic Outlook 2000/01.

5 5. Renewables still less Economic in Cost/kWh Source: PB Power.

6 6. Renewables and Direct Government Support EU LOW HIGH BANKABLE PROJECT HIGH LOW Perceived Risk Bankability IRIR Tendering Obligation Fiscal Feed-in Tariffs G Fr ES NL Gr SwSw At It B L Pt UKUK NON-BANKABLE PROJECT DKDK T

7 7. Governmental Policy Matters Source: World Bank.

8 8. Where is Wind Power supposed to be Installed in 2020? Source: Wind Force 12, Greenpeace & EWEA. 85% of 2001 wind capacity is in OECD countries whereas it is foreseen that half of 2020s capacity will be in non-OECD countries.

9 9. BANKABILITY LOWHIGH LOW PERCEIVED RISKPERCEIVED RISK BANKABLE PUBLIC SECTOR: WORLD BANK PRIVATE SECTOR: DFIs EXPORT CREDIT AGENCIES INSURANCE COMPANIES 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 10. The General Project (Finance) Feasibility Matrix LOW HIGH BANKABLE PROJECT HIGH LOW SPONSOR SUPPORT SECURITY PACKAGE CONTRACT STRUCTURE PROJECT ECONOMICS Perceived Risk Bankability FINANCIAL STRUCTURING Financial market-forms / financial products Bond Investor / Lender requirements Project Sponsor requirements MARKET ECONOMICS GOVERNMENT SUPPORT NON-BANKABLE PROJECT

11 11. Renewable Energy: Main Banking Risks Acceptable country risk? Regulatory framework IPPs 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? GOVERNMEN T SUPPORT MARKET ECONOMICS PROJECT ECONOMICS CONTRACT STRUCTURE SECURITY PACKAGE SPONSOR SUPPORT

12 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 International o Renewables Wind: Aeolus Africa Development Corporation o 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 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 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 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?



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