Forum on Sustainable Energy, Good Governance and Electricity Regulation The Need for an Effective Regulatory Regime: The Case for Increasing Clean Energy Investments 18 March 2008 Center for Asia and Globalization Samuel Tumiwa Senior Energy Specialist Regional and Sustainable Development Department

Rest of the World 71% 42% Developing Asia 29% Rest of the World 58% Developing Asia’s Share in Global CO 2 Emissions from Energy Consumption 2005 Actual 2030 (Projection)

Corporate Investment Debt Finance Equity Finance Domestic Capital FDI Mezzanine Finance Infrastructure Funds Capital Markets – portfolio investments Carbon Finance It is all about scale !

Corporate & Compliance Investors Angel Capital Project Development Lifecycle Technology Development Lifecycle Development Construction Commissioning Operation Early-stageMid-stageLate-stage R&D Commercial Scale Project Development Seed CapitalStart-up Financing Proof of Concept Early Stage Technology Development Pilot Plant Financing Funding Source Innovator Entrepreneur Sponsor / Developer R&D Grants Venture Capital Private Equity Corporate Investors Capital Markets Private Equity & Infrastructure Funds Capital Markets Mezzanine Capital Angel Capital 1 Carbon Finance 2 Tech Development ‘Capital & Skills Gap’ Project Development ‘Capital & Skills Gap’ Investment Development Lifecycle

MoU Development Financing Activities Financial Close ConstructionOperations Testing & Commissioning Project Phase time Friends & Family Angel Capital Venture Capital Private Equity Institutional Investors Investor Class Return Requirement Ease of Attracting Funds ROI (%) Clean Energy Equity Source―Stage―Return Relationship

Counterparty Credit – too low Risks (perceived)– too high Returns (perceived)– to low Deal Size/Volume – too small/too few (low) Transaction Costs – too high CONCLUSION = All TOO HARD! Result = capital migrates to other sectors/regions CE Financiers “highs” & “lows”?

Counterparty Credit – OK Risks (perceived)– OK Returns (perceived)– OK Deal Size – Aggregated & OK Transaction Costs – OK CONCLUSION = “Lets do it!” Result = capital migrates to Asian Clean Energy CE financiers “highs” & “lows”?

Partial Credit Guarantees Performance Guarantees Other Risk Mitigation Products Risk Sharing amongst public sector, IFIs & private sector risk takers Increase availability of finance Increase terms of finance What can be done: Risks?

Enhanced price signal & incentives Market Based Approaches: –Stepped tariffs –Local management charges –Dedicated public RE funds –Tax related incentives –Enhanced carbon price Incentives must be enhanced at national level (negative subsidiary removal) “Ability to pay” issues Big expectations on CDM. What can be done: Returns?

ADB’s Objective –Increase Program in Clean Energy to $1 billion Clean Energy Financing Partnership Facility –Target Size: $250 million –Currently: $100 million in commitments and another $100 million under discussions –Grant Components of Loans –Technical Assistance Climate Investment Facility Funds –Target Size: $10 billion –Currently: about $5.6 billion –Implemented by all MDBs –Clean Energy Fund –Climate Resilience Pilot Program Fund –Forestry and Land Use Fund Resources Available

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