1. Results Based Financing : Private Sector experiences in Latam GDF SUEZ ENERGY LATIN AMERICA Philipp Hauser – VP Carbon Markets philipp.hauser@gdfsuezla.com Tel: +552139745443 \

2. 2 The uneven challenge to limit Climate Change to 2˚C WHAT DO WE NEED TO BRIDGE THE GAP?  Non-OECD countries as they account for 90% of population and energy demand growth and require huge investments in capacity and mitigation;  Energy causes 66% of global GHGs & non-OECD account for 100% of growth;  The 450 (ppm) scenario requires additional investments of $11.6 trillion;  GHG intensive thermal expansion is still the baseline and leads to a technological look in which is capable to close the door to 450 ppm. Source: IEA 2011 World Energy Outlook.

3. 3 Market barriers and solutions 3 CTCN and bilateral organizations are is available to support host countries on request According to Economic Theory each market failure requires a specific instrument. CDM & NMM are globally coherent steps to build an international carbon market. Development Banks & Green Climate Fund can bridge financial barriers. NAMA policies with international support need to improve clean investment environment Pricing external costs & benefits Inefficient Capital Markets Lack of enabling environment Sound MRV for GHG emissions and emission reductions ensure global comparability Quantify external cost and benefits Lack of access to technology and organizational knowledge

4. 4 Build on and combine existing & emerging policies CDM → ET MDBs & GCF NAMA MRV Value GHG Reduction  Carbon Market Instruments (CMIs) identify “least cost options” and assure profitability Provide Funding in Least and Less DC’s  MDBs & GCF finance clean growth & attract Private Sector  CDM adds credibility & assures profitability MRV  CDM offers well established principles for MRV & bottom up baseline setting  Unparalelled DOE and PD capability is (still) available Domestic Efforts in advanced DCs  Advanced DC’s & private sector finance NAMA investments  National policies allow sector wide programs & activities

5. 5 Brazil’s National Policy for Climate Change Dec. 2009: Brazilian communication about voluntary National Appropriate Mitigation Activities (NAMA’s) to the UNFCCC:  Voluntary reduction of GHG emissions by 36.1 to 38.9% vs 2020 BAU.  For the energy sector this translates into (CO 2 e p.a. by 2020):  Expansion of Hydropower 79 – 99 Mt  Complementary Renewables26 – 33 Mt  Energy Efficiency:12 – 15 Mt National Policy for Climate Change defined by Law Nº 12.187, on 29 Dec. 2009 defines complementary GHG mitigation policy instruments:  i) Preferential loan financing,  ii) Tax and fee exemptions,  iii) Preferential granting of concessions and energy contracting  Iv) Use of the CDM As a consequence of these policies the fossil fuel based expansion of generation capacity could be reversed by contracting 27 GW of new renewable generation capacity (17 GW HPP; 7GW Wind; 3GW Biomass). GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013

6. 6 Case Study of Results Based Financing The Jirau HPP: Project of public interest 1, developed as PPP with domestic development finance (NAMA) Located at Ilha do Padre on the Madeira River, municipality of Porto Velho, Rondônia state Run of River plant off 3.750 MW allows to supply electricity to 10 million households Construction period Q4 2008 – 2016 with COD of 1 st turbine in Q4 2013 Largest renewable energy project registered with the CDM, in recognition of Brazil’s NAMAs 6 Mitsui (20%) Eletrosul (20%) Chesf (20%) 1 Resolution CNPE Nº 1 GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013 GDF Suez (40%)

7. 7 Barriers for capital intensive investments: THE EXAMPLE OF HYDR0POWER DEVELOPMENTS Barriers : high capital demand lack of access to financing long construction time risk of delays and cost overruns high interests during construction Proposed Solution Reduced interest rates Long loan tenor & 5 year grace period during construction Higher revenues during financing period to enhance bankability World Bank Discussion Paper No. 420, “Financing of Private Hydropower Projects”, July 2000: http://documents.worldbank.org/curated/en/2000/07/436947/financing-private-hydropower-projects. GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013

8. 8 The Jirau The Brazilian approach as a model The Brazilian Development Bank designed special support conditions to promote the Jirau project: 5 year grace period with capitalizing interests to finance construction Loan Payback period of 20 years Reduced interest rate CER sales revenues considered as bankable income leverage private sector investment GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013

9. 9 Conclusions If we want transformational change we need to ensure global cooperation to address all market failures at once. Problem:  Capital Intensity and long term maturity of clean infrastructure is the biggest barrier to green growth. Results required:  Ensure preventive mitigation now to avoid huge cost in the future.  Accept measurement against BAU or against political commitments. Allow comprehensive solutions:  Ensure that financing, carbon pricing, MRV and national policies interact to overcome barriers and achieve measureable results.  Establish reliable carbon market regulation which allows to undertake transformational investments