Asian Development Bank and Private Sector Energy Efficiency Financing

1
Asian Development Bankand Private Sector
Energy Efficiency Financing

• Hisaka Kimura
• Structured Finance Specialist
• Private Sector Operations Department
• 26 September 2006, Beijing

2
Contents

• Asian Development Bank (ADB)
• Issues for Energy Efficiency
• What does ADB offer?

3
Asian Development Bank (ADB)

4
ADB

• Multilateral development finance institution
• Owned by 66 member governments including PRC
• Established in 1966
• Headquarters in Manila, Philippines
• Provides financing for both governments and
  private sector enterprises

5
ADB Public-Private Institution

• Public sector funding and private sector funding
  operated under one corporate umbrella and
  strategy
• - Public Sector Departments provide assistance
  to governments
• - Private Sector Operations Department
  provides assistance to private enterprises
  without government guarantee

6
Private Sector Operations

• 1.5 billion assistance for private sector
  projects without sovereign guarantee
• The third largest department in ADB in terms of
  lending
• Operating in two divisions
• - Infrastructure Finance Division
• - Private Sector Operations Division

7
ADB Private Sector Portfolio - Countries
8
Issues for Energy Efficiency
9
Background - Current Energy Path

• Energy use in PRC increasing to support economic
  growth
• Energy investments (mostly for electricity)
  largest in Asia-Pacific through 2030
• Chart IEA World Energy
• Outlook 2005

10
Issues

• Rapid growth and larger share of world energy use
• Manufacturing and urban migration
• Relatively low efficiency in energy use
• Relatively low per capita energy consumption
• High demand is increasing international fuel
  prices
• Increased greenhouse gas emission is causing
  global warming

11
Energy Efficiency (EE)

• Current energy development path is
  environmentally and economically unsustainable
• Energy Efficiency (EE) will slow the growth of
  greenhouse gas emissions without sacrificing
  economic gains or living standards
• Improving energy use efficiencies will directly
  lower the cost of energy services, and thereby
  create financial savings
• EE is the largest and most cost-effective single
  energy resource

12
Potential Transactional Barriers for EE Projects

• Smaller project sizes
• Newer technologies
• Unfamiliar to financiers
• Newer concept to the project sponsors

• Higher transaction costs
• Higher development costs
• Scare/higher-cost capital
• Less incentive to implement/ meet targets

13
New financial source of EE financing-CDM

• Examples of energy efficiency CDM projects
• Ningguo Cement Plant 9100KW Waste Heat Recovery
  and Utilisation for Power Generation Project of
  Anhui Conch Cement Company Limited (Estimated
  Ave. GHG Reduction 55,897 tCO2e/y)
• Taishan Cement Works Waste Heat Recovery
  Utilization for Power Generation Project
  (Estimated Ave. GHG Reduction 107,116 tCO2e/y)

14
ADBs Commitment to EE

• ADB launched Energy Efficiency Initiative (EEI)
• ADB is committed to increase its investments in
  EE. Indicative annual lending target of 1
  billion.
• ADB is also developing the Carbon Market
  Initiative (CMI) to compliment the EEI

15
What does ADB offer?
16
No Single Model for ADBs Involvement in EE

• Types of Projects
• Supply-side energy efficiency
• Demand-side energy efficiency
• ESCOs
• Types of Financing Models
• Direct investment in energy efficiency projects
• Credit line / partial credit guarantee through
  local financial institutions
• Carbon finance

17
ADB Debt

• Long term direct loan in foreign currency
• Long term loan in local currency (PRC, India,
  Thailand, Malaysia and Philippines)
• Mezzanine debt
• Corporate or project bonds
• Loan syndication under ADB B-Loan coverage

18
ADB Guarantee

• Political risk guarantee
• - To protect commercial financiers from
  specifically identified political risks such as,
  expropriation, currency inconvertibility,
  political violence and breach of contract.
• Partial credit guarantee
• - To cover commercial financiers and/or bond
  holders against all risks both commercial and
  political for a portion of debt service.

19
ADB Investment

• Investment in ordinary shares
• Investment in preferred shares
• Investment in private equity fund
• ADB Carbon Market Initiative
• Carbon credits are expected to become an
  additional source of EE financing
• Upfront financing and ongoing support for
  carbon-reducing projects

20
Technical Assistance Facility

• Provide assistance for non-lending measures, such
  as
• - policies, regulations, standards
• - institutional capacity building
• project preparation
• Build capacity in local financial institutions
  providing finance in EE projects
• Develop monitoring and evaluation (ME)
  mechanisms for EE projects

21
ADB Value Additions

• Risk mitigation
• - Multilateral institution owned by 66 countries
• Assistance for both public sector and private
  sector
• - Knowledge of countries, sectors, and business
• Variety of financial products
• - Flexibility in structuring financial solutions
  
• - Willing to share risks with private sector
  investors

22
Thank you