CDM PROJECTS AND FINANCING ENERGY INITIATIVES AT THE LOCAL LEVEL

CDM PROJECTS AND FINANCING ENERGY INITIATIVES AT THE

LOCAL LEVEL

City Energy Strategies Conference

Cape TownNovember 2003

Energy for Africa. Forever.

Energy for Africa. Forever City Energy Strategies Conference

Over the last two days:• Rationale and motivation for sustainable energy is clear:

• sustainable development – diversify supply – emissions reductions – access to modern,clean, affordable energy services – lessen reliance on fossil/nuclear

Over the last two days:• Rationale and motivation for sustainable energy is clear:

• sustainable development – diversify supply – emissions reductions – access to modern,clean, affordable energy services – lessen reliance on fossil/nuclear

But where are the investors, banks, financiers & funders?

But where are the investors, banks, financiers & funders?

What is the state of play?

• Solutions exist, barriers challenged but we still seem to struggling with implementation, scaling up and building an investment case

• Solutions exist, barriers challenged but we still seem to struggling with implementation, scaling up and building an investment case

• Breakthroughs and viable projects have been highlighted, alongside the difficulties faced with implementation, both locally & internationally

• Stockholm (integration & closed eco-cycles) to community ownership of biogas in Thailand to windfarms in the UK

• Green electricity for WSSD – City Power, DSM & green tarriffs – Landfills (& CDM) – Housing – Transport solutions

• Breakthroughs and viable projects have been highlighted, alongside the difficulties faced with implementation, both locally & internationally

• Stockholm (integration & closed eco-cycles) to community ownership of biogas in Thailand to windfarms in the UK

• Green electricity for WSSD – City Power, DSM & green tarriffs – Landfills (& CDM) – Housing – Transport solutions


A number of barriers to successful implementation persist:• Policy framework:

• White Paper on Renewable Energy – sending the right signals to investors & funders is crucial to lessen the risk & create a market

• Commitment at local government level – are we convinced of the case?

A number of barriers to successful implementation persist:• Policy framework:

• White Paper on Renewable Energy – sending the right signals to investors & funders is crucial to lessen the risk & create a market

• Commitment at local government level – are we convinced of the case?

Financing sustainable energy solutions1% increase in the electricity price in Cape Town would raise R 30

million per annum for climate protection projects

Financing sustainable energy solutions1% increase in the electricity price in Cape Town would raise R 30

million per annum for climate protection projects

Local conditions and barriers 1

• Seemingly high cost of sustainable energy solutions• Technology cost & initial investment high – lower operating &

maintenance costs for certain technologies over time with clear benefits• No level playing field – fossil fuels enjoyed subsidies over extended

period- externalities not factored into the true price of electricity(to change?)

• Seemingly high cost of sustainable energy solutions• Technology cost & initial investment high – lower operating &

maintenance costs for certain technologies over time with clear benefits• No level playing field – fossil fuels enjoyed subsidies over extended

period- externalities not factored into the true price of electricity(to change?)

• Markets & opportunities for sustainable energy use - but how to finance

• They exist, but who is willing to pay, and what level of premium, if any ?

• Markets & opportunities for sustainable energy use - but how to finance

• They exist, but who is willing to pay, and what level of premium, if any ?


Perceptions by investors…risk, uncertainty, reward (returns)• Perception of risk within a changing regulatory regime

• Skills and capacity to impement new technologies (?)• Bureacracy and time lag of project initiation to implementation

Perceptions by investors…risk, uncertainty, reward (returns)• Perception of risk within a changing regulatory regime

• Skills and capacity to impement new technologies (?)• Bureacracy and time lag of project initiation to implementation

Create an environment conducive to attracting investorsCreate confidence that we are committed to implementing these

solutions and that the risk can be lowered and managed adequately

Create an environment conducive to attracting investorsCreate confidence that we are committed to implementing these

solutions and that the risk can be lowered and managed adequately

Local conditions and barriers 2

• Behaviour of finance institutions – expectations (returns) slow to transform

• Short term, high retruns – not conducive to sustainability • Need a portfolio of projects – from the more conventional to the more risky

• Behaviour of finance institutions – expectations (returns) slow to transform

• Short term, high retruns – not conducive to sustainability • Need a portfolio of projects – from the more conventional to the more risky

• Create the right incentives and disincentives• Treasury – 30% rebate on biodiesel as a fist step• Proposals for environmental fiscal reform – Treasury (internalise

extarnalities)• Cost of new infrastructure and impact on price - long term planning & PPA’s• Feed-in laws to guarantee price stability for RE producers

• Create the right incentives and disincentives• Treasury – 30% rebate on biodiesel as a fist step• Proposals for environmental fiscal reform – Treasury (internalise

extarnalities)• Cost of new infrastructure and impact on price - long term planning & PPA’s• Feed-in laws to guarantee price stability for RE producers


Finance, funding & the CDM

How do we attract non-donor funding and financing?

• Sources?• Project finance – Venture Capital – Equity Investors• Sustainability or ethical funds & financiers (Future Growth, Community

Growth Fund)

How do we attract non-donor funding and financing?

• Sources?• Project finance – Venture Capital – Equity Investors• Sustainability or ethical funds & financiers (Future Growth, Community

Growth Fund)

Clean Development Mechanism• Capacity building in the identification & implementation of projects

• Overseas buyers of credits – not only for big projects, so tap into the value that others see us as having – your own carbon portfolio

Clean Development Mechanism• Capacity building in the identification & implementation of projects

• Overseas buyers of credits – not only for big projects, so tap into the value that others see us as having – your own carbon portfolio

• New mechanisms to ensure the viability of projects• Are you willing to buy a stake in the projects in which you have an interest

e.g in a new energy generation facility – public enterprises or limited duration JV’s

• New mechanisms to ensure the viability of projects• Are you willing to buy a stake in the projects in which you have an interest

e.g in a new energy generation facility – public enterprises or limited duration JV’s

• New markets, with new products through new partnerships• The food & agriculture industry enters a new market (fuel for cars) – local

government works with agricultural waste producers to build energy plants

• New markets, with new products through new partnerships• The food & agriculture industry enters a new market (fuel for cars) – local

government works with agricultural waste producers to build energy plants


The Role of Local Government & where to start

Local government must take a strong leadership role in championing the creation of sustainable options

• Champion sustainable development and create the right environment

• Developing new kinds of partnerships & approaches

• Skills and capacity building for informed decision making

• Adequate public participation – risk management!

• Initiate multi-stakeholder dialogue with various stakeholders, especially in the finance community & local investors (equity issues)

• Create your own “sustainability blueprint” and investment framework to create confidence with investors, consumers, etc

Local government must take a strong leadership role in championing the creation of sustainable options

• Champion sustainable development and create the right environment

• Developing new kinds of partnerships & approaches

• Skills and capacity building for informed decision making

• Adequate public participation – risk management!

• Initiate multi-stakeholder dialogue with various stakeholders, especially in the finance community & local investors (equity issues)

• Create your own “sustainability blueprint” and investment framework to create confidence with investors, consumers, etc


Creative Options & Opportunities

Local government are in a position to develop new ways of securing financing and funding from diverse sources to unlock opportunities

• Create new funds:• Public-private joint initiatives – use LG financial muscle to leverage funds or

create new dedicated funds• Working with trade unions – pension funds can be accessed through

partnerships

Local government are in a position to develop new ways of securing financing and funding from diverse sources to unlock opportunities

• Create new funds:• Public-private joint initiatives – use LG financial muscle to leverage funds or

create new dedicated funds• Working with trade unions – pension funds can be accessed through

partnerships• Create new partnerships

• Secure interest of overseas “sustainability” investors and asset managers (e.g. SAM)

• Private sector with Aid Agencies - developing new models

• Create new partnerships• Secure interest of overseas “sustainability” investors and asset managers

(e.g. SAM)• Private sector with Aid Agencies - developing new models

• DSM & Energy Efficiency• Rebate schemes in order to secure commitment from client base• Creat new funds & financing schemes from savings portfolio

(refinancing or revolving funds)

• DSM & Energy Efficiency• Rebate schemes in order to secure commitment from client base• Creat new funds & financing schemes from savings portfolio

(refinancing or revolving funds)


Creative Options & Opportunities

Look at the structure of projects in order to secure partners who might not ordinarily seemed to be players

Approaching old problems in a new way

Look at the structure of projects in order to secure partners who might not ordinarily seemed to be players

Approaching old problems in a new way

The Project

Public Sector Funder

Local Authority

10%

Private Financier – loan capital

Equity Partner

Community Empowerme

nt TrustRaise own capital from the

community

Sees long term value

in the market

Sees long term value in the market – sees Munic can secure the

investment

CDM

• Buys a stake to sell at later date

• Puts money in fund for other RE projects

Davin Chown+27-83-460 3898

PO Box 363 Newlands [email protected]

Energy for Africa. Forever.

Genesis Eco-EnergyDr A. van der Linde (CEO)

+27-82-825 [email protected]

Dr L. de Lange+27-82-481 0522

[email protected]

CDM PROJECTS AND FINANCING ENERGY INITIATIVES AT THE LOCAL LEVEL

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