Deva De Silva

November 2015

PACIFIC RENEWABLE ENERGY FINANCING

Pacific Panel Session: Connect 2015

1. Energy Access in the Pacific

2. IFC’s Approach to Renewable Energy and Energy Efficiency

Financing

3. IFC’s Renewable Energy and Energy Efficiency Financing

Regional Experience (Case Study)

Contents

• Heavily reliance on imported petroleum based fuels.

Around 50% of power generated in PICs is diesel

generated, leading to energy security concerns, very

high electricity tariffs and price fluctuation.

• Economies of scale. Most PICs are small and

disbursed, made up of many islands, sea locked and

geographically fragmented and/or remote. This makes

larger energy infrastructure projects less economically

compelling.

• Energy intensive industry and off-grid locations.

Tourism, mining and manufacturing are three of the

largest contributors to GDP in many PICs; all are

energy intensive. Many industries are located on the

city fringe or in remote areas and are off-grid.

• Limited access to capital. Small or early stage private

sector companies have seen opportunities to profit

from addressing these issues, but have struggled to

access viable financing options due to real or

perceived risks, particularly for renewable energy

investments. Market intelligence suggests banks have

limited experience in evaluating renewable energy

risk.

Challenges with the power sector in the Pacific…

37.78

141.34

67.03

14.44 15.46 16.59

0

50

100

150

200

250

300

350

SolomonIslands

Papua NewGuinea

Fiji Tonga Vanuatu Samoa

Grid Capacity [MW] Diesel Generated [MW]

Pacific Energy Mix

Country Tariff

USD/kwh

Diesel

Generated

Power Electricity

Access

Solomon Islands 0.87 100% 10%

PNG 0.43 33% 12%

Fiji 0.24 48% 81%

Tonga 0.53 49% 90%

Vanuatu 0.59 81% 28%

Samoa 0.45 31% 98%

Source of all data: IRENA, ‘Pacific Lighthouses-Renewable Energy

Road mapping for Islands’ 2013 ENA, ‘Pacific Lighthouses-Renewable

Energy Road mapping for Islands’, 2013.

…Result in some of the lowest rates of grid access in the

world

• The aggregated energy access rate

in the PICs is lower than some of

the poorest countries in the world;

and one of the lowest in East Asia

Pacific.

• This dramatically impacts their

economic and social development.

In Papua New Guinea, for example,

the lack of grid growth has led to a

widening of the gap in income per

capita between PNG and its

neighbors.

0

20

40

60

80

Laos Pacific Isand Countries Sub-Saharan Africa

Percentage of Households with Access to Electricity

0

1000

2000

3000

4000

5000

6000

7000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GNI per capita EAP relative to Pacific Island Countries

East Asia & Pacific (developing only)

Papua New Guinea (2014 unavailable)

Pacific island small states

Source: : IRENA, ‘Pacific Lighthouses-Renewable Energy Road mapping for Islands’, 2013

Source: World Bank Group

Current Committed Power Portfolio (As of September 30, 2014)

IFC OWN-ACCOUNT PORTFOLIO – IFC IS ACTIVE IN

ALL REGIONS AND ALL POWER SUBSECTORS

4

Current Committed Power Portfolio (As of September 30, 2014)

Power = US$ 6.3 billion

Total = US$ 51 billion

5

IFC’S VALUE-ADD IN POWER TRANSACTIONS

From Patient Equity to

Long Term Debt Sector Expertise

Country Risk

Mitigation

Environmental &

Social Risk

Management

Advisory

Services

EQUITY

Up to 20% in project or

company

On selective basis, start-

up equity/co-developer

under Joint Development

Agreement

SUB-DEBT

Terms tailored to meet

project needs

DEBT

Long Maturities Tailored

to Project Needs

Fixed/Floating Rates,

Local Currencies

Flexible Amortization

Profile

Syndication/Mobilization

Deep sector

knowledge gained

from experience

In-house

Engineers: can

offer technical

advice and

consider new

technologies

In-house Market

Expertise: Can

assess and

structure for

Merchant Risk

In-house

Regulatory

Expertise: Can

assess and

structure for

Regulatory Risk

Government

Relations

Neutral broker

Role

World Bank

Synergies

PCG

MIGA

Coordinated

approach

across WBG

services

• MIGA PRI

• IDA PCG

Advice on

Environmental and

Social Best

Practices

Equator Principles

Modeled after IFC

Standards

Governance

Private sector

perspective to

governments

Introductions +

matchmaking

Cross-border

support + Sector

knowledge

Access to Donor

Funding/Con-

cessionary

Support

Coordination/Car-

bon Finance

Programs to

assist client,

including: Local

Supplier

Development,

Corporate

Governance,

Community

Development

Funding

Renewable Energy Market Opportunities

1. IPPs granted by PIC Governments ― Samoa: number of tenders to IPPs for RE, particularly in solar. Plans to completely

replace its diesel generation capacity (~30MW).

― Fiji: GoF/Fiji Electricity Authority has committed to reaching 80% renewable energy

target in generation mix by 2020 (60% today).

― PNG: GoPNG/PNG Power, has called for EoIs from firms to operate renewable energy

power plants.

2. Sunergise - Roof top solar solution based on 10-20 year PPAs with off takers. IFC invested US$2m equity.

Installed upto 1.3MW of solar systems in Fiji and expanding across the Pacific with 5 projects

underway (estimated project cost of US$7m - 4MW).

3. Qaliwana Upper Wailoa Hydro Project Fiji (44MW) (IFC Infraventures with

Hawkins Infrastructure NZ development stage).

4. Tina River Hydro (15MW) Solomon Is: IFC transaction advisor (PPP advisory).

5. RE Portfolio Risk Share Facility with Commercial Banks (US$50m) with supporting

technical assistance to developers/banks.

PADGO Sri Lanka

• IFC Investment/Advisory project from 2009-2015

• Risk-sharing facility for 2 banks, up to US$55 million RE portfolio

• Activities:

― IFC signed RSF agreements with 2 commercial banks to support the expansion of their RE loan

portfolios.

― A 50% portfolio risk guarantee was provided to encourage these banks to lend to the sector

― In parallel, IFC worked with the partner banks to provide advisory services to strengthen their

lending capacity for RE projects in the areas of credit review, financial modelling, risk

management, technical appraisal, project supervision etc.

― In addition, the project extended direct project development assistance on a needs basis to

project sponsors/developers to prepare bankable projects

• As at Q4 FY14, 10 mini-hydro and 3 wind projects had been financed:

― Capacity of RE projects assisted: 75MW

― Amount of RE generated through these projects: 150,000Mwh

― Value of financing provided by FIs to develop these projects: US$60 million

― Amount of GHG emission avoided: ~100,000MT of CO2

8

IFC investments in Renewables

22