innovative financing mechnisms and tools

Tessa Williams-RobertsonHead, Renewable Energy and Energy Efficiency Unit

Innovative Financing Mechanisms & Tools:How to unlock the appropriate quantity and

quality of capital for the Region’s sustainable

energy needs

Fifth Caribbean Sustainable Energy ForumBritish Colonial Hilton Hotel, Nassau, The Bahamas

January 23-25, 2017

The macro-economic impact of the high cost of imported fuel and the

consequential high electricity price are reflected in deteriorating performance

indicators in most BMCs. High levels of debt to GDP and depletion of foreign

reserves are directly related to this dependence on imported oil. High

electricity prices erode the competitiveness of the regional economies and,

therefore, their ability to earn the required foreign exchange to pay for imports,

including oil. Unless, therefore, we can reduce our dependency on imported

fossil fuels, and unless we can substantially reduce energy costs, we will not

succeed in improving our competitiveness and reducing our vulnerability to

external shocks. – DR. WILLIAM WARREN SMITH, CDB PRESIDENT (2014)

The Energy Sector is important““

High-level estimates of financing the gap

RE Plant Investment

Estimatenext 10 years

low high

USD8 billion to USD11 billion

Other Costsinfrastructure & implementation costs

+10%

Rough estimates for RE are already › USD10 billion.

20% EE target by 2027 (electricity sector) approx. USD4 billion

We are not too far from USD20 billion estimates!

Private Sector• Typical Debt: Equity - 70:30

Guarantees: MIGA; EDC-Canada; EX-IM Bank; OPIC

Equity: IFC

Developmental/concessional financing• Multilaterals

• Donors/bilateral

• Blended Resources with MFIs; Global Climate Funds

• Financial Intermediaries - Development Banks

Commercial banks • Lower perceived risk

• May benefit from Partial Risk Guarantee Schemes

Financing to bridge gap

Why concessional financing?

Regional Constraints– Mostly small domestic markets, no interconnection

– Governments unable to provide subsidies

• High indebtedness

• Fiscal constraints

• Low growth

– High price of electricity impacting competitiveness – FDI, trade

– Vulnerability to climate change impacts, disaster-prone

– Perceived high risk of investment

CDB financing innovation through

resource mobilization

Global climate change

concessional resources

Green Climate Fund, Adaptation Fund: CDB accreditation

EIB Climate Action Line of Credit: interest rate subsidy

Sustainable Energy in the Eastern Caribbean: EU-CIF/DFID

GeoSmart Initiative: Geothermal energy development in the

Eastern Caribbean: DFID, EU-CIF

IDB/CDB Sustainable Energy Facility: now + GCF USD80

million for geothermal

Loans: blended grants / loans Investment projects

Technical assistance:

capacity-building, institutional

strengthening, energy audits

Canadian Support to Energy Sector in the Caribbean

GIZ-REETA support for financial institutions

Sustainable Energy in the Eastern Caribbean: EU-CIF/DFID

Consider these first!

• Integrated Resource Plan done for the Energy Sector?

– Government-driven; solicited vs. unsolicited

• Does the Legal Framework allow or support investment?

• Feasibility established -technical, financial, ESIA?

• Appropriate mechanism for financing

– Government/public sector ownership

– Private sector: equity + debt – IPP + adequate PPA, off-taker risk?

– PPP – credible investor as partner; adequate PPA, off-taker risk?

• Financial viability of investment

– Terms of financing: price, term, grace – impact on tariff to consumer?

• TA or Capacity building required? Focal Point?

• Transparent Procurement Process?

Independent Power Producers (IPPs)

Governed by binding legal agreements

• PPAs, competitive tariff/price

• reasonable return guaranteed – ‘take-or-pay’ if to be financed;

non-recourse financing

IPPs selected competitively, transparently in response to RFP

• For example: Jamaica auctions for RE

Inadequate response = Risk perception

• Is risk appropriately residing with entity best placed to take it

on? Re-examine.

Public Private Partnerships (PPPs)

A long-term contract between a private party and a government entity, for

providing a public asset or service, in which the private party bears significant

risk and management responsibility, and remuneration is linked to

performance. – World Bank PPP (ppp.worldbank.org)

““

PPPs: A cautionary tale

• Capacity issue- Advisory services available: MFI-supported

Regional PPP Support Unit in CDB

• Solicited vs. Unsolicited Proposals- What do you compare it to?

• Due diligence checks on prospective

developers- credible vs. incredible

- TRY GOOGLE FIRST!

- Professional services; e.g. Thompson Reuters

World Check

• Appropriate risk allocation

PPP Lessons Learned

Post-closing fiscal

surprises

Endless

delays

Failure to close

• Inappropriate risk allocation

• Inadequate due diligence and preparation

• Insufficient fiscal oversight

• Flawed transaction processes

• Gaps in due diligence and preparation

• Lack of capacity

• Insufficient project preparation

• Lack of awareness of PPP potential

• Lack of Regional support mechanisms

Risks Reasons

Small-scale interventions also help

• Even small interventions contribute to

targets and culture shifts

- BNTF-type interventions

• Mainstreamed Interventions across

Sectors upgraded

- audits to inform designs, RE/EE components

included

- maintenance capacity assessments for

sustainability

- Climate Vulnerability Assessments for RE

investments

- Insurance?BNTF solar-powered water system, Belize

Energy Performance Contracting

• ESCO contracts with consumer

to deliver a level of energy

savings/energy service

• ESCO paid and project costs

covered by income from EE

savings or RE output

• Transfer technical risk from

client to ESCO

• Clients may be cash poor but

creditworthySource: Berliner Energieagentur GmbHF from European Commission Joint

Research Centre

An Example: CDB GeoSmart Initiative

Mobilising suitable resources for geothermal energy

• Responds to need for risk mitigation in GE dev.

• Resources address specific risks at each stage of GE dev.

• Resources mobilized include:

– Technical assistance grants

– For investment:

• grants (parallel financing development partners)

• contingently recoverable grants

• concessional loans

• loans at market terms

Typical Risk-Cost Profiles for Geothermal &

Appropriate Financing

Source: ESMAP; & IDB/CDB elaboration

Street light retrofitting instrument

CDB blending various resources for 100% change-out of streetlights

on the national network

> 50%savings

Antigua &

Barbuda

St. Kitts & Nevis Saint Lucia

• SEEC (grant and

loan)

• EIB CALC (max.

50% loan + interest

subsidy)

• Executed by APUA

• EIB CALC (interest

subsidy) + CDB

Loan

EIB CALC (interest

subsidy) + CDB Loan

• Negotiating additional CALC resources to satisfy demand.

• Private utilities eligible to access theses resources.

THANK YOU

reee@caribank.org

www.caribank.org

Ground-mounted section of CDB’S 150kW Solar PV Plant