donor funding opportunities: how to harness african development bank group funding

8/8/2019 Donor Funding Opportunities: How to Harness African Development Bank Group Funding

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WORKSHOP ON THE INVOLVEMENT OF STATESWORKSHOP ON THE INVOLVEMENT OF STATESWORKSHOP ON THE INVOLVEMENT OF STATESWORKSHOP ON THE INVOLVEMENT OF STATES

IN THE POWER SECTORIN THE POWER SECTORIN THE POWER SECTORIN THE POWER SECTOR

Donor Funding Opportunities:Donor Funding Opportunities:Donor Funding Opportunities:Donor Funding Opportunities:

How to Harness AfricanHow to Harness AfricanHow to Harness AfricanHow to Harness AfricanDevelopment Bank GroupDevelopment Bank GroupDevelopment Bank GroupDevelopment Bank Group

FundingFundingFundingFundingFunding Opportunities in the RenewableEnergy Sector

R-C Okoro, Infrastructure Expert, NGFO; Peter Sturmheit, CPONGFO; Youssef Arfaoui; Renewable Energy Expert, OPSM

Nigeria Electricity Regulatory Commission (NERC)

29th-30th July 2008By: Herv Assah, Resident Representative, NGFO


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The World by night


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In 2004, investment in the world wideRENEWABLE ENERGY (RENEWABLE ENERGY (RENEWABLE ENERGY (RENEWABLE ENERGY (RE)RE)RE)RE) sector sectorsectorsectorreached US$30 billion, and pushed RE

capacity to 160 GW 4% of global power


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RE addresses the needs and contributes to

improve living standards of the rural poor

RE is in line with the Strategic Planof the ADB

for Infrastructure that considers RE as one of the

pillars of sustainable development

Why the ADB focuses onWhy the ADB focuses onWhy the ADB focuses onWhy the ADB focuses onRenewable Energy (RE):Renewable Energy (RE):Renewable Energy (RE):Renewable Energy (RE):


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Per capita public electricitygeneration (kWh/person)

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RE addresses the problem ofelectricity shortageelectricity shortageelectricity shortageelectricity shortage in Africa

untapped natural resource in Africa

suitable for the rural areas

environmentally friendly (no / minimum emission of

greenhouse gases)

Increasingly affordable compared to competing fossil fuel

(recent increase of oil prices: 120-140 US$/bbl)


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The main priorities of the Bank supply of low-cost and

environmentally clean energy to agreater number of persons

development of renewable

energies in order to diversifyenergy sources for electric powergeneration


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The Private Sector DepartmentPrivate Sector DepartmentPrivate Sector DepartmentPrivate Sector Department (OPSM) of the ADBfocuses on (a) wind energy and (b) small hydropower (SHP)sectors

The Middelground wind farm Copenhagen - Denmark

30 MW hydropower - Tunisia


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The Public Sector Infrastructure DepartmentPublic Sector Infrastructure DepartmentPublic Sector Infrastructure DepartmentPublic Sector Infrastructure Department(OINF.3) of the ADB focuses on (a) solar thermalenergy and (b) hydropower (concessional loans interest free ADF) sectors


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The Bank is committed to develop and promote

wind energywind energywind energywind energy in Africa.

The AfDB has (a) initiated the wind energy studyfor Africa, (b) identified the main barriers, such as:

Legal and regulatory Economic and Financial

Technical

Lack of local capacity


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Wind poweris the world's fastest growing

energy source


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Wind energy in Africa: only 0.4 %of world total, growth rate 3% (World: > 30%)

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Wind energy Certain rural regions in some

countries have to bear power

production costs in the range of15 to 25 US cents/KWh (in 2005),reflecting the exorbitant costs ofconveying dieselto these regions,often far from the urban centers.

advantage and profitability ofdeveloping wind energy in theseregions for small local electricitygrids or in rural areas.


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Wind energy Competitiveness of Wind Energy Projects in

2005 (> 10 MW; good wind potential,

utilization factor 30%)

Financing models:

(i) Entirely commercial (ii) Commercial with PPP

(iii) 30% project cost subsidy


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Wind energy generation costs

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Wind energy Current electricity tariff in

Nigeria is 8-10 Naira/kWh= US cents 7-9/kWh

Outlook: Multi Year TariffOrder (MYTO) tariffs to beincreased

Conclusion: At Naira 5 to 7per kWh generation cost,wind power is likely to

become commercially viablein Northern Nigeria


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Hydro PowerStrengths:

Low operation & maintenancecost

Long life span

No GHG emissions

Weaknesses:

Moderately high capital cost Drought sensitive

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Bank focus on small hydro power (SHP) where

appropriate for remote areas far from thenational gridand having a reliable water sourcethroughout the year.


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From 2000 to 2004, the Average Annual Growth of

Hydropower world wide is about 7% for SHP and2.8% for Large Hydro.

0

1

2

3

4

5

6

7

PercentageGrowthaccountedfo

rbythe

Technology

Small hydro Large hydro

Average annual Growth of Hydropower


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Africa has a huge potential in HydroPower

Africa's largest power project on the River Congo:

The Grand Inga Project set to beginin 2010.

Project estimated to cost US$ 80bn by its completionin 2022.

World Bank, the African Development Bank, theEuropean Investment Bank, NEPAD, etc havepledged to finance the project that will double

Africa's current power production.


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Hydro power in Nigeria:

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Total Hydro Power Potentialin NIGERIA:

14,750 MW Current hydro generation = 14% of

potential and 30% of total installedgrid electricity generation capacity

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Small Hydro Power (SHP)Potential in NIGERIA:

> 730 MW from 277 sites(that is about one third of current PHCN power

generation)But: SHP database is incomplete & obsolete


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SOLAR POWER4 ways of carrying out direct conversion of

solar energy:

- thermal method (hot water tanks)- thermodynamic method (converts solar energy into mechanicalenergy and then into electricity. Used in the Ain Beni Mathar SolarThermal Power Station, Morocco)- photovoltaic method PV (directly converts solar radiation(photons) into electricity)- solar chimney (uses dynamic energy transported by a hot air

current which is then converted into electric energy by a windturbine generator)

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SOLAR POWER:Thermodynamic methodParabolic trough-shaped mirror reflectors are used to

concentrate sunlight on to thermally efficient receiver tubes placedin the troughs focal line.A thermal transfer fluid, such as synthetic thermal oil, is circulatedin these tubes. Heated to

approximately 400C by the concentrated suns rays, this oil is thenpumped through a series of heat exchangers to producesuperheated steam.The steam is converted to electrical energyin a conventional steam turbine generator

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Solar Thermal Power Station

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Solar Thermal Power Station

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Solar Thermal Power Station Parabolic troughGeneration cost in US cents/kWh (2005):

- Rankine Steam Engine 30 MW (small)- Rankine 200 MW (large)- ISCC (integrated solar thermal combinedcycle power station) 30 MW solar, 170 MW

gas- Outlook in 5 years Rankine 200 MW

(Current PHCN electricity tariff: $ 0.07-0.09)

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Solar Thermal Power Station Parabolic trough: Generation cost

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Technical & Economic Potentialof Solar Thermal Power Stations

Viable for areas with high solarirradiance (kWh/m2/year):

North Africa 2400-2800

Sahel Northern Nigeria 2200-2550

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MOROCCOMOROCCOMOROCCOMOROCCO ADB LOAN OF UA 113ADB LOAN OF UA 113ADB LOAN OF UA 113ADB LOAN OF UA 113

MillionMillionMillionMillion for thefor thefor thefor the AIN BENI MATHARAIN BENI MATHARAIN BENI MATHARAIN BENI MATHARSOLAR THERMAL POWER STATIONSOLAR THERMAL POWER STATIONSOLAR THERMAL POWER STATIONSOLAR THERMAL POWER STATIONPROJECT (2005)PROJECT (2005)PROJECT (2005)PROJECT (2005)

Conventional combined cycle thermal powerstation functioning with natural gas, reinforcedwith solar energy from a field of parabolic

trough mirrors (surface area 220,000 m2). Initial total capacity of the power station 200

MW to 250 MW, including 30 MW of solar

energy. Reduces greenhouse gas emissions by 1.550

tons of CO2/year

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MoroccoMoroccoMoroccoMorocco ---- SOLAR THERMALSOLAR THERMALSOLAR THERMALSOLAR THERMALPOWER STATION PROJECTPOWER STATION PROJECTPOWER STATION PROJECTPOWER STATION PROJECT (2007(2007(2007(2007----10101010))))

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MoroccoMoroccoMoroccoMorocco ---- SOLAR THERMALSOLAR THERMALSOLAR THERMALSOLAR THERMALPOWER STATION PROJECTPOWER STATION PROJECTPOWER STATION PROJECTPOWER STATION PROJECT

In 2007: Projects scaled up to 470 MW(incl. 20 MW from solar energy)

Capital Cost US$ 610 million

Funding: ADB loan 66%, GEF 7.5% (subsidy),ONE counterpart 27%

UNIT CAPITAL COST:

US$ 1,300 /kWEconomic and financial rates of returnare

15% and 17%, respectively

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Solar Photovoltaic (PV) Arrays


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World wide boom: The average annualgrowth of the PV market up to 2009 isprojected to be 25 - 30%

Compared to other renewables lessattractive for the following reasons:

- Approximately 10,000 m2 is required per

MWp installed; - Still high costs per Wp installed: In 2005

and 2006, the turnkey price for small PVsystems (up to 10 kWp) was 6 to 6.5 /Wp

and for larger systems 5.5 to 6 /Wp (ca.US$ 9/Wp).


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High generation cost too requiressubsidies:

about 0.4 /kWh (0.6 US$/kWh) inSouthern Europe.

Unfortunately, the feed-in tariff issignificantly lower in most countries (US$0.15).


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ADB promotes Renewable Energy:ADB promotes Renewable Energy:ADB promotes Renewable Energy:ADB promotes Renewable Energy: Small hydropower projects 10 Countries (Institutional

Strengthening, Feasibility & Pilot projects - EUR 40 m)

Madagascar Small size Hydro Power: Rural ElectrificationProject (6 and 15 MW total cost of Euro 30 m)

Renewable Energy Studies for Uganda, Tanzania, Kenya,

Gambia

Gambia Solar PV Project (EUR 15 m)

Morocco: Solar/Gas Thermal Power Station (250 MW, 30

MW Solar) (EUR 200 m)

Kenya: 30 MW Wind Farm (US$60m)


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The Bank assists the sponsors to prepare all necessarydocumentation for RE projects to benefit from the Carbontrade facility (Clean Development mechanism CDM Kyoto

protocol) The total expected emission reductions shall be above20.000 t CO2 in order to justify the costs of the CDMtransaction process

For SHP, financial IRR can be increased by 0.5 to 1%through CDM (Source: UNIDO)

RE (Wind, SHP, solar) projects can benefitfrom the CDM - Carbon Trade facility. The

present cost of 1 ton CO2is around US$ 18. (2004;Emission Reduction)


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Power Generation Costs (US$)Power Generation Costs (US$)Power Generation Costs (US$)Power Generation Costs (US$)

- in 2002- projected for 2010

Capital

costs

($/kW)

Min. generationcosts

(Cents/kWh)

Max. generationcosts

(Cents/kWh)

Generationcosts by 2010(Cents/kWh)

Small hydro power 1,000 -5,000

2 - 3 9 - 15 2

Solar PV power 4,500 -7,000

18 - 20 25 - 80 10 - 15

Solar thermal 3,000-6,000

10 - 15 20 - 25 6 - 8

Biogas 500 -4,000

2 - 3 10 - 15 2

Geothermal power 1,200 -5,000

2 - 5 6 - 12 2 - 3

Wind power 850 -1,700

3 - 5 10 - 12 2 - 4

Source:IEA 2003


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Power Generation Costs (US cents)Power Generation Costs (US cents)Power Generation Costs (US cents)Power Generation Costs (US cents)

Source: ESMAP/World Bank (2007)


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MiniMiniMiniMini----Grid Power Generation Costs (USGrid Power Generation Costs (USGrid Power Generation Costs (USGrid Power Generation Costs (UScents) in 2005cents) in 2005cents) in 2005cents) in 2005

=> biogas, hydro & wind are competitive

0 20 40 60Wind 100 kW

PV-Wind Hybrid 100 kWSolar PV 25kW

Micro-Hydro 100 kWBiogas

Diesel Generator 100 kWPHCN Electricity tariff Max

US cents/kWh


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Power Plant Pricing Estimates (US$/kW)Power Plant Pricing Estimates (US$/kW)Power Plant Pricing Estimates (US$/kW)Power Plant Pricing Estimates (US$/kW)

Installed unit cost ofpower projects (2008)(Source: World Bank/ESMAP)

Wind 100x1 MW: 1600 1800 $

Solar Photovoltaic Array: 8000

9000 $ Diesel Engine Generator 1-5 MW:

500 600 $

Gas turbine combined cycle unit -

140 MW: 1200 1400 $

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Power Plant Pricing EstimatesPower Plant Pricing EstimatesPower Plant Pricing EstimatesPower Plant Pricing Estimates

(US$/kW)(US$/kW)(US$/kW)(US$/kW)

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ADB Group FundingADB Group FundingADB Group FundingADB Group FundingOpportunities :Opportunities :Opportunities :Opportunities :The ADB Group has several financing

Windows, the most important are:

i) ADF

ii) ADBiii) NTF

iv) NEPAD IPPFv) Bilateral Trust Funds


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BankBankBankBank PublicPublicPublicPublicSectorSectorSectorSector funding infunding infunding infunding inNigeria: African DevelopmentNigeria: African DevelopmentNigeria: African DevelopmentNigeria: African DevelopmentFund (ADF)Fund (ADF)Fund (ADF)Fund (ADF)

Funding Requests are passed through theFederal Ministry of Financefor duediligence;

Funds for Projects, Technical Assistance &Studies;

The ADF = concessionary window (interestfree);

Beneficiaries contribute a minimum of 10%


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African Development Fund(ADF)

Loans repayable over 50 yearsincluding 10 years grace period;- Service charge 0.75% per annum

- Commitment charge 0.5% on theundisbursed portion of the loan;- ADF for low-income countries

incl. Nigeria


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The ADB = commercial or non-

concessionary window

Conditions are negotiable

(i) Example for a PPP (Public PrivatePartnership) infrastructure project:

Pricing and Fees:

Market Interest rate: Floating rate US$ 6 month Libor + 370 bps(3.7% - the local reference rate is the 6 month Nigerian T-Bill);

Front end fee 80 bps (0.8%);

Appraisal fee US$ 150,000

Commitment fee 50 bps (0.5%)


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The ADB = commercial ornon-concessionary window

(ii) Example for a private sector power project

(gas thermal plant): Pricing and Fees:

Interest rate: Floating rate of 3 month Libor +3.62%;

Commitment fee: 1% on undrawn commitments

Front end fee: 1% of loan amount (US$ 140,000).

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The ADB = commercial or non-

concessionary window - Example:

Maturity/ Repayment Schedule: Senior loans have final maturity of

typically 12-15 years (for infrastructureprojects)

including a 2-5 year grace periodonprincipal repayments


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Banks financial instruments are:

Equity & Quasi-equity Guarantees

Lines of Credit Loan Syndication

Under-Writing

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Comparison ADB private sector

loan conditions with NigerianInvestment Banks

ADB: Interest rates mostly lowerthan 9%, long maturities, ideal for

infrastructure lending Commercial Banks (Nigeria): High

interest rates 15-20%, short

maturities

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The NTF (Nigeria Trust Fund)

established by Government ofNigeria

to assist development of

more disadvantagedmember counties

Nigeria does not qualifyto borrow from thisWindow;interest rate 4 %, repayable

over 25 years;grace period 6 years;

NEPAD IPPF


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NEPAD-IPPF

Infrastructure ProjectPreparation Facility:

Grants for studies applied to project/programme

development and preparation

activities ceiling of USD 500,000

beneficiaries contribute aminimum of 5%

Bil t l T t F d


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Bilateral Trust Funds

Managed by Partnerships &Cooperation Dept. (ORRU)

Generally for studies andinstitutional support

Procurement of services oftenlimited to firms originating fromTrust Fund Donor Country


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AfDB Diversified Lending over the years into:

Project loans to create specificdevelopment assets;

Lines of credit funds channeledthrough national or sub-regionaldevelopment finance institutions (eg.private Banks) to finance specific

projects; Sector investment/rehabilitation loans for strengthening or rehabilitatingsector specific planning, production,

etc;

AfDB Di ifi d L di


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AfDB Diversified Lending :

Structural adjustment loans creditsaimed at enhancing specific macro-economic policy reforms;

Sector adjustment loans for supportingchanges or institutional reforms in aspecific sector;

Technical assistance credits - loans orgrants aimed at providing increasedcapacity to national or regionalinstitutions, finances studies needed forprojects;


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To access ADB loans for PrivatePrivatePrivatePrivateSector RE projectsSector RE projectsSector RE projectsSector RE projects, the followingconditionsconditionsconditionsconditions have to be met: The contractual arrangements are in place

The project has to be development oriented

The project is technically feasible

The sponsors have the required financial and

technical capacity to run the project

The project is financially and economically viable

The regulatory framework is favourable for Renewable

Energy projects

The project has a reasonable size


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Eligibility criteria to qualify for PrivateSector financial assistance:

The borrower must be established in aRMC

Project size : Min US$ 10 Million

ADB not the largest single lender(Limited to 1/3 rd of the project cost)

Introduction of direct requests/enquiries

to the Bank

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Application Procedure:


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Application Procedure:

Bank will undertake due diligence and appraisal of theapplication for funding the enterprise/project

evaluate the technical feasibility;

marketing prospects;

financial soundness;

economic viability;

environmental impact of the enterprise;

attaches importance to integrity;

experience and competence of sponsors and the management

transparency and full compliance with universally acceptedcorporate governance principles;

gives priority to projects where other reputable financialinstitutions and banks are involved;

can assist enterprise arrange financing by mobilizing therequired domestic/external financing from other multilateral &bilateral institutions and private financing 60

Typical Internal Process for a


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Typical Internal Process for a

Senior Loan

Concept reviewReview of information memorandum

Analysis of project contextProject AppraisalDetailed review of projectTechnical review

Risk assessmentNegotiationLegal review (advisor)Term sheet negotiation: milestones, securitypackage

ApprovalFinal presentation to the boardBOARD APPROVALLOAN AGREEMENT

ConclusionConclusionConclusionConclusion


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ConclusionConclusionConclusionConclusion

Renewable energy addresses the needs of the poor in Africa.

The major areas of RE focus are:

Wind energy

Hydro power Solar thermal & PV

The Bank offers:

Flexible and tailor made instruments Concessional and non-concessional loans

Grants for TA & studies

Financial and technical assistance and institutional capacitybuilding programs


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For further information:

Herve Assah, Resident Representative, Nigeria Field Office

Amadou T. Diallo, Division Manager, Energy Division(OINF.3)

Youssef Arfaoui, Renewable Energy Expert, Private SectorDepartment (OPSM), [email protected]

R-C Okoro, Infrastructure Expert (NGFO)Peter Sturmheit, Country Programme Officer (NGFO)

Website: www.afdb.org


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Thank you

donor funding opportunities: how to harness african development bank group funding

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