financing energy services for rural and urban...

Obertitel

1

Financing Financing EnergEnergy Services y Services forforRural and Rural and Urban Urban Poor withinPoor within

German Financial German Financial Co-Co-operationoperation

Rolf Seifried Kreditanstalt für Wiederaufbau

Frankfurt am Main

Energy for Sustainable Development:A Partnership InitiativeBrussels, July 23, 2002

2 Energy for Sustainable Development

Overview of PresentationOverview of Presentation

� Energy and Development:� Objectives of German

Development Co-Operation

� Energy Financing by KfW� Historical Record

� Project Examples

� Financing Instruments andServices


KfW -KfW - Overview Overview

Established by law in 1948Legal Status Corporation Under Public

LawShareholders 80 % Federal Republic,

20 % Federal StatesSeat Frankfurt am MainBranch Office BerlinLiable Equity** € 7.827 billion*Balance Sheet Total** € 246 billion*Rating AAA / AaaEmployees 2 190 *KfW Group

**preliminary figures


KfW KfW groupgroup: : Areas of ActivityAreas of Activity

InvestmentFinance

Exportand ProjectFinance

Promotion ofthe GermanEconomy

Promotion ofDevelopingCountries andEconomies inTransition(FinancialCo-operation)

Advisory andother Services

Equity andMezzanineFinancing


EnergyEnergy SupplySupply andand Demand onDemand on a Global a Global ScaleScale

� Future increase of global primary energyconsumption determined by the growingshare of developing countries� By the year 2020 developing countries will account for

some 45% (1997: 34%)� Reasons:

� high population growth� increased urbanisation� restructuring of economy

� Increase in future electricity consumptioneven more dynamic:� Doubling of electricity consumption in developing

countries expected between 1995 und 2020� Increase in Industrialised Countries: only 50%-60%


PrimaryPrimary EnergyEnergy Demand Demand – – Past and Past and FutureFuture

10

12

14

16

18

20Gtoe

Developing countriesFSU/CEEOECD

0

2

4

6

8

1860 1880 1900 19801940 20201920 20001960 2040 2060Source: World Energy Council, World Bank., Based on Current Trends


Perspectives of Supply and DemandPerspectives of Supply and Demand

� Fossil energy reserves:limited but sufficient forthe next twenty years ona global scale

� Issues:� security of supply

� spatial distributionof reserves do notmatch demand

� Oligopolisticstructure for oil andgas markets

� energy prices

� ... and what are theimpacts on theenvironment andclimate change?


Energy Energy and and Sustainable DevelopmentSustainable Development

� Energy and Development� energy is vital for social end economic

development� Access to affordable energy is a pre-requisite for

economic development and poverty reduction� Energy and Climate Change:

� Future energy mix is crucial for ecologicalsustainability

� Provision of energy is a cross-cutting issueimpacting on different sectors


No access toelectricity

Less time tostudy

Low educationalachievement &labor particip.

Reduced accessto

info/education

Education

No access tomodern fuels

High indoor airpollution

High rate ofchild mortality

Health

No access tomodern fuels

Women spendan hour per day

gatheringfirewood

Low laborparticipation

rate

Gender

Unreliableelectricity supply

Firms need tobuy back-upgenerators

Small enterprisescannot afford

cost

Low growth &low labordemand

Macro

Corruption inenergy sector

Low recordedrevenues

Supplyinterruptionsw/ anti-poor

bias

Negativeimpact on

welfare of poorhousehold

Social

Energy Energy and and Poverty Linkages Poverty Linkages - - ExamplesExamples

Source World Bank, 2001


Access to Access to Electricity Electricity (in % of Population)(in % of Population)

Red 3 - 33%Green 33 - 66%

Blue >66%

Source World Bank, 2001


Infrastructure Endowment Infrastructure Endowment and Incomeand Income


How do we perceive the role of RenewableHow do we perceive the role of RenewableEnergies (RE)?Energies (RE)?

� Objectives:� cost-effective supply of energy at least costs� security of supply� sustainable in terms of economic, ecological and social impacts

� trade-offs???

� What should we do?� Improve the rational use of energy in all stages of supply and

transformations, as well as all areas of energy use� Fuel substitution: use less polluting and carbon-intensive energy

sources� Technological advancement: use more environmentally benign

technologies� Remove carbon from fuels and exhaust gases (carbon

sequestration)

Increased use of renewable energies is crucial toachieve these goals


SupportSupport for Renewable Energy by for Renewable Energy by KfWKfWin in Developing and Transition Developing and Transition Countries (FC)Countries (FC)

� Past Achievements(1997 – 2001)

Total: € 583 million� 44% of energy sector

commitments for newprojects

„New“ Renewables(excluding hydro-power):€ 250 million� 19% of energy sector

commitments

� Future project pipeline(as of end of 2001)

Total: € 613 million� 71% of energy sector

commitments

„New“ Renewables(excluding hydro-power):€ 240 million� 28 % of energy sector

commitments


Commitments for Energy ProjectsCommitments for Energy Projects in in Developing DevelopingCountriesCountries, 1997 – 2001, 1997 – 2001 by Sub by Sub--SectorsSectors

Total commitments for energy sector projects: 1.4 billion Euro

0 50 100 150 200 250 300 350 400 450EUR million

Sector Policy

Training and Education

Transmission & Distrib.

Oil-fired PP

Gas-fired PP

Coal-Fired PP.

Generation (Non-RE)

Generation RE

Hydro

Solar

Wind

Biomass


Commitments for EnergyCommitments for Energy ProjectsProjects in in DevelopingDevelopingCountriesCountries, 1997 – 2001, 1997 – 2001 by Regions by Regions


Zusagen (FZ- und Marktmittel) nach LändernZusagen (FZ- und Marktmittel) nach LändernEnergiesektor 1997-2001Energiesektor 1997-2001


Energy PortfolioEnergy PortfolioTargetting RuralTargetting Rural End- End-Users Users (1)(1)

� Rural Electrification by Photovoltaic Solar Home System� Morocco

� currently under execution in co-operation with PVMTI� electrification of some 7,000 households� KfW-financing: 5 million €

� Republic of South Africa� prequalification for fee-for service-contractors under way� electrification of some 27,000 households� KfW-financing: 16 million €

� Brazil (planned)� Financing volume: 5 million €

� Ecuador, Bolivia, Peru� Under preparation

5


Energy PortfolioEnergy PortfolioTargetting RuralTargetting Rural End- End-Users Users (2)(2)

� PV-applications in other sectors� solar water pumps for water supply� solar cooling and lighting for health stations and schools� solar electricity for communication� Total KfW-Financing: > 20 million €

� Bank-to-bank Credit line for IREDA, India� refinancing facility for of wind, bagasse and photovoltaic

installations� KfW-Financing: 61 million €

� PV-diesel hybrid Systems for Rural Mini-Grids� China (planned)

� Mini grids for more than 200 villages in 4 provinces� KfW-financing: 16 million €

� Small Hydro Development in Mongolia (under preparation)

5


Other Energy Other Energy ServicesServices

�� „„Communism is Soviet Communism is Soviet Power plus Power plus ElectrificationElectrification““((Lenin Lenin aka Vladimir Ilch Uljanovaka Vladimir Ilch Uljanov))... but

� improvement of energy services goes beyondelectric power supply

� Priorities in rural communities:� cooking and heating

� wood, cow-dung, crop residues, etc.� traction energy

� animal power, human labour


Biogas Support Programme (BSM) in NepalBiogas Support Programme (BSM) in NepalProblem DefinitionProblem Definition

� Energy Supply Probems� Only 18% pf population with access to electricity� Energy imports use up some 35% of annual foreign exchange

earnings� „Traditional“ enery supply satisfies 90% of energy needs In rural

areas� Health and Sanitation Problems

� indoor pollution (respiratory problems, eye-illness)� no indoor latrines

� Environmental Problems� High population growth together with growing energy demand

exerts pressure on remaining forests� deforestation and erosion increasing


Biogas Support Programme (BSM) in NepalBiogas Support Programme (BSM) in NepalProject Project CharacteristicsCharacteristics

� Joint project� by Nepalese banks and the Governments of Nepal (HMG/N), the

Netherlands (DGIS, SNV/N) and Germany (BMZ/KfW)� Programme target

� About 100,000 biogas plants to be constructed by 2003 in ruralareas of Nepal for farmer families with more than 2 cattle

� Technology� simple and robust, consisting of

� underground ‘digester’, fed with cow dung, produces biogas� pipe system feeds cooking devices and lamps and in the house

� plants constructed by local firms and farmers� material mainly from Nepal (with the exception of main valve)


BiogasBiogas support programme support programme in Nepal in NepalTechnology: Biogas Technology: Biogas DigesterDigester Construction Construction


BiogasBiogas support programme support programme in Nepal in NepalBiogas Plant Biogas Plant Use Use (1)(1)

Childrenpour waterto dilutethe cowdung...


BiogasBiogas support programme support programme in Nepal in NepalBiogas Plant Biogas Plant UseUse (2) (2)

...whichproducesmethane inthe tank...


BiogasBiogas support programme support programme in Nepal in NepalTechnology: Biogas Plant Technology: Biogas Plant UseUse (3) (3)

...transferredto the kitchenas an energysource forcooking andlighting


BiogasBiogas support programme support programme in Nepal in NepalPartners in Partners in DevelopmentDevelopment

� Nepalese Government� subsidy contribution to the amount of more than 20%� tax exemption for biogas appliances.

� Nepalese Banks and NGOs� grants and credits to end-users farmer families

� Farmer families� contribution of own funds, contribution in kind (manpower)

� Netherland´s contribution� Management support for the programme (TA)� training for construction firms, the banks and farmers� contribution to subsidy components

� KfW group contribution� refinancing of approx. 15 million Euros in total for grants and credits (BSP

III); 7.5 million Euros envisaged for BSP IV-Phase I


BiogasBiogas support programme support programme in Nepal in NepalBenefitsBenefits

� Economic and ecological benefits� significantly reduced deforestation of the Himalayas,� reduced CO2 emission levels (some 2 tons CO2/a/plant)� know-how-transfer and employment creation for local

construction companies� End-user benefits

� less indoor pollution �� improved health conditions� average savings per family and year:

� about 1,600 kg of firewood, 300 kg agricultural waste� about 25 litres of kerosene� about 3 hours of daily work

� use of biogas slurry �� improved soil fertility� connection of latrine �� improved sanitation


Biogas Support ProgrammeBiogas Support ProgrammeTangible and Intangible BenefitsTangible and Intangible BenefitsMICRO MESO MACRO2 Reduced indoor smoke-induced illnesses. Reduced risk of landslides. Reduction of illness-induced production

losses.

Reduced poor-sanitation induced illnesses (mainly in case of toilet connection)

Improved forest quality and quantity. Improved biodiversity.

Reduced drudgery fuelwood collection) Reduced sanitary pollution. Increased non-marketable (NT) FP availability.

Reduction drudgery weeding.

Increased productivity.

Reduced workload for food-preparation. Reduced mortality.

Reduced soil degradation. Improved human resource base.

Improved opportunity for education. Reduced global warming effects.

Increased productivity. Improved employment opportunities. Reduced health system expenses. Reduced (forex) cost on medication.

Reduced direct medical costs. Improved service quality of biogas companies.

Reduced (forex) costs on chemical fertilizer. Reduced (forex) costs on kerosene.

Reduced fuelwood & kerosene expenditures.

Improved access to credit for biogas. Increased availability marketable (NT)FP.

Increased opportunity for organic agriculture.

Increased agricultural production.

Improved agricultural yields. Increased tax revenues. Increased family income. Generating CDM revenues.


BiogasBiogas support programme support programme in Nepal in NepalTangible EconomicsTangible Economics

� Costs of Biogas Digesters� average cost of biogas plant approx. 450 USD

for an average plant size of 5,7 m3

� via subsidy the cost of a plant to individual user is lower than forthe society

� Cost Allocation (BSP IV)InvestmentsSubsidies 20%In-kind contrib. 19%Cash 21%Bank-Credit 35%Programme costs 5%equiv. 4.6 mill. €

� Subsidy AllocationInvestmentsHMG Nepal 24%KfW 68%Netherlands-DGIS 8%Programme costsparticipation fee 45%Netherlands-DGIS 55%


Biogas Support Programme in NepalBiogas Support Programme in NepalPerspectivesPerspectives

� Technical potential some 2 million biogas plants� BSP IV targets

� construction of some 200,000 plants in 2003-2006� „commercialisation“ of biogas programmes

� phasing out of subsidies for bigger plants� focus on lower income strata and les accessible areas� establishment of micro-credits via revolving fund� tap additional funds from Clean Development Mechanism

� institutional strenghtening� Alternative Energy Promotion Centre (AEPC) to be

endowed with regulatory power and own finance� improved use of digested slurry


Rural Electrification by Solar Home SystemsRural Electrification by Solar Home SystemsBringing power to rural areas of South AfricaBringing power to rural areas of South Africa

� Fee-for-service project approach derived from keyissues in off-grid electrification� Very high transaction costs for infrastructure

services in rural areas� Pre-paid meter systems to reduce transactions

costs� Affordability problems of rural end-users

� Service provision instead of household ownershipof solar home systems

� Lack of sustainable financing mechanisms:substantial subsidies needed� International tender of energy services: maximise

service outreach for given amount of subsidies


Key Key characteristics characteristics of of the project the project (1)(1)

� Target groups:� rural households� health clinics, schools, community centres� small productive activities

� Technology Choice� standard system: 50 Wp SHS capable of delivering

200 Wh per day� installation of 27,000 PV-SHS for households

� larger systems to health centres, productive centresand other clients. These systems would typicallyinclude inverters (220 V AC output power)

� Total Installed Capacity:about 1.5 MWp


Key Key characteristics characteristics of of the project the project (2)(2)DeliveryDelivery approach approach: : PublicPublic Private Private PartnershipPartnership

� Public sector:� Rural electrification policy, regulation, funding of

subsidised investment� Public-private interface (conceding party)

� Supervision of energy service, disbursement ofsubsidies, mediation of conflicts

� Private concessionaire� Investing own capital� Contracting customers� Purchasing, installation and owning of SHSs� Servicing of SHSs and customer service� Fee collection


Key Key characteristics characteristics of of the project the project (3)(3)EconomicsEconomics and and FinancingFinancing

� System costs about 4.500 Rands (500 US$)� Affordability limits for household users:

� Maximum monthly fee around 50 Rands (5-6 US$)(in comparison to present energy expenditures)

� Key parameters for profitability as seen from theconcessionaire:� Subsidies of about 80%� Total number of customers > 25.000� Cost-effective and reliable fee collection to be introduced

(pre-paid chip card)� Effective prevention of theft and destruction� Additional energy services offered (LPG etc.)


AssessmentAssessment of of the approachthe approach::transferabilitytransferability to to other countries limitedother countries limited

� Economic conditions in RSA comparatively favourable� Average per capita income: 2880 US$/a (1998)� Poverty limit: 1600 Rand/month (160 US$/month)� Developed formal sector generates transfer incomes in rural areas� Estimated average household income in target areas: 100 - 150

US$/month

� Rural Electrification Policy favourable� Rural Off-Grid Electrification forms part of the Reconstruction and

Development Programme (Target: 1.5 million SHS by 2010)� Public Private Partnership integral part of strategy for off-grid-

electrification in the RSA� investment subsidy is provided to allow for low tariffs/fees


AssessmentAssessment of of the approachthe approach::generic problemsgeneric problems

� Political pressure to reduce fees� „free electricity tariff“ on grid connections up to

50 kWh per month (Basic Electricity Support Tariff)� extent of off-grid subsidy under discussion

� Funding issues for off-grid subsidy still unresolved� Central Government allocation to provinces sufficient

for competing needs (water, energy)?� Sustainability of approach threatened

� concessionaire: government transfer secured on thelong term?

� Government: budget sufficient in the medium term?� Users: free-riders without real interest attracted


Income Classes in Eastern Cape ProvinceIncome Classes in Eastern Cape ProvinceIncome Classes Eastern Cape

27%

32%

30%

11%

0%

5%

10%

15%

20%

25%

30%

35%

50 100 188 >188USD/month

Shar

e


Rural Energy SupplyRural Energy Supply Models and Models andTargetTarget Income Income GroupsGroups

� cash delivery� consumer credit� leasing� fee for service

� heavily subsidisedprojects: distribution for„free“ (pilot anddemonstration projects)

0

20

40

60

80

100

Income Class

HighMiddleLow


Source: World Bank, Energy Services for the World‘s Poor, ESMAP,Energy and Development Report 2000

Expenditures forExpenditures for electricityelectricity byby incomeincome classesclasses


Income and Energy ExpendituresIncome and Energy Expenditures


Annäherndwettbewerbsfähig

Bei weitem nichtwettbewerbsfähig

Netz-gebundeneStrom-erzeugung

A) Kredite zu Markt-konditionen/ evtl.gekoppelt mit „soft loans“,sowie Risikoabsicherung,Verbriefung

C) Spezielle Fonds zurTechnologieentwick-lung, „soft loans“,Carbon credits, „grüneEntwicklungs-zertifikate“ ?

NetzferneStrom-erzeugung

B)Sonderfonds, ODA,neues Förderinstrument„grüne Entwicklungs-zertifikate“?

D)Unter wirtschaftl. undtechnologischen Ge-sichtspunkten nur inEinzelfällen vertretbar

Differenzierte FinanzierungsstrategienDifferenzierte Finanzierungsstrategienfür Erneuerbare Energienfür Erneuerbare Energien

42 Energy for Sustainable Development 5

PhotovoltaicPhotovoltaic PumpingPumping Systems Systems for Ruralfor RuralWater SupplyWater Supply

� Country experience:� Burkina Faso, Eritrea, Guinea, Mali, Namibia and Indonesia

� Planned:� China, Chad, Senegal and Bolivia

� Characteristics:� High specific investment costs� High reliability and low cost in operation� Economically viable in areas where

� power grid extension too costly� high transport costs for diesel

� Preferable for power capacity of less than 4 kWp,(equivalent to some 3500 inhabitants)


Promotion of Promotion of RenewableRenewable EnergyEnergy throughthrough a aBank to BankBank to Bank Credit Credit Line to IREDA, Line to IREDA, India India (1)(1)

� Project-executing agency:� Indian Renewable Energy Development Agency

(IREDA) - founded 1987� financed some 1500 projects since 1987

� financing volume: 1,1 billion €;� capacity of 1,720 MW

(equivalent to about 50%of total capacity in RET,excluding hydro)

� finances more than 1/3 of all investments of privateentities in renewable energies in India



� Loan amount and conditions to IREDA:� composite loan consisting of:

� FC soft loan: 35,8 million Euro� 0.75% interest p.a., 10 y grace period,

repayment 40 y� Commercial Funds: 25,6 million Euro

� 5 y grace period, repayment 10 y

� Loan conditions of end-credits:� commercial loans:

� 13 - 16% interest p.a., repayment: 5 - 10 y grace period: 1- 3

� preferred rates for PV� Projects to be approved by KfW

� 50% of wind energy loans tied to German supply



� Refinancing of loans to commercial borrowers forprojects in the areas of:� Wind energy (targeted capacity: 40 MW)

� approved: 8 wind parks� total installed capacity: 40 MW� total financing provided: 18,2 million Euro� total investment costs: ~ 41 million Euro� CO2-abatement: ~ 80.000 t/a

� Biomass (bagasse) co-generation of electricity andheat (targeted capacity: 40 MW)

� Photovoltaics (targeted capacity: 1 MW)� solar lighting and solar pumps



� Refinancing of loans to commercialborrowers for projects in the areas of:� Biomass (bagasse) co-generation of electricity and heat

(targeted capacity: 40 MW)� approved: 2 plants� total installed capacity: 29 MW� total financing provided: ~8 million Euro� total investment costs: ~ 17 million Euro� CO2-abatement: ~ unknown

� Photovoltaics (targeted capacity: 1 MW)� approved: 9 projects� total installed capacity: 210 kWp


Promotion of Promotion of RenewableRenewable EnergyEnergy::Bank to BankBank to Bank Credit Credit to IREDA, to IREDA, India India (4)(4)

� Regulatory conditions in India:� Ministry for Non-Conventional Energy Sources (MNES)� Renewable Energy Plan 2012 targets quota of 10% RET in electricity

generation� Special incentives in place since 1992/93

� minimum purchase rate for power from RET� tax depreciation (up to 100% in the first year), tax holidays� „Power banking“� investment subsidies (some states)

but ...� uncertainty about future sector conditions� non-performing State Electricity Boards (SEB)� low payment morale of customers

� current payments overdue with Ireda: > 25%� overall collection rate < 55%


Barriers to the Barriers to the widespread use widespread use of REof RE (1) (1)

� Lack of economic competitiveness and/orcommercial attractiveness in particular ingrid-connected applications

� Time profile of costs: higher up-front costs for investments,lowerOMR costs in comparison to conventional technologies

� Hígh exploration and preparation costs (e.g. hydro, geothermal)� Long payback times� High perceived risk� No “level-playing field”: custom duties, direct and indirect

subsidies to fossil fuels, no internalisation of external costs


Barriers to the Barriers to the widespread use widespread use of REof RE (2) (2)

� Additional barriers in niche areas, where RE iscompetitive

� High transaction costs: build-up of sales distribution network and after-sales service

� Limited ability to pay by potential users� in some cases high specific costs� insufficient financing possibilities

� Lack of awareness for environmental impacts� local impacts vs. global environmental effects� external costs not taken seriously

� Knowledge gaps and information deficits� Lack of knowledge about existence of technologies� Lack of know-how to operate and service RE-applications� Mistrust in new technologies (quality, price worthiness, etc.)


Market Barriers of Renewable TechnologiesMarket Barriers of Renewable TechnologiesThe “5P” - ChallengeThe “5P” - Challenge

� Price/Cost of Technology

� Purchasing Power of End Users

� “Level Playing Field”

� Political Support

� Product Marketing/Market Aggregation


SubsidiesSubsidies: : thethe Financial Dimension Financial Dimension

� Electricity: ~ 2 billion people without access� some 400 million households

� PV-costs per year: ~ 200 USD� Total financing requirements: ~ 80 billion USD per

year� Total net ODA: 53 billion USD (2000)

� Priorities ??� 1.2 billion people living in absolute poverty:

� subsidy requirements ~ 20 - 30 billion USD/a� 1.5 billion people w/o access to safe drinking water� 1.8 billion people w/o access to sanitation


Lessons from theLessons from the Monterrey Monterrey ConferenceConference forforDevelopmentDevelopment FinancingFinancing

� Official Development Aid is only one field of action� Private foreign and local investments are needed to

meet development goals� Trade barriers and indebtedness are serious

obstacles for development processes� Developing countries share responsibilities (“new

partnership“) for sustainable development� The creation of a reliable legal, sectoral, macro-

economic and financial national frameworks is vitalfor attracting private investors� existence of laws and regulations on offtake

mechanisms and other incentives not sufficient


PerspectivesPerspectives forfor Financial Financial InstitutionsInstitutions

� Build up innovative approaches to tap commercial markets� enhanced risk sharing models: e.g. securitisation, partial risk

guarantees

� Use Flexible Mechanisms of the Kyoto Protoco� primarily project-based “Joint Implementation“, “Clean

Development Mechanism“

� Strengthen strategic partnership with the GlobalEnvironment Facility (GEF), UNEP and other donors

� Expand development partnerships with the private sector


KfWKfW--GroupGroup: : Establishing Financing ServicesEstablishing Financing Servicesand Structures for Renewable Energiesand Structures for Renewable Energies

� Concessionary Financing� Financial Co-operation (Government Budget Soft Loans)� Blending of soft loans with commercial funding� Co-operation with other international organisations (e.g.

World Bank / IFC/ GEF / AFD / FFEM)� Commercial Financing

� Export and Project-Financing (KfW)� Equity participation and mezzanine-loans (DEG)

� Innovative Financing Instruments� Carbon-Credits (under consideration)

� Preparatory investigations and analyses� PPP-Facility – Private Sector Particiption


A) A) ContinuedContinued ...... ......

� Carbon credits (Kyoto instruments favortechnologies with low CO2 reduction costs)

� Refinancing facilities (bank-to-bank loans)� New models of risk sharing: securitization, partial

risk guarantee (World Bank), export credit agencyor multilateral investment guarantee agency cover


ConclusionsConclusions

� There are diverse adequate financing instruments for differenttechnologies and framework conditions.

� Risk mitigation methods become increasingly important forcommercial financing.

� “Smart subsidy“ schemes can contribute considerably to thesustainability of renewable energy projects.

� Flexible Kyoto mechanisms can increase IRR of RE projects incategory A, but application in least developed countries, smallprojects and rural areas will be difficult.

� Strengthening strategic partnerships with the Global EnvironmentFacility (GEF), UNEP and other donors

� Improving legal and macroeconomic framework conditions forrenewable energy technologies

� Expanding development partnerships with the private sector


Approaches for broadApproaches for broad--scalescale Support (1) Support (1)

� Concerted and concentrated action required� Improved coordination among the various national

and international promotional programmes� Special programme for broad-scale use of

adjusted renewable energy technologies indeveloping countries


Implications for DevelopingImplications for Developing Countries CountriesFramework Framework conditionsconditions

� limited scope for subsidies

� climate protection no priority in many countries

� utilities often financially weak

� Cost effectiveness of suport measures overridingconcern

� sector reforms require financial discipline

� support measures conform with administrativecapabilities


PrinciplesPrinciples forfor thethe Promotion of Promotion ofRenewable EnergyRenewable Energy

� Promoting a specific renewable energytechnology is not an end in itself� Promotion according to cost-effectiveness is the

decisive criterion for selecting a certain technology

� Higher (life cycle) costs in comparison with theapplication of conventional technologies areaccepted to a limited degree� Standard of measure: specific costs of preventing

CO2


PerspectivesPerspectives of of RenewableRenewable EnergyEnergy (1) (1)

� Hydropower� in the medium term the most important source to

meet electricity demand, large potential stilluntapped

� Wind energy� already today close to the competitivity in grid-

connected operation at good wind sites� off-shore development still costly

� Solar-thermal applications� in the medium term they make a noteworthy and

cost-efficient contribution to energy supply:power, hot water and heat both from CSP and solarcollectors


PerspectivesPerspectives of of Renewable Energy Renewable Energy (2) (2)

� Geothermal� often competitive already today to generate electricity and to heat

buildings� high exploration and development costs

� Biogas and biomass� of increasing economic interest for both on-grid and

decentralized/distributed heat and power generation� in particular where:

� site is located close to biomass source (wood, other plantresidues, organic waste) and biomass is readily available

� use contributes to methane abatement

� Photovoltaics� presently primarily for distributed generation in niche areas� high cost reduction potential for new technologies

62 Energy for Sustainable Development 11

Financing Financing of RETof RETCoConclusionsnclusions - - for further discussion for further discussion

� Large segments of RE-Technologies still not able to attractcommercial financing

� subsidies needed for kick-start over a limited period until marketdistortions and barriers will be eliminated to a large extent

but ...� In the longer run (... „we are all dead“ ...), wide-spread use and

dissemination of RE can not be financed through subsidy schemesor concessionary financing

� Sustainable market penetration must rely on commercial operations� Cost reduction is the key issue for widespread use of RE-

Technologiestogether with

� “Enabling activities”� market preparation, market assessment� technical assistance� sector conditions > “level playing field”


OutlookOutlook

� Build up innovative approaches to tap commercialmarkets

� Use flexible mechanisms of the Kyoto Protocol,primarily “Joint Implementation“, “Clean DevelopmentMechanism“

� Strengthen strategic partnership with the GlobalEnvironment Facility (GEF), UNEP and other donors

� Improve conditions for the application of renewableenergy technology

� Expand development partnerships with the privatesector


Support for Renewable Energy by Support for Renewable Energy by KfWKfWIn Germany – concessionary financingIn Germany – concessionary financing

� 100,000 Roofs Solar Power Programme for PhotovoltaicInstallations (Target: 300 MWp until 2004)� Commitments 2001: € 425 million

� Programme to promote Renewable Energies (solar,biomass, biogas, hydropower, geothermal energy)� Commitments 2001: € 126 million

� CO2 – mitigation programme (including renewables)� Commitments 2001: € 900 million

� CO2 Building Rehabilitation Programme (incl. renewables)� Commitments 2001: € 500 million


KfWKfW--GroupGroup: : Establishing Financing ServicesEstablishing Financing Servicesand Structures for Renewable Energiesand Structures for Renewable Energies

� Concessionary Financing� Financial Co-operation (Government Budget Soft Loans)� Blending of soft loans with commercial funding� Co-operation with other international organisations (e.g.

World Bank / IFC/ GEF / AFD / FFEM)

� Commercial Financing� Export and Project-Financing� Equity participation and mezzanine-loans (DEG)

� Innovative Financing Instruments� Carbon-Credits (under consideration)

� Preparatory investigations and analyses� PPP-Facility – Private Sector Particiption


FinancialFinancial Co- Co-operationoperation: : Terms and ConditionsTerms and Conditions

Grants� for all projects in least developed countries (LDC)

(countries with per-capita income of less than 699 US$)� also possible for projects aiming at environmental protection

in other developing countries

Loans� at 0.75% interest over 40 years repayment period including 10

years grace period (IDA-conditions)� non-LDC developing countries with a per-capita income of up

to 1,445 US $� concessionary share of composite financing

� Loans at 2% interest over 30 years including 10 years grace� all other developing countries


Blending Blending of of Concessionary FinanceConcessionary Financeand Market Fundsand Market Funds

� Mixed finance scheme� Risk for market funds covered by Hermes� Eligible countries: if cover available for export loan guarantees� Loan conditions for concessionary funds according to country

classification� Composite finance scheme

� Risk for market funds covered by a special government-backedguarantee scheme

� Eligible countries: up to medium-risk rating� IDA conditions for budgetary funds

� Loans at lower than market interest rates� Risk for market funds covered by KfW� Low-risk countries� Flexible financing conditions


� Smaller project sizes �� Higher transaction costs� Longer lead times �� Higher development costs� Higher ratio of capital �� Need for longer-term costs to operating costs financing at reasonable rates� Newer technologies �� Higher operating risks� Less experienced sponsors �� Higher completion and

operating risks� Unfamiliar to financiers �� Scarce/higher-cost capital� Either excess or absence �� Over-subsidized or of concessional funding under-competitive

PotentialPotential Transaction Barriers Transaction Barriers


Public Private Public Private PartnershipPartnership in in FinancingFinancing

Partnerships with the private sector� Risk sharing with regard to preparatory measures via PPP facilities� Systematic review of the projects and conditions in order to specify

possibilities of a participation by the private sector

Objective� Mobilization of private capital and entrepreneurial competence for the

partner countries

Interim status report� Growing number of new projects with a PPP component

(16 new projects amounting to EUR 257 million)


FC FC Promotional LoansPromotional Loans

� Sourced entirely from market funds

� Risk covered entirely by KfW

� Restricted to low-risk countries

� Financing at market conditions


KfW - KfW - Further informationFurther information::

Development Co-operation:http://www.kfw.de/EN/Entwicklungszusammenarbeit/Inhalt.jsp

Export- and Project Finance:http://www.kfw.de/EN/Export-%20und%20Projektfinanzierung/Products46/Inhalt.jsp

Other loan programmes:http://www.kfw.de/EN/Unsere%20Kreditprogramme/Factsworth28/Inhalt.jsp

financing energy services for rural and urban...

Documents