Bank aus Verantwortung

Financing Global Low Carbon Development: Case Studies and Opportunities

Global Conference on Sustainable Finance

Karlsruhe – 12 June 2014

Dr. Jochen Harnisch

KfW Development Bank

Content

1 The challenges

2 International activities by KfW

3 International climate finance

4 Outlook

Content

1 The challenges

2 International activities by KfW

3 International climate finance

4 Outlook

Changes of Annual Investment Pattern (2010-2030) for 2°C

Key Levers to Facilitate Green Investment

5

Source: IPCC WG III AR5 – Chapter 16

Delivery of Green Finance: From Source to Project

6

Source: IPCC WG III AR5 – Chapter 16

Vertical Integration of Climate Strategies, Policies and Projects

National (low carbon) development strategy

Sectoral or cross-sectoral policy mechanism

Individual investment decisions

Content

1 The challenges

2 International activities by KfW

3 International climate finance

4 Outlook

Green Finance by KfW Group: 36 bln. USD in 2013

Instruments: Grants – Concessional and Commercial Loans – Equity – Mezzanine Finance

KfW is a development bank owned by the German government with a broad domestic, European and international mandate - implemented by KfW, KfW Development Bank, DEG and KfW IPEX

Financial Instruments – OverviewDiversity of business models and regional foci and mandates

Performance of partner countries and viability of projects

e.g. adaptation projects, capacity building, REDD

Market funds

Public funds

Source of financing

Grants / Budget support loans

loans at IDA and standard terms

Development loans

Promotional loans

Structured Funds, e.g. GCPF

Project financing

Concessionalfunds

e.g. RE projects

EE- and RE-financing

Commitments for Environment and Climate - KfW Development Bank

Commitments for environment and climateTotal Commitments 2008 - 2013

3.3043.183

5.2674.874

4.4884.500

-4%

+8%

+9%+0%

+41%

1.321 1.682 1.634 1.680

2.067 2.497

754 556 463 559

670

544

39 19 350

453

695

691

1.188 925

2.051 1.794

1.440

1.534

2008 2009 2010 2011 2012 2013

Mitigation

Adaptation

Environment

Others

Commitments for Environment and Climate - KfW Development Bank

Commitments for environment and climateCommitments 2013 by sectors and regions

Sectors (CRS-Sector)

Regions

53%

EUR m.

2.497

544

691

1.534

17%

18%

25%

31%Asia / Oceania

Subsaharan Africa

Latin America

Europe / Caucasus

North Africa / Middle East

Transregional

Mitigation

Adaptation

Environment

Others

6%10%

12%

13%

53%

Energy

Water & Waste

Multisectoral

Social Infrastructure &TransportForest & Agriculture

Financial

Others

2.497

544

691

1.534

Commitments for Environment and Climate - KfW Development Bank

Commitments for environment and climate Estimated Co2 emissions savings 2013

kt CO2eq/ p.a.Estimated CO2- emissions savings:

› 2013 9.3 m. t/p.a. 42 projects

› 2012 15.9 m. t/ p.a. 29 projects

› 2011 7.2 m. t/ p.a. 36 projects

› 2010 10.3 m. t/ p.a. 48 projects

KfW makes an important contribution to CO2–emissions

savings:

› With the new projects committed in 2012, the total

greenhouse gas emissions in partner countries are expected

to be reduced by 9.3 million tons CO2eq a year – this equals

to the annual emissions of Cyprus1.

1: Total GHG without LULUCF/LUCF (source: http://unfccc.int/di/DetailedByParty/Event.do?event=go)

2: Includes only projects which provided calculation for CO2-emissions savings (15.01.2013)

2.291.081

3.000.525

3.669.244

337.229

Energy Efficiency

Forest / REDD

Renewable Energy

Others

Solar Power Plant (CSP) Ouarzazate I in MoroccoFirst power plant-sized solar-thermal facility in the MENA region

Impact

Appro

ach

Pro

ble

m › Growing energy requirements & capacity bottlenecks

› Dependance on imports & environment pollution

› High but underutilised solar energy potential

› KfW loan (plus co-financiers) for the construction of a

solar-thermal parabolic trough CSP plant in Ouarzazate

(turnkey)

› Public-private partnership (PPP approach)

› Increasing supply security with regulating energy

› Introducing environmental friendly technology to the market

› Saving 230.000 tonnes of CO2 and ~ 85.000 tonnes of

fossil fuels

› Stimulation of local economy

Total investment 690 m. €KfW financing 115 m. €

14

› Insufficient supply of energy

› Dependence on hydropower leads to increasing electricity

shortages in times of drought

› Use of polluting diesel generators

› Exploiting the huge geothermal energy potential

› Finance exploration drillings

› Long-term loans for the operators of geothermal power plants

› Cooperation with DEG and other development financiers

› Encouragement of technology transfer and private investment

› Increase supply of energy

› Improved energy security

› Reduced emissions

Geothermal Energy in KenyaGeothermal power plant in Olkaria

Pro

ble

mA

ppro

ach Total investment 70 m €

KfW financing 50 m €

Impacts

15

› Positive impacts on the environment

› Improved competitiveness

› Enhancing of the financial sector

› Reduced emissions

Pro

ble

m

› Loan to national development bank (BMI)

› BMI refinances environmental protection measures of small

and medium sized enterprises

› BMI also refinances small renewable energy projects

› Advertising the programme and preparing SMEs and local

banks for the programme

Impact

Appro

ach

Loan Programme for Environment and Energy in El SalvadorEnvironmental and climate protection funding for SME

› Increasing demand for electricity in El Salvador

› Lack of long-term financing for industrial pollution control

and renewable energy

KfW financing ~ 20 m €

16

Energy Efficiency in Residential Buildings in IndiaTransferred experiences from the German subsidy practice

› Share of private households on primary energy requirement: 37,5%

› Ø electricity consumption of urban middle class: 8,000 kWh p.a.

› Biggest economic energy saving potential in new residential housing

complexes (up to 46%)

› Credit line to the National Housing Bank (NHB) to refinance housing

loans in new energy-efficient buildings (at least 30% more efficient than

reference buildings)

› Introduction of an energy efficiency programme (Fraunhofer-TERI

cooperation and certificate)

› Intensive complementary advice to NHB, building financiers and real

estate developers

› 73 buildings in 11 housing projects certified (>20,000 apartments,

emission reduction of 32,000 tonnes of carbon p.a. so far)

› Three large housing financiers (80% market share) participating

› International awards such as ADFIAP-Merit

Pro

ble

mA

ppro

ach

Impact

Total investment 60 m €KfW financing 50 m €

17

› Farmers can continue operations on usuable farmland

› South African coal imports to be ommitted

› Greenhouse gas reduction

› Creation of employment

Pro

ble

m

› Create a mechanical harvesting process

› Use the biomass to generate and produce charcoal

› Initiative by cement firm Schwenk Zementwerke to generate

at leat 75% of its heat from biomass of invader bush instead

of coal

Impact

Appro

ach

Harnessing Biomass Energy from Invader Bush in NamibiaIndustrial approach for vegetation encroachment and energy production

› Invader bush is spreading across vast areas of Namibia

› 26 million hectares of land are unusable for farming

› Many farms are no longer viable

Total investment ~ 13 m €KfW financing ~ 12 m €

18

Green Savings Accounts in VietnamIncome from forest conservation and reafforestation

› Lack of incentives for sustainable use of forests

› destruction of forest areas in the past

› almost no reafforestation

› Grant farmers the right to use certain forest areas

› Green Savings Accounts: Farmers receive savings

accounts to reforest their areas

› Complementary measures (e.g. consultancy services,

forest management training etc.)

› Farmers earn higher incomes

› Reforestation and long-term forest protection

› Increased carbon storage

Pro

ble

mA

ppro

ach

Impacts

KfW financing 104 m €

19

20

The Global REDD Programme for Early MoversBridge financing for pioneers of forest protection

› Deforestation accounts for 11% (and incl. agriculture &

land use for 24%) of global emissions

› When the forest disappears, so do biodiversity and

(poor) people's livelihoods

› Decisions under the Framework Convention on Climate

Change (UNFCCC) have yet to be made

› Innovative approach to greater outcomes orientation

› Provide results based bridge financing between today

and a future climate regime

› Remunerates achievements of emission reduction

› Reduce emissions from forest destruction

› Contribute to preserving biodiversity

› Create positive REDD examples at an early stage

Pro

ble

mA

ppro

ach

Impacts

Total investment: € 56,5 mPartnering with Norway -

increased investments expected

20

21Greening the Financial Sector / September 2013

Political Initiators and Sponsors

Junior TrancheC-Shares

Mezzanine TrancheB-Shares

Senior TrancheA-Shares& Notes

Volume of Funds

USD 184 mnPrivate Funds

USD 233,5 mn

USD 49,5 mnPublic Funds

Public funds serve as a risk buffer and are levering private funds

Development Finance Institutions

Private Investors

Project ExamplesGlobal Climate Partnership Fund (GCPF)

Content

1 The challenges

2 International activities by KfW

3 International climate finance

4 Outlook

Climate Policy and Climate Finance

› Likely result of UN Climate Change Negotiations COP-21 in Paris 2015: framework for

coordinated national actions by all industrialised and emerging countries, climate finance

› Climate finance target of US$ 100 bln per year starting in 2020, mobilised by industrialised

countries via existing and new multilateral, bilateral and private channels

› Green Climate Fund (GCF) likely to receive first pledges in 2014, highly politicised process,

access by national and bilateral development banks, focus and instruments uncertain

› Integrated system for development and climate finance emerging in post-2015 discussions

(eligibility of instruments, techologies and gross/net perspective open)

› Network of 20 leading development finance institutions with mandates for national, sub-regional, regional and international activities around the world.

› Combined assets of more than USD 2,100 billion

› New commitments added up to approx. USD 390 billion, thereof 24% green finance

› Activities: Green finance mapping, private sector mobilisation and support of GCF implementation

› Work plan 2014: green infrastructure and sustainable cities & cooperation with institutional investors

The International Development Finance Club (IDFC)

IDFC Climate Finance Mapping 2013

Source: Ecofys, 2013

Souce: Climate Policy Initiative, 2013

Basic Approach of Climate Technology Initiative (KfW/GIZ for BMZ/BMU)

Specific technological strengths of our industry

International climate change mitigation

Technology requirements in developing countries and

emerging economies

CTI

Promotion of the development and dissemination of technological solutions in emerging economies in order to meet

international climate policy commitments

Specific promotion of such climate technologies that foster sustainable

development in emerging and developing countries and in which we are strong

Technology selection guided by partner country requirements and by climate

policy and economic settings

Technology Fields of the Climate Technology Initiative

Implementation Status of Climate Technolgy Initiative

Solar thermal installations for power generation Brazil

Moroccan solar plan Morocco

Development of the biomass market Serbia

Energy efficiency in public buildings Turkey

Low-carbon economy Russia

Promotion of low-carbon biogas technologies Brazil Solar energy Chile

Expansion of wind energyVietnam

Promotion of solar energy Kenya

Tunisian solar planTunisia

Moroccan solar plan II Morocco

2011 2012

Government commitmentsfor 2011:

EUR 677 million

Government commitmentsfor 2012:

EUR 452 million

30

UK-German International NAMA Facility

Ambition Criteria:

Transformational

Change Potential

Co-benefits

Financial Ambition

Mitigation Potential

Does the NAMA support project contribute to a transformation of the national

or sectoral development towards a less carbon-intensive development path?

Does the NAMA support project provide important additional development co-

benefits beyond the reduction of GHG emissions?

Does the NAMA support project foresee or enable a substantial funding

contribution from other sources?

Does the NAMA support project foresee substantial direct and indirect GHG

emission reductions?

• Officially announced by Germany and the UK at COP-18 in Doha 2012

• Germany and the UK will jointly provide €70m of funding in 2013, € 50m in 2014

• External consultation process with NAMA experts in the beginning of 2013

• Five NAMAs pre-selected in 2013: Mexico, Chile, Costa Rica, Colombia, Indonesia

• Second call open up until mid-July 2014

Content

1 The challenges

2 International activities by KfW

3 International climate finance

4 Outlook

Climate Finance: Lessons Learned

› Plenty of studies and capacity development: still shortage of bankable projects

› Simple definitions and selection criteria and transparent decision making process encourages

engagement of relevant implementation partners

› Avoid over-ambitious criteria for expected transformative effects, domestic co-funding and

mobilisation of private sector investment

› Ensure transparency on eligibility of countries and technologies

› Project preparation funding prior to or after first approval decision for a specific climate investment

is essential

› Amount of funding should be commensurate to size of country and sector

32

KfW Climate Agenda for 2014

› Strengthening project development:

- Energy efficiency (transport, industry and power stations)

- Renewable integration and electricity grids

- Adaptation in the water and waste water sector and via the financial sector

- Expand co-financing with other development banks

- Early involvement in design of investment plans and sector programmes

› Support to international policy processes: UNFCCC, GCF and post-2015 agenda

› Strengthening international and internal consistency in applying E&S-standards,

climate ambition levels and monitoring of results

Contact Details

Dr. Jochen Harnisch

Head of Division, Sector Policy Unit “Environment & Climate”

KfW Group

Palmengartenstrasse 5–9

60325 Frankfurt am Main

Germany

Phone +49 69 7431 - 9695Fax +49 69 7431 - 3796Jochen.Harnisch@kfw.de