the role of idc in financing biogas · pdf filee-mail [email protected] thank you email:...

The Role of IDC in Financing Biogas Projects

National Biogas Platform

Day Month Year

Rentia van Tonder

Head: Green Industries SBU

The Industrial Development Corporation

o Established: 1940 Ownership: South African Government

o Type of organisation: Development Finance Institution (DFI)

o Total assets: R 112 billion (US$13 billion*) as at March 2012

o Funding status: Self financing, pays dividends and income tax

o Credit rating: Baa1 (Moody’s) in line with sovereign rating

o Main business area: Providing funding for entrepreneurs and projects that are

contributing to industrialisation and job creation

o Geographic activities: South Africa and the rest of Africa

o Products: Wide range of custom financial products to suit a project’s needs

including debt, equity, guarantees or a mixture of these

o Stage of investment: Early stage (feasibility), commercialisation, expansion

o Project development: Identification and development of projects adding to the

industrial base

o Number of employees: 770 * At R6.90 per US$

Introducing IDC Historical perspective

• World War 2 – Shortage

of industrial goods

• South African economy

largely based on

agricultural production

and gold mining

1940s

• IDC established to

provide financing for

industrial undertakings –

at this stage only in the

manufacturing industry

• Food processing;

• Textiles

• South Africa facing

threat of isolation from

the rest of the world

1950s & 1960s

• Securing energy

resources for South

Africa a priority

• Increasing natural

resource beneficiation

• Petroleum

• Fertilizers

• Wood processing

• Chemical beneficiation

• Mining and minerals

• Decentralisation policy

by government

• Increasing isolation

• Self sufficiency

• Balance of payments

1970s & 1980s

• Import replacement

• More resource intensive

industries established –

mainly to bolster export

earnings in non-gold

sectors

• Initiation of high-tech

industries

• Agriculture explored as

a foreign exchange

earner

• Industrial real estate

development

• Resource beneficiation

• Micro-electronics

• Change in government

• South Africa introduced

to a globalising world

• Addressing the

disparities created by

apartheid

1990s

• Moves to encourage

regional integration

• Black economic

empowerment

• Export promotion

• Services related

industries

• Investments elsewhere

in Africa

• Tourism

• ICT

• Unemployment

• Diversification of

economy

• Reducing inequalities

• Infrastructure

constraints

Early and mid 2000s

• Job creation

• Developing rural areas

and other previously

underdeveloped regions

• Downstream industries

• Entrepreneurial

development

• Sector strategies

• Film

• Franchising

• Healthcare

• Financial services

• Transport

• Construction

• Industrial infrastructure

Over its history, IDC has adapted to

South Africa’s changing priorities and

expanded into new industries as the

economy developed and policies

evolved

Late 2000s & 2010s

• Recession

• New Growth Path and

Industrial policy

• Mandate overlap of

DFIs

• Growing financial sector

liquidity

• Climate change

• Focus on NGP,IPAP2 &

NDP

• Phasing out funding to

service industries not

aligned to priorities

• Job creation through

development of key

sectors/value chains

• Expansionary and

broad-based BEE

• Funding to distressed

companies

• Green-industries

• Phasing out:

– Franchising

– Financial services

– Transport

– Construction

Partnering for industrial development

IDC

• 70 years of experience in industrial development

• Appetite to take risk

• Early stage investment

• Financial muscle

• Targeted funding for specific interventions

Industrialists/ Entrepreneurs

• Investment plans

• Projects under development

• Technology

• Operating/management expertise

Long-term view on

investments and a

commitment for the

development of the

industry

Positioning of DFIs within the financial system

• Non-commercial focus

• Fiscal transfers and grants

• Development objectives (social)

Government / NGOs

• High commercial focus

• Private sector capital

• Financial objectives

• Known risks

Commercial Financiers

• Commercial and development focus

• Sharing risk

• Internally generated funds, government funds, loans

DFIs (e.g. IDC)

Greater importance on financial objectives

Greater importance on social and developmental objectives

DFIs should not compete with other institutions, but should

instead encourage cooperation to achieve its goals

IDC has aligned its sectoral focus areas with government’s priorities Target investment 2012-2016

Green and

energy saving

industries

Bio fuels

Agro-

processing

Tourism Business process

services

Craft and film

ICT

Healthcare

Mining related

technologies

Biotechnology

Downstream mineral

beneficiation

Mining

Industrial

infrastructure

Logistics

Metals fabrication,

capital and transport

equipment

Automotives,

components, medium

and heavy commercial

vehicles

Plastics and

chemicals Clothing, textiles,

footwear, leather Forestry, paper &

pulp, furniture

Advanced

manufacturing

Pharmaceuti-

cals

Oil and gas

R26.7 billion (US$3.9 billion)







Green Industries SBU: Established April 2011- Clusters

Energy efficiency

Heat,

Electricity &

building

efficiency

Cleaner

production /

Industrial

Efficiency

Transport

Efficiency

Waste to Energy

Fuel Based Energy

Co-generation

Emission and pollution mitigation

Air pollution control Waste

Management/

Recycling

Clean stoves

Renewable Energy: Non-Fuel Power

Wind Power

Generation

Concentrated Solar

Power

Solar Photo Voltaic

Power

Services related to

renewable energy

& energy

efficiency

Local

manufacturing

related to

renewable energy

& energy

efficiency Biomass

Combined Heat Power

Biogas

Hydro

Bio Fuels

Bio Ethanol Bio Diesel

Introducing GREEN SBU How we operate …

Funding instruments:

• Debt - across spectrum

• Quasi-equity

• Equity

• Working capital

• Revolving facilities

• Guarantees

• Export finance

Lending principles:

• Project finance

• Corporate finance

• Project development

Path to market

Development Unit Testing Market Testing Operations/Expansion

First prototype Final Product – Scalable Pre Production Prototype

TVC -dti

IDC Green SBU

Concept

SPII - dti

IDC Venture Capital Unit

Commercialization

Product development life-cycle

Project development approach Example....

Pre-scoping stage

•Fit IDC mandate

•Fit ICT mandate

•Potentially viable

Implementation

•Close financing

•Construction

•Commission and

operation

Feasibility study

•Pilot studies

•Market studies

•Financial model

•Bankable business

case

Pre feasibility study

•Technology checks

•Operating partner

•Regulations (e.g.

Carbon credits)

•SA plant location

•Raw material security

•Financial model

Scoping stage

•Desktop financial

model and report

•Outline scope of work

to implementation stage

•Request project

development budget –

(used to carry out

subsequent stages)

Approximately 2% of

project cost

Approximately 5-10% of

project cost

Project (business) development phases

Application/transaction approach Example....

Screening stage

•Fit IDC mandate

•Fit ICT mandate

•Bankable business

case?

Approval, loan

agreement & CP’s

•Credit approval

•Loan agreement(s)

•Fulfilment of CP’s

•Implementation

Due diligence

•Financial

•Market issues

•Technical

•Environmental

•Legal

Indicative term-sheet

•Terms of funding

•Security required

•Structure

Basic assessment

stage

•Desktop financial

model and report

•Market assessment

•Raw material security

•Technology

assessment

•Technical partner

Application/transaction phases

Fuel Based Energy – Biogas

Grown biomass

Organic waste Anaerobic Digestion

Gas Cleaning

Liquefied Biogas (LBG)

Animal litter

Vehicle fuel

CHP on site (IDM) IC Engine or Fuel

Cell

Fuel Based Green Energy Biomass, Waste to energy and Co-generation

To achieve TARGET ZONE:

1. FEEDSTOCK (FUEL) SECURITY!

– No Feedstock security, no start!

– Feedstock security means quantity, quality, price, period!

2. PROCESS/INVESTMENT options

– largely driven by feedstock qualities, quantities, term and offtake options

– Typical R15 - 35 million per MW

– High load factors e.g. 90 % (base load), or peaking

3. High RATIO of OFFTAKE:FEEDSTOCK prices

Feedstock

OfftakesRevenue

Process various options

Investment decision

Project (includes external factors) - Low O&M, capital can be repaid if

scale sufficient & offtake/feedstock

price ratio strong

Our challenges

South African context:

- Low tariff for landfill tipping/avoidance.

- Difficult to find market for Heat produced or Tri-gen for additional revenue.

- Electricity prices in SA competing with cheap coal based power (changing!).

- Securing off take/market for electricity challenges due to PPA, access to grid/integration, etc.

- Challenges in dealing with Municipalities due to capacity, MFMA, MSA, etc.

- No clarity on green fuel taxes and other levies by NT.

- Lack of biogas standards, certifications, etc. (SABIA busy developing!)

- Lack of infrastructure for vehicle fuel therefore tend to target fleets.

- Localisation drive.

- Project Developers with limited resources, experience and own funding.

Key lessons

Key lessons learnt:

- Lack of appreciation for local prevailing conditions leading to design faults.

- Poor project implementation controls resulting in cost overruns.

- Permitting requirements for installations not yet certain.

- Operational challenges.

- Requisite skills.

Lessons necessitate the following:

- Longer moratorium to compensate.

- Technical partner involvement.

- Performance guarantees.

Options – way forward

- Consider electricity generation for on site use.

- Consider providing electricity during peak times only as Peaking plant.

- Consider Tri-gen for additional revenue streams to enhance economics.

- Consider hedging strategies to prevent runaway cost due to forex movements (IDC funding in dollars/euros for import content).

- Consider alternate use for Biogas; viz. use in vehicles as a fuel alternative.

- Assistance to Biogas Projects (concessionary lending schemes):

• Grants – DBSA Green Fund, MCEP, MIP, SPII, etc;

• UIF scheme;

• Gro-E scheme;

• kfW GEEF; and

• AfD.

Industrial Development Corporation

19 Fredman Drive, Sandown

PO Box 784055, Sandton, 2146

South Africa

Telephone 011 269 3000

Facsimile 011 269 2116

E-mail [email protected]

Thank you

www.idc.co.za/greenecomy

Email: [email protected]

http://www.idc.co.za/greenecomy

the role of idc in financing biogas · pdf filee-mail [email protected] thank you email:...

Documents