Overview: Opportunities in Small Hydro Javier Escorriola - Norfund. Small Hydro Latin America Conference December 5, 2012

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1 Overview: Opportunities in Small Hydro Javier Escorriola - Norfund Small Hydro Latin America Conference December 5, 2012

2 Agenda About Norfund Opportunities in Small Hydro: the case for Central America Deconstructing the structure of investment to determine who are the key players and how they do/should interact Project Plan: Key Success Factors Long Term Project Development Strategies

3 Norfund s Hystory and Mandate Norwegian Government Owned 15 year experience 13 years in Central America Invests in profitable private enterprises Minority SH, with partners Invests on commercial terms Norwegian development cooperation Equity USD 1.3 billion Hidro 45% of our portfolio Norfund s mandate:.reduce poverty and create sustainable economic growth by investing risk capital in profitable businesses in developing countries.

4 Norfund's Investment Areas Financial Institutions SME Funds Renewable Energy Industrial Partnerships Build financial infrastructure Strengthen small and medium sized enterprises Build energy infrastructure Risk capital where the development effect is particularly strong Why Many people and small businesses lack access to financial services How Invest in SME banks, funds, and microfinance Partnership with Norwegian Microfinance Initiative (NMI) Why Local PE funds are good sources of capital for SMEs Local capital markets need to be strengthened Weak formal economies How Invest through PE funds, or set up new funds where none are currently available Mobilise Norwegian capital Why Access to electricity is a precondition for economic growth How Set up well-run companies that can supply renewable energy to households and businesses Mobilize Norwegian capital and expertise Why High development effects from startup and high-risk projects Attract expertise and technology to LDCs in Sub- Saharan Africa How Identify high quality industrial partners Be a long-term and active owner

5 Access to energy fundamental to poverty alleviation 5

Joint Venture 1,600 MW under administration

$277mill Latin America $27mill Africa RE

million Nairobi, Kenya Asia Share of total

6 Renewable Energy to build energy infrastructure SN Power 2002 Norfund/Statkraft Joint Venture 1,600 MW under administration Central America Focus 2x 60MW projects under development (Panama) 2015: $400 million capital investment San José, Costa Rica $277mill Latin America $27mill Africa RE portfolio* Johannesburg, South Africa $169 million Nairobi, Kenya Asia Share of total portfolio* Bangkok, Thailand Minority stake (<35%) Renewable energy projects (Hydroelectric, Biomass, Eolic, Solar, Geothermal) Exit Strategy 5MW Guatemala $465mill 45% 6 *as of end 2010

7 Agenda About Norfund Opportunities in Small Hydro: the case for Central America Deconstructing the structure of investment to determine who are the key players and how they do/should interact Project Plan: Key Success Factors Long Term Project Development Strategies

8 What is Small Hydropower (SHP)? Not one definition 1MW 30MW Efficient 80%-90% Both reaction and impulse turbines * Source: Global Data - SHP Competitive Landscape, Opportunity and Key Country Analysis 2020, August 2012

9 Small Hydropower: Global Trends* Government Support - Driver Social and Financial Benefits China is Key Brazil Good Growth * Source: Global Data - SHP Competitive Landscape, Opportunity and Key Country Analysis 2020, August 2012

7+ years) Lower capital investment Easier construct & commission Facilitates community participation Capitalizes on local skills

10 SHP: Capturing Attention from Governments & Financial Industry Mature technology Reduce dependence on fossil fuels Fast response to daily demand Abundant source Shorter gestation period (2-5 years vs. 7+ years) Lower capital investment Easier construct & commission Facilitates community participation Capitalizes on local skills Less disruptive on local habitat Accounts for 20% or world s total electricity supply * Source: Global Data - SHP Competitive Landscape, Opportunity and Key Country Analysis 2020, August 2012

11 Small Hydropower (SHP): LCOE* is price competitive Key Cost Drivers: Capital Cost: Site Specific Development Policy (SEG) Energy: Head-Flow Engineering Design Interconnection Cost of Land Engineering capacity Capacity Utilization Hydrology O&M Costs Tax Policy Cost and Terms of Capital Lifespan of the plant * Source: Global Data - SHP Competitive Landscape, Opportunity and Key Country Analysis 2020, August 2012

12 SHP SWOT Analysis * Source: Global Data - SHP Competitive Landscape, Opportunity and Key Country Analysis 2020, August 2012

13 SHP: Key Drivers and Restraints * Source: Global Data - SHP Competitive Landscape, Opportunity and Key Country Analysis 2020, August 2012

14 SHP: Central America as we see it 5 = Attractive / 1 = Unattractive Driver GUA HON NIC CR PA Observation Overall Environmental Awareness Energy Security Awareness Financial & Social Benefit GUA: Indigenous Pop. Gov. Support Admin. Hurdles Gestation Periods Quality of Resources NIC: admin hurdles CR: Permits + Studies

15 Agenda About Norfund Opportunities in Small Hydro: the case for Central America Deconstructing the structure of investment to determine who are the key players and how they do/should interact Project Plan: Key Success Factors Long Term Project Development Strategies

16 SHP Key Players Funders EPC/Const. Companies Suppliers: Materials + Technology Developers + Operators Advisors Investment Climate: market access, legal framework, incentives, ESG (stakeholders acceptance)

17 Agenda About Norfund Opportunities in Small Hydro: the case for Central America Deconstructing the structure of investment to determine who are the key players and how they do/should interact Project Plan: Key Success Factors Long Term Project Development Strategies

18 Project Road Map Is it a good project? Are conditions attractive to financers? Under budget? Run efficiently? Stage Development Financial Close Construction Operation Development Ready to Build Allocation of Construction Risk Operating Experience Key Marks Track Record Site Conditions - Hydrologic - Land - Geologic - Interconnection Design - Sales - Capacity - Utilization - Project Cost - Timeline ESG Studies Permits Developer Track Record & Project Teaser Project Information Package Ownership & Governance Structure EPC Contract Legal Closing Financial Closing EPC Contract - Risk allocation - Timeline - Tender process - Performance security - Detailed design - Time for completion - Tests on completion - Defects notification Period - Remedy of defects - Taking over - Return of performance security Payment Cycle Track Record Governance organization Managing, planning & Control Exit strategy

19 Agenda About Norfund Opportunities in Small Hydro: the case for Central America Deconstructing the structure of investment to determine who are the key players and how they do/should interact Project Plan: Key Success Factors Long Term Project Development Strategies

20 Project Road Map Is it a good project? Are conditions attractive to financers? Under budget? Run efficiently? Stage Development Financial Close Construction Operation Development Ready to Build Allocation of Construction Risk Operating Experience Several Hits Strategy Risk Return Home Run Strategy

Investing for development

Investing for development Presentation at the Symposium on SDG 7 (Energy) in preparation for the 2018 High-Level Political Forum on Sustainable Development Oslo - October 19th, 2017 OUTLINE About Norfund