FINANCING GREEN INDUSTRIES IN ASIA. Pankaj Sehgal Managing Director, SUN Group

Transcription

1 FINANCING GREEN INDUSTRIES IN ASIA Pankaj Sehgal Managing Director, SUN Group 0

2 FINANCE SOLUTIONS FOR GREEN INDUSTRIES KEY DRIVERS Region Reference cost for conventional energy or conventional industry Proclivity Finance Solutions For Green Industry Technology Cost of Clean energy or Green industry Proclivity to invest in Green Industry or Clean Energy Policy Regulatory lever to bridge cost-gap between Green and Conventional industry 1 1

3 COST OF CLEAN TECHNOLOGY - McKINSEY S ABATEMENT COST CURVE Abatement Cost EUR/tCO 2 e Small Hydro - Base Rice management - Shallow flooding Biomass dedicated Organic soils restoration Large Hydro T&D Smelt reduction, new build Offshore wind Coal IGCC - Base Livestock Antimethanogen vaccine Solar PV Forest Management 60 Clinker substitution by Slag Geothermal 50 Nuclear Alternative fuels - Bio ,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2, Abatement -30 Energy efficiency II (general) -40 Potential Alternative fuels - Waste -50 MtCO 2 e -60 Pump efficiency - electric -70 Clinker substitution by Fly Ash -80 Modal Shift -90 BOF to scrap EAF shift, new build -100 Clinker substitution by Other MIC Pumping Reductions -150 Buses Source: McKinsey & Co. and Vattenfal 2 2

4 FINANCE SOLUTIONS FOR GREEN INDUSTRIES Equity Equity investors Examples PEs, VCs, Angels, Sovereign Strategic investors Public market investors Upfront Capital Debt Commercial banks Green banks Multilateral funds Corporate bonds ICICI, Citibank, Deutsche Bank State Bank of India, SBI Rabo bank Tata bond Local govt. bonds Clean Project Financing Concessional Finance Governments/ Multilaterals World bank, ADB, IFC, CDC Regulatory/policy incentives Feed-in tariffs Subsidy tax-credit; cash rebate Utility rewards for EE REC, RPS Economic Viability Carbon credits CERs, ETUs, VERs Financial products for Energy Efficiency Aggregation and securitization of EE across households & companies Structured products that could bridge landlord-tenant problem in buildings EE 3

5 LEVERAGE POWER OF MULTILATERALS CTF unlike ordinary investment A catalyst to attract other investors CTF provides de-risking seed capital for PE funds or direct investments which regular financial institutions are unwilling to seed due to lack of track-record or perceived high-risk / low-returns of new industry - With higher-risk seed capital from CTF secured, regular financial institutions will be more keen to co-invest CTF willing to take first-loss position in the PE funds or direct investments - Which reduces the financial risk for subsequent investors and makes the investment more attractive $4-5b 8-10x A catalyst to attract private investments in support of Government initiatives CTF s de-risking seed capital Attracts Other investors Drives down cost; attracting more capital $500m Accessed from CTF Total funding generated Fosters Scale-up A catalyst for scale and cost declines Quicker ramp-up of capital investment for scaling-up renewable projects would accelerate cost declines shortening time to grid-parity (e.g., for technologies such as Solar) 4

6 NEED LOCAL GOVERNMENT SUPPORT Recommended local government initiatives Key takeaways Government money still a big chunk of green financing Private investment crucial for technology development and commercialization, creating jobs and unlocking the government money Serious investment is needed from the local government to make the green industry happen Direct financial support R&D and IP transfer support Favorable tax treatment Set up green credit guarantee organizations at city level for helping borrow from banks Set up Policy Fund for green development for subsidizing with quality, innovative products Set up International Market Development Fund to help local green companies expand sales to overseas markets Issued policies on supporting green technological innovation. Under the policies, green companies with innovative products are subsidized by special funds, and are given priority in government purchase Help building connections between universities and green industrial incubators to facilitate technology transfer and commercialization Reduce tax burden of green companies; Micro enterprises with low profitability can enjoy 20% income tax, and 15% of income tax applied to all high-tech SMEs 5

7 SOME LESSONS FOR INVESTORS Structure re-finance clauses, so not to be stuck with present high cost of debt for the entire duration of the project Temper IRR expectations; Clean energy returns still don t match returns in some other sectors Do CDM registration ahead of project commissioning, so it is easier to build into financial models Use combination of commercial banks and developmental banks Don t leave carbon revenues fully exposed to spot market volatility Be willing to pay more for superior equipment, technology, and performance guarantees 6

8 SUN-PCG CLEANTECH FUND Transfer of Clean Technology to India The West is source of over 80% of the clean technology innovation United States Europe India Japan The Fund would identify, transfer and commercialize India-relevant proven cleantech innovations, yielding returns of ~30% 7 7

9 SUN-PCG CLEANTECH FUND VIS-À-VIS INVESTMENT CONTINUUM Early-stage / Venture Capital Growth Capital Project Finance Description Focus Investment Size Examples Long established VCs, historically focused on the technology and biotech sectors, have expanded into this sector, now referred to as cleantech Focus on: high-quality entrepreneurs and management teams, disruptive technology, and deep market knowledge as they move from company formation to product development to commercialization. They entail new technology development risk Typically invest from $5-$20 million in a single company over its lifetime Rockport, Nth Power, Emerald Tech, CMEA, Element, Enertech, MDV, Amadeus, Winsome, TVM Specialized funds established as well as large investment buyout funds with a special allocation into the sector Focus on: proven business models and products or services that have been validated by the market place As companies reach their growth inflection point, these opportunities require significant equity investments beyond the scope of traditional early-stage VCs. They entail market, execution, and team risks Typically invest from $20-$50 million in a single company Virgin Green Fund, Mission Point, Demeter, 3i, Masdar, Vantage Funds investing in energy assets and development projects Focus on: asset base intensity for downside protection and asset aggregation to achieve equity-like returns Typically invest more than $50 million in a single company Riverstone, USRG, HG Capital, Arclight, Citigroup, Goldman Sachs Fund s approach $ 3-5 billion allocated over 80+ funds $ 5-10 billion allocated over 20+ funds $ billion allocated over 15+ funds 8 8