Carbon Finance Unit, The World Bank Washington, DC - March, 2008

Transcription

1 Carbon Finance addressing Climate Change Carbon Finance Unit, The World Bank Washington, DC - March,

2 After 10-y catalyzing the C- market, what s next to scale up CF and support the transition to a low-carbon economy? Main Constrains and Challenges in Moving Ahead with CF 2

3 o-07 d CDM supply: # of projects other Brazil Mexico India China 2883 projects 2.4 blln tco 2 e by blln tco2e by 2012 (risk adjusted) Drying up as 2012 is getting closer 3 d-03 f-04 a-04 j-04 a-04 o-04 d-04 f-05 a-05 j-05 a-05 o-05 d-05 f-06 a-06 j-06 a-06 o-06 d-06 f-07 a-07 j-07 a-07 # of projects entering the pipeline

4 Carbon finance: payments for a stream of emission reductions Cash in Debt Equity = annual carbon payments = other sources of revenue from service or production = debt servicing Carbon revenues Operating revenues Construction Yrs Cash out ERs created only after project is implemented and operational (Carbon finance is output-based). 4

5 Where the emissions come from Source: WRI, Baumert et al,

6 Impact of Carbon Finance INCREMENTAL IRR - CARBON FINANCE Renewable Energy ER Prices Purchase period 5y ('08-'12) 7y 10y 14y 21y Impact per Unit $ % 0.6% 0.8% 1.0% 1.2% $3.16 / MWh $ % 1.4% 1.7% 2.1% 2.3% $6.33 / MWh $ % 2.1% 2.7% 3.1% 3.3% $9.49 / MWh $ % 2.9% 3.6% 4.1% 4.5% $12.65 / MWh INCREMENTAL IRR - CARBON FINANCE Solid Waste Purchase period ER Prices 5y ('08-'12) 7y 10y 14y 21y 0.58 tco2e/tsw 0.74 tco2e/tsw 0.93 tco2e/tsw 1.11 tco2e/tsw 1.29 tco2e/tsw Impact per Unit $ % 24.1% 29.2% 31.7% 32.8% $41 / MWh $ % 59.1% 62.4% 63.5% 63.8% $82 / MWh $ % 93.3% 95.4% 95.9% 96.0% $124 / MWh $ % 127.3% 128.6% 128.8% 128.9% $165 / MWh *tsw = ton solid waste INCREMENTAL IRR - CARBON FINANCE HFC23 ER Prices Purchase period 5y ('08-'12) 7y 10y 14y 21y $ % 112.3% 112.7% 112.7% 112.7% $ % 177.3% 177.4% 177.4% 177.4% $ % 227.6% 227.7% 227.7% 227.7% $ % 270.2% 270.2% 270.2% 270.2% *65% tax applied on carbon revenues 6

7 Main Constrains and Challenges in Moving Ahead with CF Constrains Post-2012 uncertainty Challenges Overcome transition CF Products New C-funds (e.g., CPF, FCPF), Insurance / guarantee Asset creation risk Cashflow predictability Asset diversification in the new funds (i.e., VERs) Output-based Frontload streams Monetization (corporate / project finance), bond issuance, blending IBRD / IDA Low impact Leverage impact Carbon delivery guarantee, green credit card, clean tech fund, other VC-type funds 7

8 Overcoming the uncertainties related to post-2012, future assets and regimes New carbon facilities (CPF and FCPF): sustaining the market under transitional phase and increase investments by ensuring long-term C- revenues. The facilities shall be open to consider future assets and regimes, mitigating the asset creation risk (e.g., VERs, voluntary assets) Insurances/guarantees: providing protection to investors on: advance payments, pricing fluctuation, delivery risks, and regulatory schemes. (e.g., MIGA announced its first-time deal in 2007) 8

9 Frontloading CF revenue streams Monetization: frontload the future carbon revenue streams for investment costs. ERPAs are pledged for the loan s repayment under a commodity-backed, corporate or project financing: Project finance with C-revenue streams to offset DSCR (e.g., Rabobank / Plantar) Venture capital fund with C-revenues for IRR/ROE (e.g., Man Capital, Swiss Re s 354M European Clean Energy Fund) Suppliers credit or commodity finance (e.g., leasing EnerG / Nova Gerar) 9

10 Monetization of (future) ERPA receivables Plantar-BR SPV Rabobank ER pmts $5 m CFU Financing Agr. Loan $5 m ERs ERPA Project ERs fully amortized the loan ER payments placed offshore offsetting Country Risk 6000 Cash Flows ($000) Loan Disbursement PCF Payments Loan Amortization Loan s annual amortization mirrored ER delivery schedule Year 10

11 Frontloading CF revenue streams Carbon-linked (COOL) Bonds: Bonds with performances based on the future prices of carbon credits. Investors would get higher returns on the coupons with increases in carbon credit prices (e.g., Daiwa 07; Treasury may issue three structured notes by 2008) Climate Awareness Bond (EIB + Merrill Lynch + Dresdner Bank), which will apply the ( 600M- 1Bn) capital to be raised in RE/EE projects WBG blending: the Bank would be both lender and buyer of the carbon credits, reducing the client's DS obligations under the loan agreement (i.e., turning IBRD loans into concessional-ida or IDA into grants) 11

12 Leveraging the impact of CF Carbon delivery guarantee: credit enhancement, guaranteeing the delivery obligation of projects. IFC passes on the premium in pricing obtained (by a AAA-rated seller) in the 2ary market to the projects net of a risk-based guarantee fee; Clean Tech Fund: +/- $5 billion in concessional loans for largest developing country emitters (reverse auction?) Derivatives: such as calls and puts (options) to hedge exposure to delivery risk (overcommitment and underdelivery) and carbon price fluctuations (e.g., Gemini) Others: Green credit card (e.g., ClimaCount VISA GreenCard issued in 2004 in Europe will use credit card fee to invest in clean technologies to offset GHG emissions in behalf of users - $250M/y) 12

13 Carbon Prices ( ) vs. Risk Profile and Risk Allocation ERs voluntary ERUs CERs pre-reg. CERs reg. CERs issued CERs secondary EUAs (Ph II) 13

14 The overall investment gap (annual) Annual Investment Needed Current Funding The Gap Power sector in developing world $165 billion $80 billion $48 billion from private sector, IFIs, donors, ECAs $85 billion $32 billion from internal cash generation Low carbon transition $34 billion (Stern: $20-30) Hundreds of millions $30 billion Adaptation to climate risk require additional $10-40 billion p.a. 14

15 C-Leverage to Energy Investments in Developing Countries (2006) WB 1 : Capital inflows of US$571 billion (primarily equity from private sector). UNEP 2 : Only US$21 billion allocated to RE/EE technologies (i.e., 21% of the US$100 billion global RE/EE investments). RE/EE ERPAs of US$1.1 billion (tot.=us$5 billion), or US$9.2 billion in investments 3 (over 40% C-leverage in RE+EE). CDM ERPAs of US$2.7 billion from clean energy projects from 2002 to 2006 (~35% of US$7.8 billion CDM ERPAs) resulting in US$16 billion investments in clean energy since WB, Global Development Finance, The Globalization of Corp. Finance in Developing Countries 07 2 UN Environmental Programme (UNEP), WB projections, using 8.7:1 ratio between investment costs and ERPA nominal values for RE+EE projects (based on the WB s own portfolio) and 5.9:1 ration for clean energy projects combined. 15

16 Kyoto market balance Potential Gap ( ) in MtCO 2 e (with existing measures) Potential Supply ( ) in MtCO 2 e (with existing measures) Demand for Kyoto Mechs ~2GtCO 2 e Green Invt. Scheme up to 1.5 GtCO 2 e? Canada Japan EU-15 Australia other Europe and N.Z. EU-ETS (EU-10) CDM (risk-adjusted) JI Belarus, Croatia EU-10 Ukraine Russia 16

17 Thank you! For further info, please contact: Alexandre Kossoy