Renewable Energy. IFC s Approach. Presentation to the Danish Wind Industry Copenhagen February 22, 2011

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1 Renewable Energy IFC s Approach Presentation to the Danish Wind Industry Copenhagen February 22, 2011

2 Table of Contents IFC Who We Are, What We Do IFC and Renewable Energy Investment Experience and Deal Criteria Other IFC Products and Services 2

3 IFC Who We Are, What We Do Deep industry experience 3

4 IFC is a Member of the World Bank Group IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation MIGA Multilateral Investment and Guarantee Agency Est Est Est Est Role: To promote institutional, legal and regulatory reform To promote institutional, legal and regulatory reform To promote private sector development To reduce political investment risk Clients: Governments of member countries with per capita income between $1,025 and $6,055. Governments of poorest countries with per capita income of less than $1,025 Private companies in member countries Foreign investors in member countries Products: - Technical assistance - Loans - Policy Advice - Technical assistance - Interest Free Loans - Policy Advice - Equity/Quasi-Equity - Long-term Loans - Risk Management - Advisory Services - Political Risk Insurance Shared Mission: To Promote Economic Development and Reduce Poverty 4

5 Founded in 1956: 12 years after the Bretton Woods Conference created the World Bank to finance post-wwii reconstruction and development by lending to governments Owned by 182 member countries Who We Are, What We Do IFC is the world s largest multilateral institution focused on private sector development, widely seen as an essential source of job creation, growth, and poverty reduction - it is the global leader in private sector development finance IFC invests, advises, mobilizes capital and manages assets providing solutions for an inclusive and sustainable world Global: Headquartered in Washington, D.C. Local: More than 100 offices worldwide in 86 countries 5

6 IFC s Global Reach 100+ country and regional advisory services offices worldwide Moscow Almaty Washington Istanbul New Delhi Cairo Mexico City Hong Kong Dakar Port-of-Spain Bogota Nairobi São Paulo Johannesburg Buenos Aires IFC HQ/Hub Offices IFC Operational Centers IFC Country Offices 6

7 IFC s Purpose IFC s Purpose is to create opportunity for people to escape poverty and improve their lives by Supporting companies and other private sector partners where there is a funding gap Helping to generate productive jobs and deliver essential services to the underserved Catalyzing and mobilizing other sources of finance for private enterprise development Last year our clients provided: 2.2 million jobs $112 billion in micro, small, and medium enterprise loans 8 million patients with health care treatment 35 million people with clean water 29 million people with power connections 1.4 million students with education services To achieve its purpose, IFC offers development impact solutions through firm-level interventions (direct investments, advisory services, and the Asset Management Company), standardsetting and business enabling environment work. 7

8 IFC s Three Main Business Lines IFC Investment Services IFC Advisory Services Loans/ Equity Syndications Trade finance/ Securitized finance Client risk management services Treasury services Liquidity management Access to finance Sustainable Business Investment Climate Public-Private Partnerships IFC Asset Management Company Wholly owned subsidiary of IFC that invests third-party capital alongside IFC, with approximately US$4 billion under management as of June 30,

9 Financial Products - From Equity to Debt Equity Corporate and JV Typically 5-15% shareholding (not to exceed 20% of total equity) Long-term investor, typically 6-8 year holding period Not just financial investor, adding to shareholder value Usually no seat on board Infraventures (early equity investments) Mezzanine / Quasi Equity Subordinated loans Income participating loans Convertibles Other hybrid instruments Senior Debt & Equivalents Senior Debt (corporate finance, project finance) Fixed/floating rates, US$, Euro and local currencies available Commercial rates, repayment tailored to project/company needs Long maturities: 8-20 years, appropriate grace periods Range of security packages suited to project/country Mobilization of funds from other lenders and investors, through cofinancings, syndications, underwritings and guarantees 9

10 How We Finance Projects Project Type Greenfield, total cost less than $50 million Greenfield, total cost more than $50 million Expansion or rehabilitation IFC Investment Up to 35% of project cost for IFC s account Up to 25% of project cost for IFC s account Up to 50% of project cost Umbrella for participants in IFC s syndication program: IFC lender of record, immunity from taxation and provisioning requirements. IFC s total financing (for its own account) must be less than 25% of total company capitalization, and IFC does not manage or have largest stake. 10

11 Investing with IFC The Process Early Review Due Diligence Negotiation Disclosure Commitment and Disbursement Monitoring Client needs determined Assessment of project s impacts and development contributions Management committee approval Assessment of business opportunities and risks Analysis of environmental and social opportunities and risks Appraisal Disclosure of environmental and social information Opportunity for public comment Negotiation and agreement of principal terms Board approval Signing of legal documents Disbursement Annual review of project performance Mandate letter Credit committee approval We agree on a specific timeline to meet client s needs 11

12 What makes IFC unique Clients Value IFC s Global Expertise Knowledge of global industries and local markets Financial sector influence Long-term partnerships; countercyclical role Sustainable investments Leadership on corporate governance Value-adding expertise along the entire value chain IFC Unique Offering Includes: Emphasis on development impact World Bank affiliation Market discipline Risk-taking and risk management Preferred creditor status Political risk cover Environment and social & insurance value-addition 12

13 Fiscal Year 2010 Highlights Investments: $18 billion in total financing: $12.7 billion for IFC s own account in 528 new projects in 103 countries; $5.3 billion mobilized Portfolio: $48.8 billion portfolio, representing investments in 1,656 firms Investments by Industry and Region, FY10 Commitments for IFC s Account: $12.7 Billion 13

14 IFC and Renewable Energy 14

15 Why Renewables: Fueling Growth and Combating Climate Change Developing countries have a clear need to power economic growth and to improve the quality of life of their citizens (e.g. access to lighting and communications) Need to diversify generating sources and where possible, deploy indigenous power rather than using foreign exchange to import fuel Climate change and environmental concerns given diminishing resources or reserves of coal, gas and even water Solar, wind and other forms of renewable energy pose great opportunities for private investors in emerging markets if capital can be raised and risks overcome. In 2010, IFC invested $1.6 billion in climate change business, which is a 60 percent increase from the previous year. By 2013, IFC aims to increase its climate change business to at least 20% of its total annual commitments 15

16 IFC Investments to Date in Renewables 16

17 IFC View of Local Regulatory Frameworks IFC realizes that countries offer incentives (feed-in tariffs, tax credits), establish renewable targets or create legislation (import duties, local content rules) to encourage the growth of a local renewable industry IFC supports competition and fair market access; however, we note that in the renewables sector, governments can influence the market As such, IFC evaluates the merit of each project on a case-by-case basis, looking each company s inherent cost competitiveness (i.e. would the company be able to compete if incentives were not in place) The World Bank also engages with governments to improve their energy policy and improve market access. 17

18 Working Across the Wind Power Value Chain IFC finances projects across the wind value chain from upstream equipment manufacturers to downstream power projects COMPONENT & SERVICE SUPPLIERS (e.g. suppliers of blades, towers, transformers, controller software, etc.) TURBINE MANUFACTURERS WIND FARMS (captive, IPPs or utilities) Deep industry experience in clean tech, manufacturing, services and power investments In-house investment, environmental and social, legal and product expertise 18

19 Strategy - Downstream Work with global renewables developers and utilities expanding their asset base in emerging markets Finance leading local renewables developers and utilities that are knowledgeable and can play an important role in furthering the adoption of renewable energy based electricity generation Work with global and local corporates in other sectors (e.g. cement, oil & gas, mining, etc.) seeking to develop and own renewable energy projects in emerging market countries Finance fund managers involved in clean energy, cleantech and carbon private equity funds that also finance smaller renewable energy projects and earlier stage companies 19

20 Strategy - Upstream IFC s approach is to invest in technology and scale, so as to bring down the cost of renewable energy to grid parity so that it is a widely used source of electricity generation in the emerging markets. To achieve this, IFC will invest in: Global renewables companies expanding their manufacturing footprint in emerging markets Leading local players that are cost competitive and can play an important role in (i) deepening the adoption of renewable power and (ii) lower the cost of renewables energy Both global and local component suppliers (e.g. blade, gearbox, towers, bearings, generators) with a manufacturing presence in the emerging markets Technology leaders building new, innovative solutions IFC is supporting private sector companies that are cost competitive and / or technology leaders in renewable energy, to combat pollution, environmental degradation and the negative impacts of climate change and to create or sustain employment in poor countries. 20

21 IFC Investment Experience and Deal Criteria 21

22 IFC Investments in Wind Power AES GEO Energy (Bulgaria, 2008): EUR 40 million IFC A loan and EUR 32 million B loans for 156 MW St. Nikola Wind Farm near Kavarna using Vestas V90 3 MW turbines; AES is IFC s largest utility client in wind energy and power sectors China Windpower Group (China, 2010): US$10 million in equity along with US$45 million A loan and US$95 million in B loans to construct a US 150 million 201 MW greenfield wind farm in Gansu using Sinovel 1.5 MW turbines EDF-EN La Ventosa/La Mata (Mexico, 2010): 310 million Mexican Pesos investment to finance the 67.5 MW greenfield wind project in Oaxaca using 2.5 MW Clipper turbines; CTF concessional loan of US$15 million Acciona Eurus (Mexico, 2010): US$71 million in senior and mezzanine debt to finance US$560 million 250 MW wind farm using Acciona 1.5 MW turbines ; CTF concessional loan of US$30 million Zorlu Enerji Rotor (Turkey, 2010): EUR55 million in long term debt to finance 135 MW greenfield wind project using GE 2.5 MW turbines 22

23 Norvind S.A. Case Study Investment Summary: Timing: Why Norvind: IFC Value Added: US$30.75 million senior A loan and arranged US$30.75 million B loan package among colenders to fund US$140 million 46 MW project Nine months from mandate letter to first funds disbursement for Totoral wind farm in Chile SN Power is highly experienced and efficient hydro utility with some wind experience in Norway; Vestas V90 turbine technology (2 MW geared turbines, Class III wind) and 3 year services agreement; Centinela was strong local development partner Experience with Chilean power sector; Very long loan maturities (18 years); First merchant wind project with very limited recourse; Creative financial structuring of debt package with B loan fully subscribed by DnB Nor 23

24 IFC Investments in the Equipment Supply Chain Moser Baer Photovoltaic (India, 2007): Existing IFC client, since 1996; US$22.5 million (debt) to construct an 80 MW greenfield PV facility ENN Solar (China, 2008): Existing IFC client XinAo Group in the gas distribution and clean coal sectors; US$45 million in debt and US$15 million in equity for a greenfield thin film line using AMAT equipment; IFC finance was not disbursed Nitol Solar (Russia, 2008): US$50 million equity and US$25 million debt to finance the construction of a polysilicon facility in Russia Suntech (China, 2009): US$50 million in convertible debt to finance the expansion of the company s manufacturing capacity to 1 GW SunPower Corporation (Philippines, 2010): US$75 million in debt to finance capex and working capital needs for the companies solar cell and module facilities in the Philippines Goldwind (China, 2010): US$75 million equity investment to finance the company s facilities in China s frontier regions and for R&D Gamesa (India, 2011): Euro 11 million to finance the company s manufacturing operations in Chennai, India. Transaction in process. 24

25 Goldwind Case Study Investment Summary: Timing: Why Goldwind: IFC Value Added: US$75 million equity investment as part of the company s Hong Kong IPO to fund capital expenditure and R&D in China Due diligence in the third week of July; documents signed and funds disbursed in September Headquartered in and strong manufacturing presence in Xinjiang in western China; largest private sector Chinese wind company with strong technology (direct drive turbines), manufacturing experience and downstream operations; strong growth potential Compliance with IFC / World Bank environmental and social guidelines 25

26 Gamesa Case Study Investment Summary: Proposed Euro 11 million loan to help finance Gamesa s new wind turbine manufacturing facility in Chennai, India Why Gamesa: Global wind turbine manufacturer with the goal of expanding its operations in the emerging markets and developing a local supply chain. IFC Value Added: Compliance with IFC / World Bank environmental and social guidelines; guidance on local financing and currency requirements; ability to work with IFC (on both manufacturing and wind farm projects) in other emerging markets. 26

27 IFC Deal Criteria in Renewable Energy Projects Sponsor Project Financing Technology Market Strong sponsor, with a track record in sector Good reputation Financial strength and technical experience Long term commitment to success of the project Potential to add scale and support Cost competitive in sector without considering an existing/ anticipated incentive structure with solid project fundamentals Experienced project development team Sales potential Solid equity contribution Debt: Equity ratio of at least 50:50 Financing structure aligned with investment needs/ project outlook Technology leaders with tested technology Providing innovative solutions that improve the quality of products Existing or anticipated demand for product 27

28 Creating Effective Partnerships Project Guidelines: Must be in the private sector Commercially, economically, environmentally, socially sound and cost competitive Majority shareholder exit strategy Sponsor should have long-term strategy and successful track record in the industry Financial Structure Debt/equity ratio (at least 50/50) IFC can provide corporate finance or project finance Sponsor needs to invest into the project (cash/in-kind contribution) Profit oriented IFC shares same risks with other investors Possible security structures for longterm loans Completion support from sponsor Guarantee from sponsor or Mortgage on land/equipment to be financed Allows clients to diversify funding, extend maturities, and obtain financing in currency of choice 28

29 Other IFC Products and Services 29

IFC also focuses on growth-stage opportunities across major cleantech sectors The cleantech

opportunities involving innovative technologies/ products/services/projects in climate

addressable market size is close to US$ 6 trillion but current market size is under US$1

Revenue, $ Billions CAGR, 10-15 % 2010 total addressable market (TAM) 1 Revenue, $ Billions

Efficiency Recycling & Waste Recycling services Waste treatment Waste to fuel Filtration &

control trading and offsets Manufacturing Agriculture Transportation friendly nano, bio,

production Land management Natural pesticides natural fertilizers Cold chain logistics

Water 147 Fuels 88 Industrial efficiency 60 Transportation 58 Waste management 34 Energy

30 IFC also focuses on growth-stage opportunities across major cleantech sectors The cleantech investment team within IFC s Climate Business Group, will focus on growth-stage opportunities involving innovative technologies/ products/services/projects in climate change CleanTech penetration into addressable market is small but growing rapidly; total addressable market size is close to US$ 6 trillion but current market size is under US$1 trillion with tremendous upside in this market Opportunities 2010 CleanTech market size Revenue, $ Billions CAGR, % 2010 total addressable market (TAM) 1 Revenue, $ Billions Energy Materials Environmentally Water Energy Generation, Storage, Infrastructure, Efficiency Recycling & Waste Recycling services Waste treatment Waste to fuel Filtration & purification Water conservation Wastewater treatment Air & Environment Remediation emission control trading and offsets Manufacturing Agriculture Transportation friendly nano, bio, chemical materials for various applications Energy efficiency Monitoring/controls Smart production Land management Natural pesticides natural fertilizers Cold chain logistics Electric vehicles Fuels, batteries, capacitors Battery management Power generation 214 Water 147 Fuels 88 Industrial efficiency 60 Transportation 58 Waste management 34 Energy use buildings 30 Energy grid infrastructure 29 Materials 20 Total ,100 2,200 1,000 5,800 30

31 The CleanTech Group focuses on growth stage investments Incubation Early-stage Growth Mature Investor profile Angel investors, friends/family Venture Capital Late stage VCs, PE, some debt investors PE, debt investors, public markets Risk profile Very high, Speculative High Medium Low Deal size < US$ 5 mm US$ 1-10 mm US$ 5-25 mm > US$ 30 mm Investment risk IFC investment instrument Technology risk, very limited exits Grant, Preferred equity, CT Pilot Market, execution and exit risks, some technology risk Preferred equity Market & execution risks no technology risk Preferred & common equity, mezz and debt Pricing, M&A, margins Common equity & debt CleanTech focus Limited, perhaps Cleantech facility IDA countries + frontier regions BRIC + MIC Not likely The CleanTech Group focuses on early to growth stage cleantech investment deals 31

32 IFC Post-2012 Carbon Facility 150M Facility to forward purchase carbon credits up to 2020 Purchase Certified Emission Reductions (CERs) from projects being financed directly or indirectly by IFC Capitalizes on IFC s due diligence as financier to projects Uncertainty beyond 2012 has led to a decline in climate friendly investments that could benefit from the carbon markets Longer term high quality carbon revenue stream increases financing options IFC will contribute up to 15M of the Facility s capital Balance mobilized primarily from 6-7 European power utilities & energy companies Launched in February 2011 with 3 anchor investors including IFC Facility to be managed by IFC Expected to be operational in March

Donor Funds for Climate Solution Projects Managed by IFC The Global Environment Facility IFC has used GEF funds for concessional investments and Advisory Services for 15 years (www.gefweb.

33 Donor Funds for Climate Solution Projects Managed by IFC The Global Environment Facility IFC has used GEF funds for concessional investments and Advisory Services for 15 years ( The Climate Investment Funds (CIFs) which includes ( : The Clean Technology Fund (CTF), to scale-up deployment clean technologies in high emitter countries The Forestry Investment Program (FIP), to reduce emissions from deforestation and forest degradation Pilot Program for Climate Resilience (PPCR), to support climate adaptation The Scaling up Renewable Energy Program (SREP), to support small scale RE in low income countries Project Example: EdF La Ventosa IFC has used concessional financing from the CTF to support the development of a 67.5MW wind power plant in the State of Oaxaca (Mexico) Despite the fact that the Isthmus of Tehuantepec has a world-class wind resource, Mexico had only 88 MW of fully-commissioned and operational wind projects at the end of 2008 This project, together with additional CTF-supported wind projects, expects to have a demonstration effect and send a market signal to global wind power developers that the Mexican wind power market is viable and ready for scale-up Bi-lateral Donor Funding 33

34 THANK YOU 34

35 ANNEX 35

36 IFC s management of Concessional Donor Funds for Climate Solutions Projects IFC, through its Financial Mechanisms for Sustainability (FinMech) unit, manages and invests concessional donor funds to catalyze climate solutions projects What is concessional finance? Donor funding in a non-grant products at terms that are more favorable than prevailing market terms What s the objective of concessional finance? IFC uses donor funds to address market barriers to commercial viability (e.g. risks, costs), to catalyze investments that wouldn t otherwise happen and to promote market transformation towards sustainable markets How is concessionality structured? Concessionality is generally provided through Pricing, Tenor or Security; products are in the form of debt, guarantees or patient capital Principles of concessional finance Minimum concessionality, sized/priced to fill the gap but not over-subsidize, to enable greater probability for sustainability and market transformation Avoiding distortion and crowding out : Concessional financing should not displace commercial financing where available Maximize leverage of private sector Financial sustainability in the long run once concessional financing no longer available 36

IFC in Serbia Per Kjellerhaug, IFC Regional Manager, Western Balkans

IFC in Serbia Per Kjellerhaug, IFC Regional Manager, Western Balkans The World Bank Group IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International