Financing NAMAs Experiences and Expertise of KC FSE

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Howard Greer
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1 Financing NAMAs Experiences and Expertise of KC FSE Christian Königsperger, Christoph Schroer and Simone Dettling GIZ Financial Sector Development Bonn, Seite 1

2 Purpose of the NAMA Financial Component (FC) Leveraging NAMA funding to mobilize private capital for long-term climate investments Seite 2

3 KC FSD Green Finance Expertise FSD Team has long standing experience and proven track record in supporting Green Finance, Energy Efficiency (EE) and Renewable Energy (RE) Finance Projects FSD Team is involved in the design of more than 20 Green Finance Projects worldwide (e.g. Vietnam, Bangladesh, Sri Lanka) FSD Team conceptionally develops Green Finance Products in the context of the Sector Project Innovative Approaches to Financial Systems Development Seite 3

4 FSD Involvement NAMA Overview Country Costa Rica Indonesia Philippines Thailand Project Name Low Carbon Coffee NAMA Sustainable Urban Transport Program (SUTRI) Reducing Emissions from Waste and Resource Depletion Refrigeration and Air Conditioning (RAC) NAMA Sector Agriculture Urban Transport Water & Waste Managament (WWM) Industry Manufacturing Idea / Concept Reduction of GHG emissions in coffee production and processing by using innovative technologies and techniques Provision of a sustainable urban transport at city level with a mix of capacity-building and investment measures Reduction of GHG emissions from waste generation and disposal through the application of enhanced WWM techniques Conversion of existing production lines from high to low GWP and EE devices and dissemination of GreenRAC appliances by end users Target Group Coffee farm and coffee mill owners Municipal governments and authorities Regional WWM representatives RAC manufacturers and end users Financial Component / Investment Need Loan facility for financing investments in carbon reduction technology Complementary fund to leverage public and private investment Revolving fund for concessional loans to leverage MDB s + private funds Leveraging public and private finance through GreenRAC Innovation Fund (GRIF) Seite 4

5 Example I Costa Rica Low Carbon Coffee NAMA (accepted NAMA proposal) Scope of Mission Financing Volume Important Insights and Conclusions Deviation from Initial Concept Validate the proposed approach for the finance component. EUR 3 Mio. Basic concept outline confirmed Proposed implementing party unlikely to be the best option Design of FC Component requires more time and groundwork Operating with investment grants (Phase 1) Integration of financial component into the national banking system (Phase 2): Establishing a loan facility implemented by commercial banks and a guarantee facility, possibly implemented by development bank Seite 5

6 Example II Thailand Refrigeration and Air Conditioning (RAC) (NAMA proposal in process) Scope of the FC component Financing Volume Set-up of accompanying Innovation Fund to kick-start the technical transition and leverage existing public and private funds. Revise and adopt enabling financial and regulatory framework, capacity building for financial institutions, as well as awareness raising campaigns to reach a high market penetration. 9 Mio FC Considerations Advantage of existing public and private financing schemes from Ministry of Energy, ESCO VC Fund and Private Commercial Banks (i.e. Kasikorn Bank) High probability of min. 5 times leverage of initial GRIF Innovation Fund (umbrella fund) Broad dissemination by financial incentives for market introduction and use of GreenRAC appliances Technical training for banks (risk and corporate finance managers) as well as fund managers and operators is ensured Continuous and sustainable funding through the linkage of recurring ESCO schemes Seite 6

7 Summarized Experiences Conclusions from FSD Involvement in NAMA Financing To Date Varying quality of financial proposals: - Degree of detail in description of concepts & roles of involved parties - Proposals developed in traditional project logic rather than market logic - No systematic involvement of financial experts Difficulties to assess proposed Financial Components Open questions to be address during validation mission Application format for technical and financial component implementing partners does not take into account the specific requirements financial institutions must meet. Entire risk evaluation is left to validation mission Seite 7

8 What can the FSD Team offer as NAMA support During the NAMA Application Process: Designing the Financial Component / Identifying Adequate Financial Instrument Selecting the Suitable Financial Partners Addressing Barriers for Private Investment During the NAMA Validation Process: (Analyze the Proposed Financial Concept) Evaluate Capacity and Soundness of Potential Financial Partners (Due Diligence) Negotiation with Potential Financial Partners Support GIZ Internal Processes (e.g. ZAK) Seite 8

9 1) Designing the Financial Component Analysis of target group s financing needs Design of financial instruments suitable for envisioned project type and target group: Concessional loan structures (Example: Thailand) Revolving Fund Schemes (Example: Philippines) Structured Fund Schemes Leasing (Example: Mexico) Mezzanine and Equity Finance Seite 9

10 2) Selecting Suitable Partners in the Financial Sector Analyzing existing financial system and regulatory framework and supporting the development of a supportive (Green) Financial and Regulatory Framework Analyzing the landscape of existing financial institutions : Central Banks and financial regulator Public and Private Commercial Banks Microfinance Institutions (Multinational) development banks Venture capital and private funds Selecting suitable partners and due diligence (Example: Costa Rica) Seite 10

11 3) Adressing Barriers for Private Investment Identifying and addressing market barriers. Key Questions: Profitability: is it profitable to switch to the new technology? Risk: is the perceived risk too high for affordable financing? Transaction Cost: too high relative to the loan / financing size? (Example: Diagnostic Tool EE for SME 41&44) Developing and assisting in the implementation of de-risking instruments (insurance, guarantees) Developing instruments to incentivize private finance (e.g. green bonds, subsidized credit line) Developing innovative instruments blending public and private finance (e.g. structured fund) Capacitating financial institutions to evaluate loan applications/investment proposals for new technologies (Example: India) Seite 11

12 4) The Financial Sector as Change Agent Using the financial sector as meso-structure to promote EE/RE (Example: Sri Lanka) Using the financial sector to incentivize resource efficiency (Example: Integrating Environmental Risks in Loan Pricing) Seite 12

13 Alternative FC Components Overview Tailoring FC Components for Different Needs Grants for Set-up structure Visibility studies Flagship projects Guarantee Fund Risk Mitigation Technical Assistance Other incentives Additional Public Funds (national & international) National Private Investor Funds Determinants for choice of measure:...financial barriers suitability and market acceptance country specifics best practices NAMA Preparation Period International Climate Finance and bilateral aid Multinational Funds (MDB) Structured Funds NAMA Expansion Period Equity Mezzanine Loans Seite 13

14 Thank you very much for your kind attention! Contact: Christian Königsperger Christoph Schroer Simone Dettling Seite 14

NAMA Facility Webinar: Financial Mechanisms and the NAMA Support Project 21 November 2018

NAMA Facility Webinar: Financial Mechanisms and the NAMA Support Project 21 November 2018 Photo credits, clockwise from top left: ICAFE Costa Rica, Karl-Heinz Fleischhacker, CCAP, Georg Kraft The NAMA