Barriers and Gaps to Mobilising Investment in Low Carbon ... · Technology Frontier Technology Development, Manufacture & Deployment Processes 5 Research & Development Tech. Dev.

Barriers and Gaps to Mobilising Investment in Low Carbon Energy Technology

Eric Usher, Manager Seed Capital Programmes, Energy Branch United Nations Environment Programme

IEA Workshop on Forging Intl Finance Collaboration

Stockholm, June 21, 2012

UNFCCC Technology Mechanism (TM)

Technology Mechanism

Climate Technology Centre and Network

(CTCN) Operational arm

Technology Executive Committee (TEC) Policy and strategy arm

Advisory Board of CTCN

Establishment of the CTCN

COP17 (Durban) in 2011: guidelines to select the host of the CTC 16 January 2012: call for proposals for host of CTC 16 March-April 2012: evaluation of proposals SBI 36 (Bonn) in May 2012: UNEP consortium ranked first

Next steps UNFCCC Secretariat in discussion with UNEP on host agreement COP 18 (Doha): agreement on CTC host and CTCN advisory board

CTCN responses to NDE requests

Country driven technology transfer process

Technology Frontier

Technology Development, Manufacture & Deployment Processes

5

Research & Development

Tech. Dev.

Proof of Concept

Tech. Dev. Pilot Plant

Adoption: Initial Commercial

Plants

Deployment / Diffusion

Scale-up

Continuous R & D

Initial Manufacture & Component Sourcing

Manufacture Scale-up

Maturity, Econ. of

Scale

B. Supply Chain Development

A. Technology Development

C. Project Development Activity

Source: UNEP, AEQUERO

Developed Countries

Developing Countries

Transfer Tr

ansf

er

Financial Actors and the Gaps

6

Initial Manufacture &

Component Sourcing

Manufacture Scale-up

Maturity, Econ. of Scale

B. Supply Chain Development

Research & Development

Tech. Dev.

Proof of Concept

Tech. Dev. Pilot Plant

Continuous R & D

A. Technology Development

Venture Capital

Private Equity

Entrepreneur

Angel Capital

Corporate Investor / M&A

Public Markets

Innovator / Entrepreneur

R&D Grants

Venture Capital

Private Equity

Angel Capital

Corporate Investor / M&A

Public Markets

“Valley of Death financing gap”

“Pre-profit financing

gap”

Source: UNEP, AEQUERO

Project Development and Allocation of Project Capital Spend

Pro

jec

t C

ap

ita

l C

os

t

Project Development Lifecycle

Early-stage Mid-stage Late-stage Development Construction Commissioning Operation Financing

Early Stage Project Development Activity

Late Stage Project Development Activity

Approx. 1% of Total Project Cost


Construction Finance


Esta

blis

h F

easi

bili

ty

Fin

anci

al C

lose

Risk

Source: Aequero, UNEP

Catalysing Early Stage Investment

3

Source: UNEP, Aequero


Corporate & Compliance Investors (15-20%)

Fun

din

g So

urc

e (

and

In

dic

ativ

e

Ret

urn

Req

uir

emen

ts)

Sponsor / Developer (30-40+%)

Early-stage Mid-stage Late-stage Development Construction Commissioning Operation Financing

Fin

anci

al C

lose

Private Equity & Infrastructure Funds (18-25+%)

Capital Markets (generally driven by P/E and other comparables rather than return)

Mezzanine Capital (12-15%, somewhere between debt and equity return)

Carbon Finance (20-25+%)

Debt Finance (Project Finance) (Indicatively, e.g., 7-8% in US$; 11-13% in INR) Early Stage

Financing Gap

Development/Transaction Costs

Where are the financiers along the project cycle ?

Why is it hard to get capital into this space ?

• ‘First mover’ low carbon projects have higher development costs.

• In addition to costs, development cycles are typically 2 – 3 times longer.

Different risk/return paradigm is a mismatch with conventional developers.

More of a VC risk profile than infrastructure development finance.


4

Inve

stm

en

t

Ap

pro

ach

es

No

n-I

nve

stm

ent

Ap

pro

ach

es

Gap - Early Stage Financing

Lesson 1 – Grant and Non-Grant Approaches are Needed to Address All Gaps Challenging to Address Early Stage Financing Gap with Only Non-Grant Approaches

Early Development Construction & Operation

Mid Development Late Development / Financing

Fin

anci

al C

lose


Early-stage Public Non-Investment Interventions

Early-stage Public Investment Interventions

Late-stage Public Interventions

Seed Capital Incentives (e.g., SCAF)

Transaction Cost Sharing (e.g., ACAD, CDM Loan Scheme)

Coaching, Mentoring & Advisory (e.g., CTI PFAN)

Gaps - Equity, Long-Term Debt

& Risk Mitigation

Publicly-backed DevCos (e.g., InfraCo, SN Power)

Philanthropic / Publicly-backed Social Venture Funds (e.g., Acumen)

~ $3

.9 b

illio

n /

yea

r

Guarantee Products

Direct Private Equity Investments

Loan Facilities Through Funds / Credit Lines

VC, PE & Infrastructure Funds

Source: UNEP, Aequero

~ $1

8 m

illio

n /

yea

r


13

www.scaf-energy.org 6

SCAF Cooperating Fund Agreement (CFA)

CONCEPT


Contracted Fund Managers Asia Africa

FUNDS

PE Funds

VC/PE Hybrid Funds


Armstrong Asset Management Investment Strategy

Asia Fund Focus

PROJECTS Africa

Name, Country

Tech. Size (MW)

Stage

Kouga South Africa

Wind 80 Financial closing

Mapembasi Tanzania

Small hydro

10 Financial closing

Kinangop Kenya


Akiira Kenya Geo. 35 Feasibility

Baringo Kenya Biomass 12 Feasibility

DSI Rwanda PV 20 Feasibility

Lubilia Uganda

Small hydro

5.4 Feasibility

SITI I/II Uganda

Small hydro

22 Feasibility

KVTC Tanzania

Biomass 4 Pre-feasibility

SL2

SL

1

Asia

Name, Country Tech. Size (MW)

Stage

Philippines

Wind 48 Financial

closing

Philippines Small hydro 25 Financial closing

Philippines Biomass 30 Feasibility

Philippines Small hydro 24 Feasibility

India Small hydro 13 Feasibility

India Small hydro 48 Feasibility

India Wind farm 230 Feasibility

SL2

SL

1


PROJECTS Example Seed Financed Projects

Name, Country

Tech. Size (MW)

Stage Financing Co-finance Ratio; Leverage Ratio

CO2

(MT)

Kouga South Africa


Total: R20mn dev.; R380mn equity; R800mn debt Fund: R10mn dev. (20%SCAF); R90mn equity

4x co-finance 50x fund; 600x total

6.1

Mapembasi Tanzania

Small hydro

10 Financial closing

Total: $720K dev.; $8mn equity; $19mn debt Fund: $350K dev.(20%SCAF); $3.5mn equity

4x co-finance 55x fund; 400x total

0.6

Seed Financed Development Loan - soft quasi equity investment, interest free and convertible to equity at financial close

$70K of SCAF Support For: - EIA and technical verification studies. - covers max 50% of any activity

* Figures in italics are still to be realised


Thank You!

www.scaf-energy.org

Barriers and Gaps to Mobilising Investment in Low Carbon ... · Technology Frontier Technology Development, Manufacture & Deployment Processes 5 Research & Development Tech. Dev.

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