Wind Energy Developments in Emerging Market Countries Global Opportunities Session European Wind Energy Conference Athens, Greece March 2, 2006 Prepared.

Wind Energy Developments Wind Energy Developments in Emerging Market in Emerging Market

CountriesCountriesGlobal Opportunities SessionGlobal Opportunities Session

European Wind Energy ConferenceEuropean Wind Energy ConferenceAthens, Greece Athens, Greece March 2, 2006March 2, 2006

Prepared by Dana R. Younger,International Finance Prepared by Dana R. Younger,International Finance CorporationCorporation

and Demetrios Papathanasiou, World Bankand Demetrios Papathanasiou, World Bank

Presented by Demetrios PapathanasiouPresented by Demetrios Papathanasiou

OutlineOutline

What is driving wind energy in What is driving wind energy in emerging market countries?emerging market countries?

Where is wind energy market growth Where is wind energy market growth in the developing world?in the developing world?

What is needed to accelerate wind What is needed to accelerate wind energy in the developing world?energy in the developing world?

What is the World Bank Group doing?What is the World Bank Group doing?

Key DriversKey Drivers

Energy SecurityEnergy Security Economic Growth – Electricity Economic Growth – Electricity

Demand GrowthDemand Growth Environmental ObjectivesEnvironmental Objectives

• LocalLocal• GlobalGlobal

Industrial DevelopmentIndustrial Development International PressureInternational Pressure

Key Wind Energy MarketsKey Wind Energy Markets Largest Markets: India ~4,430MW, China 1,264MW, Egypt Largest Markets: India ~4,430MW, China 1,264MW, Egypt

230MW, Ukraine 82MW, Poland 73MW, Costa Rica 71MW, 230MW, Ukraine 82MW, Poland 73MW, Costa Rica 71MW, Morocco 64MW, Brazil 58MW, Carib. 55MW, Tunisia Morocco 64MW, Brazil 58MW, Carib. 55MW, Tunisia 35MW, Estonia 30 MW, Argentina 26MW, Latvia 26 MW, 35MW, Estonia 30 MW, Argentina 26MW, Latvia 26 MW, Philippines 25MW, Turkey/Colombia 20MW (each)Philippines 25MW, Turkey/Colombia 20MW (each)

Growth Leaders: India, China, Brazil Growth Leaders: India, China, Brazil Poised for Growth: Mexico, Poland, TurkeyPoised for Growth: Mexico, Poland, Turkey Planned Projects: e.g. Argentina, Bulgaria, Chile, Planned Projects: e.g. Argentina, Bulgaria, Chile,

Colombia, Costa Rica, Croatia, Dominican Republic, Colombia, Costa Rica, Croatia, Dominican Republic, Ecuador, Ghana, Honduras, Hungary, Jordan, Kazakhstan, Ecuador, Ghana, Honduras, Hungary, Jordan, Kazakhstan, Malaysia, Kenya, Morocco, Nicaragua, Pakistan, Panama, Malaysia, Kenya, Morocco, Nicaragua, Pakistan, Panama, Philippines, Romania, Russia, South Africa, Sri Lanka, Philippines, Romania, Russia, South Africa, Sri Lanka, Tunisia, UruguayTunisia, Uruguay

Market Growth is Still Slow and UnevenMarket Growth is Still Slow and Uneven

Established Growth Markets - IndiaEstablished Growth Markets - India

Largest installed base in developing world Largest installed base in developing world (4.5GW) --Technical potential of 45GW(4.5GW) --Technical potential of 45GW

New electricity law --RE standards at state levelNew electricity law --RE standards at state level Indian non-energy companies expanding Indian non-energy companies expanding

investmentsinvestments Project finance for wind projects beginningProject finance for wind projects beginning Larger projects (300-500MW) announcedLarger projects (300-500MW) announced Manufacturing base is growing – Suzlon IPO, LM Manufacturing base is growing – Suzlon IPO, LM

Glasfiber blade factory and Gamesa/Asia Pioneer Glasfiber blade factory and Gamesa/Asia Pioneer assembly plant are examplesassembly plant are examples

IFC financing wind and private power facilitiesIFC financing wind and private power facilities

Established Growth Markets - ChinaEstablished Growth Markets - China

Fast growing market (1.2GW installed) Massive wind potential (200-300GW onshore) Concessions for 100/200MW projects (WB loans) Private projects totaling 10-30GW under development New RE law and wind target of 20GW by 2020 Tariff system announced in January 2006 may slow growth Large domestic players active and new foreign entrants

(CLP, HydroTasmania, CR Power, etc.) Large manufacturing investments -- Vestas, GE, Gamesa,

Suzlon, Acciona/Ingetur, Nordex and Goldwind for domestic sales and export

IFC financing wind and private power facilities

Mexico IPP MarketMexico IPP Market Fully Developed IPP Market with >20 projects, Fully Developed IPP Market with >20 projects,

28,000MW of Conventional Generation (mainly, 28,000MW of Conventional Generation (mainly, gas-fired CCGTs)gas-fired CCGTs)

Off-taker is National Utility – CFEOff-taker is National Utility – CFE Committed Private Investment of US$6BCommitted Private Investment of US$6B 22% of Mexico’s Electricity from IPPs22% of Mexico’s Electricity from IPPs IFC has financed 5 conventional power IPPs since IFC has financed 5 conventional power IPPs since

1996 with US$247M in direct investment and 1996 with US$247M in direct investment and US$614M including B Loan participantsUS$614M including B Loan participants

IFC is ready to finance wind IPPs when market IFC is ready to finance wind IPPs when market developsdevelops

Mexico Wind MarketMexico Wind Market Wind technical potential of >40,000MW (Oaxaca, Yucatan & Wind technical potential of >40,000MW (Oaxaca, Yucatan &

Baja)Baja) Only 5MW installed in last 10 years – 2MW is La Venta I plant of Only 5MW installed in last 10 years – 2MW is La Venta I plant of

CFE in Isthmus of Tehuantepec in Oaxaca StateCFE in Isthmus of Tehuantepec in Oaxaca State 83.3MW La Venta II under construction for CFE by 83.3MW La Venta II under construction for CFE by

Gamesa/Iberdrola – 850kW WTGsGamesa/Iberdrola – 850kW WTGs 101MW La Venta III – First Wind IPP to be bid by CFE in Fall 2006101MW La Venta III – First Wind IPP to be bid by CFE in Fall 2006 404MW of additional wind IPPs by 2010 – 101MW per year404MW of additional wind IPPs by 2010 – 101MW per year 7 private wind projects at ~957MW have CFE permits as “self-7 private wind projects at ~957MW have CFE permits as “self-

supply” projectssupply” projects Additional 2,250MW of “self-supply” projects in Private Additional 2,250MW of “self-supply” projects in Private

Developers PipelineDevelopers Pipeline Major Companies involved including EDF, Iberdrola, Endesa, Major Companies involved including EDF, Iberdrola, Endesa,

Union Fenosa, Gamesa, Clipper, and PrenealUnion Fenosa, Gamesa, Clipper, and Preneal Regulatory/transmission constraints involving CRE (regulator) Regulatory/transmission constraints involving CRE (regulator)

and CFE (utility) limit private investments in “self-supply” marketand CFE (utility) limit private investments in “self-supply” market World Bank is developing IPP segment with GEF supportWorld Bank is developing IPP segment with GEF support

Brazil’s Electricity SectorBrazil’s Electricity Sector More than 91,000MW of installed capacityMore than 91,000MW of installed capacity Growth in demand will require expansion of Growth in demand will require expansion of

17,000-46,000MW by 201217,000-46,000MW by 2012 75% of electricity is hydro – 65GW > 30MW75% of electricity is hydro – 65GW > 30MW Private IPP and Merchant Power Market (25%)Private IPP and Merchant Power Market (25%) Wholesale electricity market with large national Wholesale electricity market with large national

utility – Electrobras major off-taker and generator utility – Electrobras major off-taker and generator (mixed capital company with publicly traded (mixed capital company with publicly traded shares)shares)

Diversification underway to utilize more RE esp. Diversification underway to utilize more RE esp. wind, small hydro and biomasswind, small hydro and biomass

National Law – PROINFA passed in 2002 to National Law – PROINFA passed in 2002 to accelerate renewables developmentaccelerate renewables development

Brazil’s Wind MarketBrazil’s Wind Market Wind Technical Potential of >143,000 MW (mainly in Northeast,

Central and Southeast coast) Installed capacity of only 48MW (incl. small turbines) >7,000MW in 117 private sector wind projects have ANEEL

(regulator) approvals PROINFA Phase I has awarded 1,400MW of wind projects (Ceara,

Rio Grade do Sul, & Santa Catarina have ~230 MW each) 20 year PPA with Electrobras at favorable tariff (higher tariffs for

lower wind speeds) -- $94-$107/MWh Wobben/Enercon making 800kW and 2MW WTGs locally; GE Wind

and Fuhrlander may also manufacture locally (60% local content requirement)

IFC helped finance 49.3MW Rio do Fogo Wind Project of Iberdrola’s Enerbrasil subsidiary with US$5.5M equity investment

200 MW under construction with 300-500MW seeking equity finance

Phase II of PROINFA will be 10% RE RPS including wind, biomass and small hydro

Best Wind Conditions in Best Wind Conditions in Brazil located in NortheastBrazil located in Northeast

MataCampo aberto

Zona costeira Morro Montanha

CLA

SS

E D

E E

NER

GI A

Wind speed [m/s]50 meters above the surface

Wind Energy and HydroWind Energy and HydroAverage water flow of São Francisco River versus Wind SpeedAverage water flow of São Francisco River versus Wind Speed

jan feb mar apr may jun jul aug sepoct nov

dez

Wat

er f

low

MonthsSão Francisco river discharge

Typical wind speed – Northeast coast

1000

2000

3000

4000

5000

6000

7000

8000

9000

10,000

m3/s m/s

1

2

3

4

5

6

7

8

9

10

Optimal wind conditions during

the dry season

Win

d

Other Markets Poised for Growth –Other Markets Poised for Growth –PolandPoland

EU accession driving marketEU accession driving market RE portfolio standards RE portfolio standards Tariffs still too low but REC sales (“green Tariffs still too low but REC sales (“green

certificates”) make projects “bankable”certificates”) make projects “bankable” 1-2GW in development1-2GW in development 200-400MW per year possible by 2007200-400MW per year possible by 2007 Local banks engaged and also concessional loans Local banks engaged and also concessional loans

from BOS, EcoFund and National Fund for from BOS, EcoFund and National Fund for Environmental ProtectionEnvironmental Protection

New foreign entrants – Iberdrola, Vattenfall, New foreign entrants – Iberdrola, Vattenfall, Invenergy/REG, EuroWind, etc.Invenergy/REG, EuroWind, etc.

Other Markets Poised for Growth - Other Markets Poised for Growth - TurkeyTurkey

New RE lawNew RE law Higher tariff for wind from 2007 for 7 years – Higher tariff for wind from 2007 for 7 years –

may not be sufficientmay not be sufficient Power sector re-structuring moving but slowly Power sector re-structuring moving but slowly

– distribution company privatization planned – distribution company privatization planned (32 separate Distribution Comp.)(32 separate Distribution Comp.)

750MW-1.5GW under development750MW-1.5GW under development Previous BOT awards from 2000-2001 for Previous BOT awards from 2000-2001 for

~390MW cancelled due to fiscal crisis~390MW cancelled due to fiscal crisis 20MW installed since 199820MW installed since 1998 Local power sector firms interest grows in windLocal power sector firms interest grows in wind Enercon manufacturing blades locallyEnercon manufacturing blades locally

The Long and The Long and WindWinding Roading Road

Electricity Sector at a crossroads (again) Electricity Sector at a crossroads (again) between privatization, de-regulation and between privatization, de-regulation and state ownership / state responsibilitystate ownership / state responsibility

Perceptions (and realities) on Perceptions (and realities) on • IntermittencyIntermittency• Quality of resources Quality of resources • ““real” system value real” system value • high capital costshigh capital costs

Project Financing implicationsProject Financing implications

What will it take for wind energy to What will it take for wind energy to grow in emerging markets?grow in emerging markets?

Clarity needed given uncertain regulatory/market structures and limited financial returns in many markets

Further policy development and higher tariffs High … oil prices (but…) ? Wind capital cost increases, turbine availability, full EPC

quotes Transfer of knowledge in systems dispatching, power

management, power planning Continued international support Resolution of post-Kyoto uncertainties Continued expansion of investments in global and local

manufacturing Better coordination among stakeholders -- developers,

utilities, investors, manufacturers, financiers, government agencies, regulators, and donor agencies

The World Bank GroupThe World Bank Group

Working on the interfaces with poverty, Working on the interfaces with poverty, macroeconomics, governance and macroeconomics, governance and environmentenvironment

Support for reform process and associated Support for reform process and associated capacity building to regulate and develop capacity building to regulate and develop competitive energy markets competitive energy markets

Facilitating transfer of knowledge among Facilitating transfer of knowledge among developing countriesdeveloping countries

Catalyzing private investment flows to Catalyzing private investment flows to non-investment grade countriesnon-investment grade countries

The World Bank GroupThe World Bank Group G8 Gleneagles Clean Energy Investment FrameworkG8 Gleneagles Clean Energy Investment Framework Policy Support for wind and other RE often with GEF Policy Support for wind and other RE often with GEF

funding support -- new RE laws in Mexico, China and funding support -- new RE laws in Mexico, China and TurkeyTurkey

US$ 9 billion for renewable energy and energy US$ 9 billion for renewable energy and energy efficiency since 1990efficiency since 1990

US$ 748 for 41 projects in 28 developing countries in US$ 748 for 41 projects in 28 developing countries in the last year alone the last year alone

Commitment to increase RE and EE portfolio by 20% Commitment to increase RE and EE portfolio by 20% annually through 2010annually through 2010

Leveraging of public and private resourcesLeveraging of public and private resources Complementary roles of World Bank/IDA, IFC and Complementary roles of World Bank/IDA, IFC and

MIGAMIGA Development of carbon finance market (including Development of carbon finance market (including

new products)new products)

Thank You !Thank You !

Contacts:Contacts:

• Dana R. Younger, International Finance Dana R. Younger, International Finance Corporation, Corporation, [email protected]@ifc.org

• Demetrios Papathanasiou,World Bank, Demetrios Papathanasiou,World Bank, [email protected]@worldbank.org