Upload
leslie-singleton
View
213
Download
0
Tags:
Embed Size (px)
Citation preview
Development funding towards green industrialisation
– through Innovation
INDUSTRIAL EFFICIENCY CONFERENCE
Tony Nkuna
PDM: Industrial Infrastructure Unit
Industrial Efficiency Conference 2015
Durban ICC, July 22nd, 2015
The Industrial Development Corporation
o Established: 1940
o Type of organisation: Development Finance Institution (DFI)
o Ownership: South African Government
o Total assets: R123 billion ($10.08 billion) as at end March 2015
o Main business area: Providing funding for private sector projects that are contributing towards
industrialisation and job creation
o Geographic activities: South Africa and the rest of Africa
o Products: Senior and sub-ordinate debt, equity, BEE and BBBEE Preference share funding
& project development funding
o Stage of investment: Early stage (feasibility), commercialisation, expansion
o Project development: Identification and development of projects adding to the industrial base
o Sector focus: Industrial Infrastructure (Energy & Logistics), New Industries, Agro-processing, Agriculture & Forestry, Mining & Metals Value Chain, Chemicals & Pharmaceuticals Value Chain, High Impact Sectors (Textiles, Media, Heavy Manufacturing, Light Manufacturing & Tourism)
Positioning of DFIs within the financial system
• Non-commercial focus• Fiscal transfers and grants• Development objectives (social)
Government / NGOs• High commercial focus• Private sector capital• Financial objectives• Known risks
Commercial Financiers• Commercial and development
focus• Sharing risk• Internally generated funds,
government funds, loans
DFIs (e.g. IDC)
Greater importance on financial objectives
Greater importance on social and developmental objectives
DFIs should not compete with other institutions, but shouldinstead encourage cooperation to achieve its goals
Partnering for industrial development
IDC• 75 years of
experience in industrial development
• Appetite to take risk• Early stage
investment• Financial muscle• Targeted funding for
specific interventions
Industrialists/ Entrepreneurs• Investment plans• Projects under
development• Technology• Operating/
management expertiseLong-term view on
investments and a commitment for the development of the
industry
Introducing IDCHistorical perspective
• World War 2 – Shortage of industrial goods
• South African economy largely based on agricultural production and gold mining
1940s
• IDC established to provide financing for industrial undertakings – at this stage only in the manufacturing industry
• Food processing;• Textiles
• South Africa facing threat of isolation from the rest of the world
1950s & 1960s
• Securing energy resources for South Africa a priority
• Increasing natural resource beneficiation
• Petroleum• Fertilizers• Wood processing• Chemical beneficiation• Mining and minerals
• Decentralisation policy by government
• Increasing isolation• Self sufficiency• Balance of payments
1970s & 1980s
• Import replacement • More resource intensive
industries established – mainly to bolster export earnings in non-gold sectors
• Initiation of high-tech industries
• Agriculture explored as a foreign exchange earner
• Industrial real estate development
• Resource beneficiation• Micro-electronics
• Change in government• South Africa introduced
to a globalising world• Addressing the
disparities created by apartheid
1990s
• Moves to encourage regional integration
• Black economic empowerment
• Export promotion• Services related
industries• Investments elsewhere
in Africa
• Tourism• ICT
• Unemployment• Diversification of
economy• Reducing inequalities• Infrastructure
constraints
Early and mid 2000s
• Job creation• Developing rural areas
and other previously underdeveloped regions
• Downstream industries• Entrepreneurial
development• Sector strategies
• Film• Franchising• Healthcare• Financial services• Transport• Construction• Industrial infrastructure
Over its history, IDC has adapted to South Africa’s changing priorities and expanded into new industries as the
economy developed and policies evolved
Late 2000s & 2010s• Recession• New Growth Path and
Industrial policy• Mandate overlap of
DFIs• Growing financial sector
liquidity• Climate change
• Focus on NGP,IPAP2 & NDP
• Phasing out funding to service industries not aligned to priorities
• Job creation through development of key sectors/value chains
• Expansionary and broad-based BEE
• Funding to distressed companies
• Green-industries• Phasing out:
– Franchising– Financial services– Transport– Construction
Introducing the UnitIndustrial Infrastructure
• Established in April 2015
• Enabling industrial development through infrastructure investments
• Mainly driven by IDC value chains
1) Energy– Renewable energy– Fuel based energy– Energy efficiency– Base load energy– Biofuels
2) Logistics, Water and Telecoms Infrastructure
– Telecoms and broadband– Water infrastructure– Rail, road, warehousing– Industrial hubs etc.
A value chain approach apply with emphasis on industrial development
(including localisation) and job creation
Role: Industrial Infrastructure
Objectives
• Support specific infrastructure that unlocks or enables industrial capacity development and economic opportunities
• Ensure that Value Chain projects have all the necessary infrastructure requirements to achieve their developmental outcomes
Approach
• Support private sector or PPP industrial infrastructure where it is necessary to specific projects within IDC value chains or New Industries or targeted industrial capacity building
• Play a coordination role to ensure that requisite infrastructure is funded and developed by other funders
• Invest selectively in strategic, economy wide, large scale interventions
Measures of success
• No Core VC projects delayed by infrastructure requirements
• Total disbursement amount facilitated by actively influencing other funders
• Number of direct and indirect jobs unlocked through infrastructure investments
• Quality of portfolio
Role: Industrial Infrastructure (cont’d)
Focus Areas
• Energy: Renewable Energy, Base load (Coal and Gas), Fuel Based Energy (Waste to Energy, Cogeneration), Energy Efficiency (Grid), Biofuels
• Logistics: Industrial Hubs, Rail, Aerial Ropeways, Port, Pipelines (excl. oil & gas), ICT Broadband, Transmission Lines, Maritime (Operation Phakisa), Road Corridors, etc.
Proactive Strategies
• Relieve electricity demand pressure on the grid through implementation of new energy capacity
• Optimisation of Energy Efficiency interventions to reduce energy consumption and pressure on the grid
• Ensure logistics system that will allow local industries to be competitive and be able to access new markets/ suppliers in the RoA and be globally competitive
• Introduction of the biofuels sector in the RSA economy through the development and execution of the Cradock Ethanol Plant
Reactive Strategies
• Providing strategic input to water development
• Providing Strategic & Technical input to the SIP18 projects and influencing government in policy formulation/ review
• Increase existing broadband network capacity/redundancy and extend coverage to underserved areas
9
Transition
Challenges:
Carbon intensity;Natural resource
management;Unemployment;
Economic concentration;Competitiveness;
Protectionism;Operating environment.
Current drivers:
New Growth Path;
Integrated Resource PlanIndustrial Policy Action Plan;
National Climate Change Response White Paper;
National Development Plan.
Opportunities:
Amongst best solar resources;
Wind energy potential;Biodiversity;
Economic diversification through infant industries;
Job creation;Up-skilling of workforce;First mover advantage.
Limited window of opportunity!
Drivers of Green Economy transition in SA
Green Economy: IDC Strategy
• IDC’s role in growing the green economy is through investments in:
– Cleaner production; – Clean and renewable energy;– Energy efficiency;– Demand-side management interventions; – Emissions and pollution mitigation; – Waste reduction; and– Bio-fuels.
• Focus on early phase project development.
• Develop specific funding interventions (e.g. IDC/KfW Green Energy Efficiency Fund) - Innovation.
• Support and development of emerging industries at various levels.
• Follow a value chain approach, with emphasis on industrial development (including localisation), job creation and the development of long-term sustainable industries.
11
Key success factors
Conducive regulatory environment
Securing resources
Generic issues Localisation
Developing skills
Taking the lead, growing demand
Su
ccess factors
Successful implementation of the green economy
• Policy framework, pace of regulatory revision, amendment and development.
• Stakeholder communication and co-ordination.• Simplification and streamlining.
• Public sector playing an exemplary role.• Gradual, effective transformation of production and consumption
patterns.
• Commitment, awareness and readiness by the private, public and household sectors.
• Institutional capabilities.• Funding availability, incentives, mechanisms.• Regional coordination.• Integration and coordination.
• Local procurement and export market penetration to develop critical mass.
• Availability of competitively priced inputs and services.• National industrialisation strategies.• R&D capabilities and technology transfer.
• Address shortages of skills in certain areas.• Re-skilling and development of specific skills capabilities.
• Availability, accessibility, quality, sustainability and pricing of required resources.
IDC
Total Investment - R631m
Total BW1- 3 Investment
R117bn
Total Investment – R34bn
Total Investment – R41bn
Total Investment – R42bn
4%
96%
IDC
30%
70%
SOLAR PV WIND
CSP HYDRO
10%
90%
IDC
22%
78%
IDC
Renewable Energy: IDC participation in REIPPP
• 33 Projects, 1484 MW
• 22 Projects, 1984 MW
• 2 Projects, 14 MW• 5 Projects, 400 MW
R3.9bn
R0.5bn
R1.4bn
IDC’s approach:• Project developer • Community funding
(2.5% free carry)• BEE funding with
operational involvement
• Debt and or/sub debt funding with a combination of BBBEE and/or BEE
IDCs participation in debt provide:• Bigger ZAR value participation for IDC per deal• Duty of care to IDC from lender technical and legal
consultants• Appreciation by market that IDC shares risk • Additional liquidity to the commercial lending pool
REIPPP: IDC Funding instruments
Senior Debt, 53%
Sub-Debt3%
Equity, 19%
BEE, 5%
BBBEE, 20%
R7.0bn
R2.7bnR0.6bn
R2.5bn
R0.5bn
Direct EquityMin 10% with minority protection
Max 30% (not majority)
Lending to trust or BEE shareholder to invest in projectRepayment with dividend.Allow some cash as trickle dividend (15-25%)Preference share redemption in 17 years (on P90 case)
Tenor of 15 years post COD
Interest during construction can be capitalised
Green FBE (WtE): Industry structure
Municipal solid waste or
Biomass or Tyres
Grown biomass
Organic waste
Sewage sludge
Animal litter
Feedstock
Waste Gas
Pyrolysis
Sorting
Anaerobic Digestion
Combustion Incineration or
Waste heat
Gasification
Primary Process
Steam turbine or organic rankine
cycle
Electricity
Industrial fuel
On-site heating
Vehicle fuel
End Use
Recycling
Co-generationInternal gas combustion
Gas Cleaning
Liquefied Biogas (LBG)
Compressed Biogas (CBG)
Steam
Piped gas
Secondary Process
Green FBE (WtE):Attractiveness of fuel based green energy
• Storage and flexibility of dispatch, so Load Factor of 80 % and even 2x (stored biogas at night)
• Can be moved, so can be used as high value transport fuel or can enable reliable off-grid or back-up power
• Can be used as a peaking plant• Risk – feedstock can become a
commodity & increased prices.
Fuel Based Energy
In SA competes with low value coal
Best use for biogas lies in the Transport sector in SA, in back-up power, off-grid or for weak grid in Africa
Green FBE (WtE):IDC Approach to WtE and Co-generation
Feedstock
(Raw material)
Offtake(Revenue)
Process (Technology
options)
Investment decision
Feedstock (Fuel) security:• No feedstock security, no start• Challenge: Long term supply agreement to cover
debt tenure + 2 years• Quality, quantity, price & period• MFMA requirements for municipalities
Process/Investment options:• Driven by feedstock qualities, quantities term and
off take options• Typical cost R15-35m/MW• High load factors (e.g. 90%)
Offtakes:• Low O&M cost• If Offtake/feedstock price strong• Repay debt quickly
Energy Efficiency:Policy environment and enabling legislation
2008
2008 National
Energy Efficiency Strategy for South Africa 2005
(NEES), Revised 2012
- Targets energy intensity reduction of 12% by 2015
2009
2010
2011
2012
2012
2013
/14
1 million Solar Water Heater Government Target
Announcement by Minister of Energy 23 June 2009
Government Objectives>>>
Energy Efficiency Projects through the various ESKOM EEDSM programmes >>>
Energy White Paper of 1998
1 million SWH Target by 2014 (revised to 2016)
Integrated resource plan (IRP) 2010
Industrial Policy Action Plan (IPAP2) 2012/2013 – 2014/15
Green Industries a key sector
Building Regulations & Building Code (SANS 10400-XA:2011) with SANS 204
NGPGreen Accord
Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-130
500
1000
1500
2000
2500
3000
3500
4000Energy Efficiency Projects (MW Savings)
Eskom Verified Savings (MW)
Income Tax Act – Regulations on tax allowances for Energy Efficiency Savings (Section 12I and 12L)
Carbon Taxes-at R120 per ton
National develop-ment plan
DSM 3 yr target:To save another 1074MW
Late2010
2011
2012
2013
• Market Launch of the R500M Green Energy Efficiency Fund(GEEF)- 10% of FUND committed at launch
• Aggressive marketing with Industry Associations & Partnership with Eskom
• IDC and KFW sign loan agreement for €48M and €2. 1M Technical Assistance and Capacity Building Grant
• ESCO Market Study published-access to finance barrier to entry• R400 million AFD credit line established to finance PPA based
1MW- 10 MW and greenfields EE
• 17 companies financed at R174 million ( ca 35% of GEEF)• 69% of funds committed to SMEs• Total Energy savings of 387 GWh/yr• Carbon emission reduction – 383 KtCO2/yr• MoU with Green Fund – projects demonstrate additionality
MARKET SITUATION
Constrained electricity
supply and high prices
Access to finance barrier to
EE/RE investments
RESPONSE
Increased demand for
ESCO services High cost of
small scale RE development
HIGHLIGHTS
8MW Cogen plant -45GWh/yr and 46ktCO2
Mass rollout of 310 GWh
/34MW showerheads
60% of committed funding to ESCOs
27 FREE Walk through audits and 4 investment
grade audits
Industrial Energy
Efficiency
Energy Efficiency:IDC response - Innovative funding GEEF & AfD
Renewable Energy: Its role in terms of SA energy mix & economy
• Diversification of SA’s generation mix which is predominantly coal
• Emissions and pollution mitigation
• Localisation of manufacturing capacity and sourcing of local components – IDC
requires PV panels and inverters to be locally sourced
• Regional and rural development and diversification of economy (e.g. in Northern
Cape and Eastern Cape)
• Job creation during construction and operation phase (> 10 years)
• Substantial private sector expertise which has benefited skills development
objectives of the country
• Competitive industry that has benefited the country through competitive prices.
Renewable Energy: Where to from here?
• Continue to support projects that are aligned to our strategic imperatives (new
generation capacity)
• However more focus is on projects that provide a differentiated participation e.g.
supporting black developers and operators, have significant localisation
opportunities
• Support projects that have new technologies where IDC will provide a catalytic
role
• Have high appetite for projects in marginalised provinces – achieve regional
equity
The Industrial Development Corporation19 Fredman Drive, SandownPO Box 784055, Sandton, 2146South AfricaTelephone (011) 269 3000Facsimile (011) 269 2116E-mail [email protected]
THANK YOU