INTERNATIONAL EXPERIENCE IN SUPPORT OF LOCAL …

SUSTAINABLE ENERGY FINANCEINTERNATIONAL EXPERIENCE IN SUPPORT OF LOCAL FINANCIAL INSTITUTIONS

Dr. Riccardo Ambrosini

Senior SEF Specialist, IFC

Karachi, June 9th 2015

Introduction 2

SEF market sizing for Pakistan 8

Business opportunities for FIs 14

Examples from around the world 25

2

SEF – INTERNATIONAL EXPERIENCE IN SUPPORT OFLOCAL FINANCIAL INSTITUTIONS

IFC’S SUPPORT TO CLIMATE CHANGE MITIGATION THROUGH SEF

Under the Sustainable Energy Finance (“SEF”) product line, IFC provides financial products and/or advisory services to Financial Institutions in the following areas:

� Energy Efficiency (EE): Investing into fixed asset to reduce energy bill of end-users through increased efficiency of energy use

� Renewable Energy (RE): Investing into technologies generating power or heat from renewable resources

� Resource Efficiency (Ref): Investing into technologies minimizing water, raw material, waste and emissions from industrial processes and maximizing product output

3Private and Confidential

4

SUSTAINABILITY - NEW MARKET TERRITORIES

ENERGY: Energy efficiency,

renewable energy, storage,

smart grids, energy access

TRANSPORTATION: Energy

efficient components, fuels

and logistics

WATER: Capture, treatment,

conservation, wastewater

treatment, access

AIR & ENVIRONMENT: Carbon

credits, trading and offsets

BUILDINGS: Low carbon

strategy, energy efficiency,

sustainable materials, green

buildings

MANUFACTURING: Green

chemicals, RE/EE supply chain,

cleaner production.

AGRICULTURE & FORESTRY:

Land mgmt, low carbon and

adaptation strategies,

biomass, biofuels, EE.

RECYCLING & WASTE:

Recycling and waste

treatment services

4

5

THE FUTURE IS HAPPENING TODAY

� Climate space represents a US$ 350-500 billion per year opportunity

globally - 70% of investment must come from private sector

� Role of FIs and access to finance is going to be vital to enabling this shift in

economic development in emerging markets

� Renewable Energy: Global investment reached US$ 260 billion in 2012,

with increasing share going to emerging markets

� Green Buildings: 400 million homes estimated to be built by 2020 and

most of them will be in emerging markets – estimated annual investment

need of US$ 450 billion

� Base of the Pyramid & Rural: decentralized power solutions for the 1.2

billion people who will lack access to energy by 2030 is estimated to

require US$ 33 billion per year

5

THESE ARE SOME TYPICAL EXAMPLES OF SEF INVESTMENTS FINANCED BY BANKS, LEASING COMPANIES, MFIS AROUND THE WORLD...

6

Sector Potential Borrower Energy Efficient /

Renewable Energy Equipment

Typical Banking Segment Interface

Agriculture Farmers, Cooperatives, Supply chains

Biomass/biogas digesters, Drip irrigation systems, efficient and/or solar/biogas powered pumps, Efficient agro-machineries, storage facilities

MF and Retail for Farmers, SME and Corporate depending on company size. Leasing

Residential/

Retail

Builders, home owners, home owner associations, individual households

Solar water heaters, wall/roof insulation, Water-saving shower heads, Solar lighting, CFL, improved cook stoves, water purifiers, efficient refrigerators, efficient HVAC units, double glazing

Mainly MF and Retail for households, SME and Corporate depending on size. Real estate leasing

Commercial Housing complexes operators, maintenance companies; Housing developers, Property Operators

Heating and ventilation equipment, Control and metering systems, Electricity peak-load control systems, Air-conditioners, Heat pumps, solar water heaters

Corporate and SME. Leasing for major equipment. Islamic

Municipal Municipalities, district heating companies, street lighting operators, public buildings operators

Boilers for district heating as well as for public/municipal buildings, Heat exchangers, pipes for infrastructure projects, Cogeneration units, Complex EE projects

Mainly SME and Corporate, Public Finance

Industrial Industrial companies, SMEs and MSMEs

Energy efficient production lines, Waste heat recovery devices, Heating systems upgrades, Efficient boilers and heaters, Fuel switching (from coal to gas or biomass), Electricity peak-load control systems, Cogeneration units

SME and Corporate. Islamic & Leasing for major equipment

Renewable

generation

Project developers, Corporates/SMEs

Wastes to energy (wood waste etc.), production of fuel, biogas, biodiesel, solar (PV and thermal), hydro and wind power, geothermal

Corporate, Leasing and SME lending on captive generation. Project Finance for grid attached RE plants. Specialized insurance product for solar PV. Islamic

Introduction 2




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IFC IN COLLABORATION WITH SBP CONDUCTED A MARKET STUDY TO REVIEW OPPORTUNITIES FOR SUSTAINABLE ENERGY FINANCE IN PAKISTAN

Unfortunately for the local economy, in Pakistan high energy prices are coupled with high energy intensity. Additionally, there is an increasing supply-demand gap, estimated to be around 5,000 MW, high transmission and distribution losses, low levels of grid penetration, etc...

This market review of SEF opportunities has been conducted by IFC in the following economic sectors of Pakistan:

� Industrial

� Residential

� Agribusiness

Given the market drivers pushing towards a more sustainable use of Energy, it is of little surprise that this market review indicates:

� Relatively low payback periods / high IRRs for EE/RE investments

� Positive cash flows for potential customers of FIs

8

PAKISTAN’S ENERGY SUPPLY AND DEMAND

Total primary energy supply for year 2011-12 was 2,710,000 TJ (or 64.72 MTOE)

More than 99 % of use through conventional energy sources

� Heavy reliance on expensive sources of energy, as 80 % from petroleum products

� 12.5 % from large hydro and nuclear power

� 6.6 % from coal

� Less than 1 % through micro/mini renewable energy (RE) sources

Pakistan's total energy savings potential: 418,807 TJ (11.16 MTOE)

� In FY 2011-12, this amounted to 17.25% of primary energy use!!!

Installed power generation capacity: 22,797 MW

� Insufficient considered increasing population and industrial requirement

9

Residential, 23.39%

Commercial, 3.96%

Industrial, 37.56%

Agriculture , 1.80%

Other Govt. , 1.91%

Transport , 31.39%

Primary Energy Consumption by SectorFY 2011-12

IDENTIFIED INVESTMENT POTENTIAL IN ENERGY EFFICIENCY (“EE”) & RENEWABLE ENERGY (“RE”) IN MAJOR SECTORS IN PAKISTAN

10

Sector

type

Sub-

Sector

Potential Investment Main Equipment for investment

EE

(M PKR)

RE

(M PKR)EE RE

Industrial

Textile 173,000 133,500

Compressors, heat recovery, heat transfer equip., lights, meters,

motors, power factor correction equip., main process, process

control, steam system, variable frequency drives (“VFDs”)

Solar water heaters

(“SWH”), wind power,

photovoltaics (“PV”)

Sugar 105,000 16,700Co-generation, heat recovery, transfer equip., motors, general

process, process control, steam system, VFDsBiomass, PV

Leather 1,150 12,000Compressors, heat recovery, heat transfer, motors, power factor,

main process control, steam systemsPV, SWH

Paper 7,800 1,400Compressors, heat recovery, motors, power factor, main

process, process control, VFDBiomass, SWH

Cement 30,600 33,000Co-generation, meters, motors, power factor, main process,

process control, VFDs

Wind power,

concentrated solar

power

Fertilizer 5,800 10,800 Heat recovery, heat transfer, main process PV

Other

sectors80,800 52,000 Diverse process and ancillary equipment Various technologies

Non-

industrial

Agriculture 168,000 647,600Tubewell replacements, trickle irrigation systems (drip and

sprinklers mainly)

Direct combustion of

biomass, biogas, solar

water pumping

Residential 111,000 166,000 Lighting, fans, air conditioning units, refrigerator replacement

Biomass from

municipal waste and

animal manure, SWH

Total Investment

Potential683,150 1,073,000

INDUSTRIAL EE MARKET POTENTIAL IN PAKISTAN, NOT INCLUDING REPLACEMENT OF END-OF-LIFE EQUIPMENT

The overall investment potential for these energy efficiency measures in the industrial sector is about PKR 400 billion, with typical 3 to 5 years payback periods

11

Co-generation31%

Compressor3%

Heat recovery19%

Heat transfer5%

Lights 1%

Meters2%

Motors7%

Power Factor0%

Process5%

Process Control4%

Steam system1%

VFD2%

Combined Technology

investment for other sectors

20%

RENEWABLE ENERGY POTENTIAL IN THE PAKISTANI INDUSTRY INVESTMENT MATRIX – SECTOR VS. TECHNOLOGY

The industrial sector in Pakistan has long been suffering because of unavailability of energy (“load shedding” for gas and electricity):

� Part of this energy deficiency could be met by Renewable Energy (“RE”)

� Potential for private sector involvement: about USD 2.0 billion for 800 MW of installed capacity

12

Cement13%

Leather5%

Paper1%

Sugar6%

Textile Processing

12%

Textile Spinning

39%

Fertilizer4%

Others20%

Total RE Industrial Investment (by Sector)

Sector \ Tech PhotovoltaicSWH (Solar

Water Heater)Wind Energy

Cement �

Leather � �

Paper �

Sugar �

Textile

Processing �

Textile Spinning � �

Fertilizer �

Others � � �

Introduction 2




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SEF: WHY FIS SHOULD BE INVOLVED

Expanded market share through a

new business line

Improved risk profile of portfolio

Positive social and environmental

impacts

• Cost efficient clients = Better performing clients• Energy cost savings as a part of cash-flow

• Enhanced brand reputation (innovative and socially responsible FI), PR opportunities

• Innovative product – First mover advantage/differentiation• Sell on value to customer, not pricing• Monetize existing client base - Attract quality new clients• New marketing channels through vendor partnerships

14

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WHAT IFC CAN DO FOR A FI TO HELP TO REACH THE SEF MARKET?

Credit lines and senior loans (medium- to long-

term)

Risk sharing products and partial guarantees

Mezzanine financing and subordinated

debtTrade guarantees

Investment Products & …tailored to the needs of diverse markets

Market development, analysis and product

development

Capacity building, trainings for staff

on all levels

Tools and resources

Linkages with contractors/ESCo

s/vendors

….& Advisory Servicesdesigned for help to build a profitable climate business

15

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IFC: GLOBAL REACH WITH LOCAL CHAMPIONS

Since IFC introduced sustainable energy finance in 1997, it has supported more

than 125 financial partners with over 135 climate smart projects in 37 countries,

providing $4.4 billion in financing. Our investments are coupled with staff training,

technical guidance on pipeline and product development, and marketing

Erste Bank Ukraine

2010

BanqueLibano-Francaise

2012

SME Bank

2011

Prime Finance Bank

2009

Agropromcredit Bank

2009

Tatfondbank

2007

SocieteGeneraleAlbania

2012

Union Bank Albania

2014

Fondi Besamfi

2010

NOA mfi

2010

TCB Bank

USD 18 million2011

LOCKO-Bank

USD 20 million2010

Credit Bank of Moscow

USD 20 million2010

Center-Invest Bank

USD 10 million2010

NBD Bank

USD 8 million2008

MDM Bank

USD 50 million2008

URSA Bank

USD 53 million2008

Tamweelcom

USD 3 million2011

AmeriaBank

USD 15 million2010

MTBank

USD 10 million2011

Bank Respublika

USD 15 million2013

Credins bank

USD 13.3 million2012

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Market Strategy

Scoping (Target clients, Target

products)*

Key Players

Champion

Product Development

Product Policy

Marketing

Training of Bank Staff

Pipeline Development

Transaction Support via Tools and Resources

Meeting with Clients

Provide Links with vendors,

suppliers

Result

Measurement

Calculator

Examples of success

1

2

3 4 5

IFC SEF OFFERING: ADVISORY

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Risk positions at the level of the Bank:

� Long-term credit lines;� Equity;� Subordinated debt;� Currency swap;� Trade finance

Risk positions at the level of the underlying assets:

� Guarantees;

� Portfolio Risk Sharing;

� RE Mezzanine Facility.

Investment Type 1.

Investment Type 2.

Project A.

Project C.

Project B.

Portfolio of SE Projects

Financial Products

Bank Loans to SEF Projects

Local Financial

Institution

Advisory Services

FIs of any type:

� Commercial banks� Leasing Companies� Microfinance

Institutions� NBFIs

18

IFC SEF OFFERING: INVESTMENT

EE CREDIT LINES IN THE SME/CORPORATE SEGMENTS

Typical equipment financed by Banks in the MENA region include:

� Energy efficient production lines

� Waste heat recovery devices

� Heating/cooling systems upgrades

� Efficient boilers and heaters

� Electricity peak-load control systems

� Cogeneration units

These opportunities are present in all industrial and commercial sectors of Pakistani economy

These are familiar sectors for Pakistan’s Commercial Banks already, best fitting Corporate, SME, Leasing and Islamic Banking operations

RE FINANCING

Main renewable energy equipment to be financed:

� Solar water heaters (“SWHs”)

� Biogas/Landfill gas (cogeneration) units

� Solar photovoltaic (“PV”) units

� Concentrated solar power (“CSP”) plants

� Wind farms

� Hydro power plants

Best fitting SME, Corporate and Leasing operations, depending on type and size of projects

IFC provide a full suite of capacity building on Project Financing for (small to large) RE projects, which in Pakistan would mainly focus on Hydro, Biomass, Wind and Photovoltaic

SUSTAINABLE ENERGY FINANCE FOR RURAL BANKING

Borrowers in the Rural sector include farmers,

cooperatives, supply chains operators

Potential projects include installation / replacement of

the following equipment:

� Biomass/biogas digesters

� Irrigation systems

� Efficient and/or solar/biogas powered pumping

� Efficient agro-machineries

� Cold storage facilities

� Rural (off-grid) power solutions

Financial products cutting through Microfinance,

SME, Corporate, Rural and Islamic Banking

operations

Introduction 2




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CHINA SEF PROGRAM

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� Started in FY 2007

� As of 2013:

• 3 partner banks

• Total loan amount: > $ 783 million

• Total investment: > $ 1.7 billion

• Annual GHG emission reduction: 19.33 million tons CO2e

• Annual energy saved: >44.2 million MWh

2424

PHILIPPINES SEF PROGRAM

� Started in FY08

� As of end 2013:

• 3 partner banks

• Total loan amount: > $ 257 million

• Total investment: $ 422.5 million

• Annual energy saved: 82,526 MWh

• Annual RE generated: 345,250 MWh

• Annual GHG reduction: 703,743 tСО2

25

FIRST TURKISH EE/RE LEASING

In 2008, IFC provided a first loan of US$50 million to Yapi

Kredi Leasing Turkey (YKL). This investment help YKL

diversify its portfolio and increase its market share in very

competitive market.

YKL’s objective was to target SME's and new products inEE and RE financing. The transaction marks the first timethat the company has taken financing to direct tosustainable energy projects.

YKL Leasing focused to develop sustainable energyinvestments across all industry sectors.

Within two years, YKL EE/RE portfolio reached US$200million of loans

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SEF BENEFITS: CENTER-INVEST BANK

Over $250 m in EE financing to over 6,300 clients

СО2 over 105,000 tones/year saved

Increased number of new clients and strengthened loyaltyof existing clients

Reputation of the region’s champion in sustainablebanking

Partnership with major international DFIs (IFC, EBRD,FMO, KfW, OeEB, EDB)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

“Market differentiation and expansion into segments with

high potential are key factors to increase our

competitiveness. That is why areas such as energy

efficiency are among our strategic priorities.”

Sergey Smirnov, Executive Board member

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BLF LEBANON: LEBANESE MARKET LEADER

Assistance to BLF who position itself as a leader of

“green” banking in Lebanon

• Senior Level Strategy Session to identify opportunities & key strategic considerations

• Staff training on SEF to build knowledge & awareness of SEF opportunities

• In-depth industrial sector reports highlighting SEF opportunities

• Comprehensive portfolio review to segment & identify SEF targets in existing portfolio, client visits to evaluate SEF opportunities

US$ 100 m in approved SEF projects during pilot stage

BLF apparently SEF market leader, with 90% of total

environmentally-friendly loans under BdL Circular 313

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CESKA SPORITELNA: FIRST IN CE

Leading Czech bank looking for new market opportunities

in 2004

IFC identified SEF potential in Czech market (10m people) of $7.3 bn/6years

Bank embraced opportunity and developed FINESA (Financing Energy Saving Applications) with IFC assistance

FINESA means:Product with defined internal procedures

Targeted marketing strategy and sales

Dedicated Energy team, dealing with sustainable energy projects centrally, supporting credit officers and branches sales people

CS now leading bank in Czech SE market

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CREDINS ALBANIA: SMALL MARKET MATTERS

In 2012, IFC provided €10 million in financing to Credins

bank.

This loan helps the bank provide sub-loans to Albanian

companies interested in investing in energy efficient

technologies and renewable energy projects.

“This partnership with IFC will help us take a leadership

role in combating climate change in Albania. We believe

that the potential for development of sustainable energy

finance in Albania is significant and aim to offer our

services to companies that plan to go green.” ArtanSanto, Credins Bank CEO.

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BDL “GREEN” INTERVENTIONS (LEBANON)

Banque du Liban (Lebanese central bank)• The Central Bank controls banks’ liquidity:

• by monitoring or adjusting discount rates;

• by imposing on banks reserve requirements on theirdeposits in LBP.

• The Central Bank can also regulate banks’ credit interms of volume and type:

• by imposing credit ceilings to limit credit risk;

• by directing credits toward specific sectors orpurposes

• The BdL facilitated financing investments in SEF byexempting banks from part of the required reserverequirement to finance these projects at low cost.

• BdL has helped to develop a vehicle to finance EnergyEfficiency and Renewable Energy, called NEEREA(National Energy Efficiency and Renewable EnergyAction). 30

Riccardo Ambrosini Senior Specialist

Sustainable Energy Advisory

IFC, Rabat

[email protected]

thank you

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INTERNATIONAL EXPERIENCE IN SUPPORT OF LOCAL …