Results Based Financing : Private Sector experiences in Latam
GDF SUEZ ENERGY LATIN AMERICA
Philipp Hauser – VP Carbon Markets
philipp.hauser@gdfsuezla.com
Tel: +552139745443
The uneven challenge to limit Climate Change to 2˚C
WHAT DO WE NEED TO BRIDGE THE GAP?
Source: IEA 2011 World Energy Outlook.

Non-OECD countries as they account for 90% of population and energy demand
growth and require huge investments in capacity and mitigation;

Energy causes 66% of global GHGs & non-OECD account for 100% of growth;

The 450 (ppm) scenario requires additional investments of $11.6 trillion;

GHG intensive thermal expansion is still the baseline and leads to a technological
look in which is capable to close the door to 450 ppm.
2
Market barriers and solutions
According to Economic Theory each market failure
requires a specific instrument.
Quantify external cost and
benefits
Sound MRV for GHG emissions and emission
reductions ensure global comparability
Pricing external costs &
benefits
CDM & NMM are globally coherent steps to
build an international carbon market.
Inefficient Capital Markets
Development Banks & Green Climate Fund can
bridge financial barriers.
Lack of enabling environment
NAMA policies with international support need
to improve clean investment environment
Lack of access to technology
and organizational knowledge
CTCN and bilateral organizations are is
available to support host countries on request
3
3
Build on and combine existing & emerging policies
Provide Funding in Least
and Less DC’s
Value GHG Reduction
 Carbon Market Instruments
(CMIs) identify “least cost
options” and assure
profitability
 MDBs & GCF finance
MDBs
&
GCF
CDM
→ ET
MRV
 CDM offers well
established principles
for MRV & bottom up
baseline setting
Unparalelled DOE and PD
capability is (still) available
MRV
NAMA
4
clean growth & attract
Private Sector
 CDM adds credibility &
assures profitability
Domestic Efforts in
advanced DCs
 Advanced DC’s &
private sector finance
NAMA investments
 National policies allow
sector wide programs
& activities
Brazil’s National Policy for Climate Change
Dec. 2009: Brazilian communication about voluntary National Appropriate
Mitigation Activities (NAMA’s) to the UNFCCC:
 Voluntary reduction of GHG emissions by 36.1 to 38.9% vs 2020 BAU.
 For the energy sector this translates into (CO2e p.a. by 2020):
 Expansion of Hydropower
 Complementary Renewables
 Energy Efficiency:
79 – 99 Mt
26 – 33 Mt
12 – 15 Mt
National Policy for Climate Change defined by Law Nº 12.187, on 29 Dec. 2009
defines complementary GHG mitigation policy instruments:




i) Preferential loan financing,
ii) Tax and fee exemptions,
iii) Preferential granting of concessions and energy contracting
Iv) Use of the CDM
As a consequence of these policies the fossil fuel based expansion of
generation capacity could be reversed by contracting 27 GW of new renewable
generation capacity (17 GW HPP; 7GW Wind; 3GW Biomass).
5
GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013
Case Study of Results Based Financing
The Jirau HPP:
interest1,
Project of public
developed as PPP
with domestic development finance (NAMA)
GDF Suez
(40%)
Mitsui
(20%)
Eletrosul
(20%)
Located at Ilha do Padre on the Madeira River,
municipality of Porto Velho, Rondônia state
Chesf
(20%)
Run of River plant off 3.750 MW allows to
supply electricity to 10 million households
Construction period Q4 2008 – 2016
with COD of 1st turbine in Q4 2013
Largest renewable energy project registered
with the CDM, in recognition of Brazil’s NAMAs
1
Resolution CNPE Nº 1
6
6
GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013
Barriers for capital intensive investments:
THE EXAMPLE OF HYDR0POWER DEVELOPMENTS
Barriers :

high capital demand

lack of access to financing

long construction time

risk of delays and cost overruns

high interests during
construction
Proposed Solution

Reduced interest rates

Long loan tenor & 5 year grace
period during construction

Higher revenues during
financing period to enhance
bankability
World Bank Discussion Paper No. 420, “Financing of Private Hydropower Projects”, July 2000:
http://documents.worldbank.org/curated/en/2000/07/436947/financing-private-hydropower-projects.
7
GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013
The Jirau The Brazilian approach as a model
The Brazilian Development Bank designed special support
conditions to promote the Jirau project:

5 year grace period with capitalizing interests to finance construction

Loan Payback period of 20 years

Reduced interest rate

CER sales revenues considered as bankable income leverage private
sector investment
8
GDF SUEZ ENERGY INTERNATIONAL – Climate Change & Investment – 15/11/2013
Conclusions
If we want transformational change we need to ensure global
cooperation to address all market failures at once.
Problem:

Capital Intensity and long term maturity of clean infrastructure is
the biggest barrier to green growth.
Results required:

Ensure preventive mitigation now to avoid huge cost in the future.

Accept measurement against BAU or against political
commitments.
Allow comprehensive solutions:

Ensure that financing, carbon pricing, MRV and national policies
interact to overcome barriers and achieve measureable results.

Establish reliable carbon market regulation which allows to
undertake transformational investments
9