The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian Development Bank Institute (ADBI), the

Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and
accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

Regional Solutions to Address

the US$20 Trillion Funding Need
for the Low-Carbon Energy
Transition
- Findings from ERIA Market Assessment Survey -

Venkatachalam Anbumozhi
Dian Lutfiana & Matthew LoCastro
Email: v.anbumozhi@eria.org
Low-carbon Private Financing: A US$20 Trillion Funding Need

Why conduct a
survey on private financing Who are the
flow-carbon energy stakeholders?
transition?
Project Developers
Paris Agreement, (Borrowers), Financial
ASEAN Economic Institutions
Community, SDGs (Lenders), Facilitators

How to overcome
What are the key these barriers and
barriers to upscaling the Manage the Risks?
low-carbon finance
markets?
Risk Mitigants and
Investment
Policy, institutional,
Enhancers,
leadership, market
Coordinated regional
and regulatory risks
policies

2
Why Conduct a Survey on Low-Carbon Markets and Financing?
To understand what barriers and risks in mobilizing private capital for
low-carbon projects in ASEAN
Momentum &
Towards Transformation
Readiness

Regional investment in renewable

energy in 2015 hit a record of up 17%
to US$ 230 billion

With energy efficiency improvements

this represented a 6x increase from
2005 investment levels.

Low-carbon asset financing from

ASEAN and ASEAN+6 exceed those in
advanced economies in 2015.

More than US$100 billion per year is

needed to address the low-carbon
transition challenges (energy efficiency,
renewable energy, clean coal, carbon
capture and storage, etc.).

3
 Why leverage private finance?

Government Limitations:
1. Advanced countries have only initial plans (the
COP24 Rule Book) for their US$100 billion
annual commitment by 2020 to developing
country NDC targets

2. Government budgets are often constrained by

the financial debts and other austerity policies.

3. Without private finance, the $20 trillion

funding gap globally will be unattainable.

Private Finance Limitations:

1. Fiduciary duty to shareholders

2. Existing regulatory pathways, policies and

standards may slow the emergency of and
deployment of low-carbon energy system

3. Market-based mechanisms are at their early

stages of emergence and energy prices are
still low, not truly reflecting the externalities

4
How can we leverage private finance?

Stock taking of risk mitigants and transaction enablers

5
Survey methodology: Overview
Define Scope Online Survey Market Analysis Data Analysis Expected
and Work Outputs

•Define aim and •Target groups: •Number of respondents: •Qualitative •Formulate

objective •Business owners/ 109 participants content data conclusions
•Internal and project •Participants’ categories: analysis
external developers •Business owners/ project •Thematic •Discussion
consultations •Investors: Banks, developers → Borrowers explanatory paper
•Establish institutional •Investors: Banks, analysis •Academic
method of investors, private institutional investors, •Concepts Journal
research equity, etc. private equity, etc. → drawn from
•Other Lenders different
institutions •Other institutions (NGO, stakeholder
(NGO, Associations, groups,
Associations, Researchers, University) overarching
Researchers, → Influencers insights
University) •Participants profile based combined
•Duration of on the following regions:
survey •ASEAN
dissemination: •ASEAN+3
3 months
•ASEAN+6, plus Mongolia
•Total contacted and Hong Kong
person: 1788
people •Global (countries exclude
ASEAN)
•Total online
survey visitors:
632 visitors

The answers from respondents were recorded electronically, and were analysed and organized to upscaling
investors, borrowers, and influencers views on low-carbon investments.

6
Survey methodology: Survey analysis

• Participants were classified as one of three groups:

1. Borrowers – Institutions that seek low-carbon financing
2. Lenders – Institutions that provide low-carbon financing or financing
support
3. Influencers – Institutions that provide research and market insights

• The market survey consisted of four sections:

1. Characteristics of the Organization – For all participants
2. Business Owners and Project Developers - For participants grouped as
Borrower
3. Investors: Banks, Institutional Investors, Private Equity, Etc. - For
participants grouped as Lender
4. Technical/regulatory, National, Regional perceptions on Barriers and
opportunities for financing low-carbon energy projects – For All Participants

• Types of the survey questions:

1. Matrix Multiple choice (one answer) – (1) is strongly disagree and (5) is
strongly agree (Likert scale)
2. Multiple choice (many answers) – Checkboxes
3. Matrix ranking scale - Dropdown
4. Open-ended question – comments/suggestions

7
 Survey participant profile

Survey participant regional breakdown Regional composition by participant type

Global
8% 100%
89%
ASEAN+6, plus 90%
Mongolia and HK
80%
12%
70%
61%
60% 57%

ASEAN 50% 44%

50%
40%
33%
30% 25% 24%
ASEAN+3 22%
30% 20% 17%
15%
11%
10%
0%
0%
ASEAN ASEAN+3 ASEAN+6, plus Global
Mongolia and HK

ASEAN ASEAN+3 ASEAN+6, plus Mongolia and HK Global Borrower Lender Influencer

Location Description:

• ASEAN – ASEAN Member countries

• ASEAN +3 – ASEAN, China, Japan, and Korea (CJK)
• ASEAN +6, plus Mongolia & HK – ASEAN, CJK, India, New Zealand, Australia, Mongolia and Hong Kong
• Global – All other countries not in Asia (US, UK, France, Austria, Germany, Norway)

8
 Perceived Risk and Barriers: Market and Non –Market

Intersectionality of Barriers

9
 Survey Results

Borrower: Risks and Barriers

What do you perceive as the biggest obstacles to receiving finance and bank loans?
(Respondents can choose multiple answers)*
ASEAN+6-
Category Obstacles ASEAN ASEAN+3 Mongolia
and HK
Changing Policies 56% 45% 50%
Policy
Complex Procedures 28% 27% 29%
High Initial Investment Cost 50% 45% 50%

Longer Recovery Periods 50% 45% 46%

Institutional High Collateral Requirements 44% 45% 46%

Insufficient Credit and Maturity 28% 27% 25%

Lack of capacity to value assets 17% 14% 13%

Currency Risk 33% 32% 29%
Insufficient Profits 33% 32% 29%
Unpredictable Cash Flows 28% 23% 25%
Market Non-Favorable Interest Rates 28% 23% 25%
Rising Interest Rate 28% 23% 21%
Technology Advancement Risks 22% 18% 17%
Unstable Consumer Market 11% 9% 13%

*Colors are on a green-red spectrum. Green indicating more support for a response, red indicating less

10
 Survey Results

Reported Policy barriers (Borrowers)

1 - 5 (Strongly Disagree-Strongly Agree)* Average Standard
National Regulatory Barrier Borrower Location
1 2 3 4 5 Score Deviation
ASEAN 0% 6% 6% 28% 61%
The number of permits required for
ASEAN+3 0% 5% 5% 32% 59%
low-carbon energy projects are high 4.48 0.77
ASEAN+6-Mongolia and
and processing time is long. 0% 4% 4% 33% 58%
HK
ASEAN 0% 6% 17% 11% 67%
Coordination among ministries and ASEAN+3 0% 5% 14% 14% 68%
4.32 1.03
institutions are weak. ASEAN+6-Mongolia and
0% 8% 13% 13% 67%
HK
ASEAN 0% 0% 22% 17% 61%
The regulatory framework for land
ASEAN+3 0% 0% 23% 18% 59%
procurement is complicated and takes 4.28 0.94
ASEAN+6-Mongolia and
times. 0% 4% 21% 17% 58%
HK
Lack of concrete action plans by the ASEAN 0% 0% 22% 28% 50%
government on the low-carbon ASEAN+3 0% 0% 23% 27% 50%
transition leads to uncertainty in my 4.2 0.91
ASEAN+6-Mongolia and
organization's business model and 0% 4% 21% 25% 50%
HK
decisions.
ASEAN 6% 6% 11% 17% 61%
Overlapping and inconsistent policies ASEAN+3 5% 5% 14% 14% 64%
4.12 1.27
by governments ASEAN+6-Mongolia and
4% 8% 13% 13% 63%
HK
ASEAN 0% 6% 22% 28% 44%
Compared to other investment
ASEAN+3 0% 5% 18% 41% 36%
projects, low-carbon projects require 4.04 0.84
ASEAN+6-Mongolia and
more due diligence. 0% 4% 21% 42% 33%
HK
Foreign direct investment restrictions ASEAN 11% 0% 22% 39% 28%
are currently limiting the amount of ASEAN+3 9% 0% 23% 41% 27%
3.64 1.22
international funding available to my ASEAN+6-Mongolia and
8% 0% 25% 42% 25%
organization. HK
*Colors are on a green-red spectrum. Green indicating more support for a response, red indicating less

11
 Survey Results

Reported Institutional Barriers (Borrowers)

Average Likert Score (out of 5) with Standard Deviation*
Strongly

SD SD
Agree

SD
5 SD

4.16 4.16 4.04 3.96

4

1
Disagree
Strongly

0
Lack of grid Local supply chains are The portfolio standards A lack of available
connectivity underdeveloped to accommodate low- technical information on
carbon energy supply the net costs, benefits
are inadequate and risks

*5 indicating strongly agree, 1 indication strongly disagree

**SD = Standard Deviation, represented by the error bars
12
 Survey Results

The Institutional Financing Challenges (Borrowers)

The main financing mechanisms used for low-carbon investments*
ASEAN+6, plus
Instruments and Mechanisms ASEAN ASEAN+3 Mongolia and
HK
Bank Loans 44% 41% 46%
Economic/Financial Instruments Equity Finance 33% 32% 33%
Private Investment 6% 5% 4%
Feed-in Tariffs 50% 45% 46%
Government Grants 28% 32% 33%
Regulatory Instruments
Government Guarantees 28% 23% 21%
Tax-Credits 17% 14% 17%
*Colors are on a green-red spectrum. Green indicating higher percentage, red indicating lower

Access to finance is generally an obstacle Key obstacles that borrowers face:

• Borrowers currently rely on bank
50%
45% 44% 41% 42% loans and feed-in tariffs for the low-
40%
33%
36% 38% carbon financing, but lack of equity
35%
30%
finance.
25%
17% 18% 17%
• Accessing long-term financing
20%
15% • Short-term liability
10% 6% 5% 4%
5% • High collateral requirements and
0%
ASEAN ASEAN+3 ASEAN+6, plus Mongolia lack of organizational capacity hinder
and HK the ability to acquire financing
1 2 3 4 5
Strongly Disagree Strongly Agree

13
 Survey Results
Borrower market risk perception: Demand and readiness for investment
(Borrowers)
Clients demand low-carbon products and Readiness to make new low-carbon investments
services if effective de-risking mechanisms are available
50% 50%
44%
45% 45% 41% 42%
40% 38% 40%
33% 35% 33%
35% 32% 32% 32%
29% 29%
30% 28% 30% 27%
25%
25% 22% 23% 25% 22%
21%
20% 20%
15% 11%
15%
9% 8%
10% 10%
6% 5% 4%
4%
5% 5%
0% 0%
0% 0%
ASEAN ASEAN+3 ASEAN+6, plus ASEAN ASEAN+3 ASEAN+6, plus
Mongolia and HK Mongolia and HK
1 2 3 4 5 1 2 3 4 5
Strongly Disagree Strongly Agree Strongly Disagree Strongly Agree

Types of Barriers and Embeeded Risks:

Fiscal Technical Market Regulatory

14
 Survey Results

Lender Perception on Risks and Barriers

Risks perception to finance new low- Inc. Interest Rates
carbon projects

Category Risks Avg. Rank Currency Risk Inc. Business

Tech Risk Cost

Changing
0.9
Regulations Market
Policy Risk
Inconsistent
1.6
Policies

Market Risks 2.3 Inconsistent

Policies
Technology Risks 4.7
Market
Currency Risks 5.0
Changing
Rising Interest
7.0 Regulations
Rates

Rising Business
Institutional 5.3
Costs
*Higher ranking indicates lower risk

15
 Survey Results
Focus on climate change in the policy arena has investor’s attention
(Lenders)
Climate change risks and the Paris Agreement have increased focus on
low-carbon solutions
100% Respondents also believe that low-carbon investments require
higher levels of due diligence
90%
17% 13% 13% 13%
80% 33% 27%
8% 13% 13%
27%
70% 17%
20%
27% 33%
60%
25% ASEAN+6, plus
ASEAN ASEAN +3 Mongolia and HK

50% 47% 47%

42%
40%
33% 33% 33%
30% 25%
20% 20%
20%

10%

0%
ASEAN ASEAN+3 ASEAN+6, plus Mongolia and HK

1 2 3 4 5
Strongly Disagree Strongly Agree

16
 Survey Results

Reported Policy Barriers (Lenders)

Likert Scale: Degree of Agreement out of 5

Overlapping and The land procurement

inconsistent policies by framework is overly 4.08
government complicated

Coordination amongst
ministries & 3.92
institutions is weak

Lack of concrete
Too many permits and action plans by the
3.77 long processing times govt. on the LCT leads
3.69
to uncertainty

Low-carbon projects
3.38 require more due
diligence

FDI restrictions are

3.0 limiting international
funding

17
 Survey Results

Reported market barriers (Lenders)

Average Share of Responses*

Economic and Financial Barriers (Statement) 1 5
(Strongly 2 3 4 (Strongly
Disagree) Agree)

Subsidies for conventional energy and the

absence of carbon prices are distorting low- 0% 0% 8% 66% 25%
carbon investment
Current Power Purchase Agreements (PPA) are
5% 0% 56% 31% 8%
not conducive for low-carbon investment
Energy prices are unstable with a high risk of
0% 0% 39% 56% 5%
speculative prices and fluctuation
Low-carbon investments suffer from high initial
0% 0% 47% 47% 5%
investment costs and unpredictable cash flows
The potential cost savings from energy efficiency
improvements are difficult to estimate, which
0% 39% 17% 36% 8%
makes calculating the payback period very
challenging
*Colors are on a green-red spectrum. Green indicating higher percentage, red indicating lower

18
 Survey Results

Project developers see gaps in public and private support

• Project developers funding needs and return expectations do not match investor’s
requirements
- 38% of survey respondents will seek money from special funds because of inadequacy or
incompatibility of private sector – banking, PE, VC, institutional investors – terms offered
and/or value of investment
- 17% have tried and failed to raise money from the private sector
- 50% have either received no private funding at all or from founders, family and friends only

• Borrowers see public banks as an enabler for raising funds

-42% want to de-risk with money from subsidized bank loans, and seek private investment
opportunities latter.
- 62% will seek both money from the public and private actors in parallel

• Gaps left by existing public support mechanisms

- Most innovators are benefitting from other national mechanisms, but 35% does not.
- Only 19% are aware of international financing, 3% are receiving some sort of assistance

• Lack of Public support at several stages of the company’s journey

- Early securitization (pre-venture capital)
- Mid to late stage renewable energy projects

19
 Survey Results

Lenders look towards government institutions for risk reduction

Who is currently willing to share your risks (Policy, Institutional, Market) in low-carbon investments?

Various Risks:
Non-renewable
Prices Instable Inconsistent Policies Land Procurement
Subsidies
Technical, Infrastructure,
Due Diligence/ Permits Technology Interest Rates & Credit Business Costs
Supply Chain

100%
90%
80% 75% 73% 73%
70%
60%
50%
40% 33%
30% 25% 27% 27%
17% 20% 20%
20%
8% 13% 13% 13% 13%
10%
0%
ASEAN ASEAN+3 ASEAN+6, plus Mongolia and HK

Banks Credit Agency

Government Insurance Company
Development Banks/Multilateral Agencies
20
 Solutions
Three focus areas to implement solution to incentivize and upscale
private finance

National Regional
Policy Coordination

Technical,
Infrastructure,
Institutional
Capacity Building

21
 Solutions

Green Bonds, Government Guarantees, and International Financing

What other financing options do you think will benefit your company in low-
carbon investment?
(Respondents can choose multiple answers)*
• Mechanisms to
incentivize low-
ASEAN+6,
Barrier plus
carbon financing are
Financing Support Options ASEAN ASEAN+3
Addressed Mongolia in both the public
and HK
and private sectors.
Green Bonds 50% 50% 50%
Advances From Customers 33% 27% 33%
• Borrowers are
Borrowing from Capital Markets 28% 27% 25%
seeking different
Market Project Bonds 28% 27% 25%
financing support
Credit from Supplier 28% 23% 29%
options.
Equity 22% 18% 21%
Contribution from owners 22% 18% 17%
• Regional solutions
Government Guarantees Schemes 61% 59% 54% are appealing to
Loan Securitization 22% 23% 25% borrowers in the
Policy
Tax break 17% 14% 13% form of international
Subsidy 6% 5% 4% finance.
Institutional International Financing 61% 55% 54%
*Colors are on a green-red spectrum. Green indicating higher percentage, red indicating lower

22
 Solutions
Catalyzing low-carbon investments through innovative policy measures &
new financial instruments
Which additional financial incentives would increase your % of total
investment opportunities? Respondents
Government guarantees for high risks (e.g. off-taker risk) 60%

Dedicated low-carbon investment funds 52%

Capacity building for assessing climate-related risks 44%

Improved low-carbon definitions and standards 41%

Securitisation of low-carbon energy projects into asset-backed
34%
securities
Incentives to increase use of equity funding 33%

Other responses:
Government regulations that provide convenience for low-carbon investments, i.e. taxes, lower bank
interest rates, longer grace period, lower red-tape/bureaucratic procedures. Carbon taxes that finance of
low-carbon projects, government subsidies, non-stringent requirements, removal of high cost of
permitting and approvals, tax breaks on all RE projects and RE imports.

23
 Solutions

Lenders are seeking public policy support to enhance investments

Main Opportunities to Mitigate Risk

Borrowers rely primarily on bank loans,

but banks do not want to take on risk. Power Long-
Purchase Term
What can government do? Agreement Policy
(PPA) 53%
• Adopting a more open trade policy 80%
• Providing a more friendly business
environment for investors
• Stimulating green investment in financial
Risk
market Government Participation
Removal of Fossil
• Reducing tax on low-carbon energy Guarantees 7%
Fuel Subsidies
investment 53% 53%

24
 Solutions

The Need for Regionally Coordinated Solutions

Nationally driven financial

mechanism and policy Risk
reforms are only a Sharing
PARTIAL solution

Regional and
international financing,
policy frameworks, and Resource
Allocation
cooperation are needed
Efficiency
to maximize financing
potential

International
Spillover
cooperation will lead to
Benefits
the development of
Across
green infrastructure
Borders
and technology

25
 Solutions

These regional solutions should include:

1. Regional Low-Carbon Transition Fund: low-carbon energy system fund, that can
broaden and deepen risk bearing capacity of private sector

2. Formulation of finance performance warranty program: which would target

low-carbon technology providers, with an insurance and warranty the financial
availability and performance guarantee

3. The best regulations for low-carbon economy programs: that recruit

independent third parties to assess the effectiveness of low-carbon energy
policies and AEC (ASEAN Economic Community) trade policies internationally
and regionally to spur private finance action domestically

4. A quality infrastructure program: that evaluate new energy infrastructure

proposals for its net carbon impacts and incorporating warranty systems that
also bring job growth.

26
 Solutions

How to Catalyze regional Solutions

Lack of concrete action plans by the government Increased regional coordination on energy
on the low-carbon transition leads business policies, regulations and funding mechanisms
uncertainty will promote low-carbon investment
60%

50% 50% 49%

50% 48%
46%
44%

40% 38% 38%38%

35%
31% 32%
30% 27%
25% 25% 25% 25%
24%
21%
19%
20%
12% 12%
10% 10%
10% 6% 6%
6%
4% 4% 3% 4%
0% 0% 0%
0%
ASEAN ASEAN+3 ASEAN+6, plus Global ASEAN ASEAN+3 ASEAN+6, plus Global
Mongolia and HK Mongolia and HK

1 2 3 4 5 1 2 3 4 5
Strongly Disagree Strongly Agree Strongly Disagree Strongly Agree

• Policy makers need to propose innovative solutions (e.g. green investment bank, insurance and warranty
program) that could address fiscal, technical, market, and regulatory barriers
• These solutions must be regional and clearly outlined.

27
 Solutions
A combination of Market based and Regulatory Approach will boost low-
carbon investments

Regional structures and incentives that could enhance Average Ranking

Rank
investment environmenta, include: From Respondents
Most
Regional carbon price 1 Significant
(1)
2.68
Regional fund for investing in low-carbon energy transition
2 2.70
projects
Regional Finance Warranty Program 3 3.39

Regional Low-carbon Guarantee Fund 4 3.39

Regional regulations on goods and services 5 4.05

Least
Regional green bonds 6 Significant
(6)
4.79

Other responses:
Interconnection of national grids/ cross-border grid development, regional free trade in green technologies and
services, regional coordination on exchange of knowledge and information, joint-venture investments amongst
ASEAN states, removal of foreign investment limit for Renewable Energy projects, asset recycling facilities, job
creation, etc.

28
 Solutions
Investors firmly believe there is a need for a designated low-carbon
transition fund for NDCs at regional level

“The public could make a good return on

Probably, 6%
helping us across the valley of death”
No, 1% (Technical Director at cleantech – Hong Kong)

“It is appropriate to ask for public financing

for a market entirely created by and at risk to
the government”
(Fund Manager – Japan)

“Additional support from the public sector would

allow a much faster acceleration of the business
and would support greater private sector
Yes, engagement”
93% (Former Minister and current CEO at Green
Investment – Manila)

29
 Key Messages from the Market Survey: Momentum to Transformation

Momentum is increasing
• Market leadership: Momentum has started across the region and financial
sector in start responding to the low-carbon transition challenges and
opportunities
• National Actions: Public policy makers and financial regulators are acting to
drive the reallocation of capital, improve risk management and enhance
investment through price discovery
• Regional and International Cooperation: ASEAN and G20 are exploring how
to develop the financial systems to take greater account of low-carbon
transition.
Remains inadequate to deliver the transformation
• Low-carbon financial flows and stocks remain marginal due to risks and
barriers to the market entry
• Financial systems (banks, institutional investors, national institutions) remain
disconnected from the long-term needs of the energy sector.
• Regionally coordinated solutions offer opportunity but warrant better
understanding on the efficiency and effectiveness of meeting the low-carbon
targets within the time frame.
30
 Moving Foreword:

• Anchor low-carbon transition in national strategies for financial sector

reform and new market development through such channels as PPA,
infrastructure investment funds, green bonds etc. – in a more
coherent and effective way and build a long term roadmap.

• Realize the leveraging potentials of public finance in providing financial

support to improved balance in low-carbon investments and setting a
common approach to definitions, tools and standards to remove the
technical, institutional, market and policy barriers.

• Build capacity across the economy and industry to enable the banks
and institutional investors to effectively implement plans, taking
advantage of the opportunities for regionally coordinated solutions
(e.g. regional transition fund, best regulations, warranty program),etc.
as well as to ensure the policymakers/regulators to fully aware of the
imperatives of low-carbon transition and the market risks.

31
 Thank You!
Survey Team:
Fukunari Kimura
Kaliappa Kalirajan
Venkatachalam Anbumozhi
Dian Lutfiana
Matthew LoCastro
Tsani Fauziah Rakhmah
Dharish David

Supported by
ASEAN Center for Energy
ERIA Energy Unit
ERIA Communication Department

32