International Finance Corporation

IFC Financing for Rural Renewable Energy

Ilzro Raps Conference Lima, Peru February 12-13, 2001

Contents of Presentation
About

IFC IFC financing sources for rural RE projects:

Mainstream IFC Financing Renewable Energy and Energy Efficiency Fund Solar Development Group Small and Medium Enterprise Program Financial Intermediaries Carbon Offset Financing

IFC - Basic Facts

Member of World Bank Group Investment Bank w/ Development Agenda Make Investments only in Developing and Transitional Countries Largest Multilateral Source of Financing for Private Enterprises in Developing Countries In FY 1999, IFC approved more than US$ 3 billion of Investments in +200 projects

IFCs Role
IFC acts as a catalyst to stimulate and mobilize private investment:
IFC investments + IFC syndications + Other funding sources Total project cost
(FY 1999 approvals)

US$ 3.5 billion US$ 1.8 billion US$ 10.3 billion US$ 15.6 billion

IFC Services

Project finance - Loans, equity, etc. Mobilization of capital Financial advisory work Capital markets development Special development initiatives

IFCs Value Added

Direct funding with long-term staying power Catalyst for other investors and lenders Honest broker/neutral partner

Reassuring presence for joint venture partners and host Government

Risk identification and mitigation

Investment Guidelines for Mainstream IFC Financing

RE projects must have total project costs of at least $3-4 million IFC can provide up to 25% of project cost (35% for smaller projects)

Excludes funds raised from other sources But flexible on final maturity and grace period

Market pricing

No Government guarantees Meet IFC and host country environmental guidelines

IFC Mainstream Renewable Energy Investments

Hydro Power - Belize, Brazil, Chile, Costa Rica,

Nepal and Turkey

Biomass Cogeneration - Guatemala Geothermal - Guatemala Solar - Solar Development Group, PV Mfg. Wind - Several under active consideration Intermediaries - Energia Global, Renewable Energy and Energy Efficiency Fund

Challenges Facing RE Investments

Increased competitiveness of conventional power Small project sizes Longer lead times Higher ratio of capital costs to operating costs Newer technologies Less experienced sponsors Unfamiliar to financiers Either excess or absence of concessional funding

RE commercially viable only in specific situations Higher transaction costs Higher development costs Need for longer-term financing at reasonable rates Higher operating risks Higher completion and operating risks Scarce/higher-cost capital Over-subsidized or under-competitive

IFC/GEF Strategy
Match the type of support to the obstacles or risks blocking achievement of GEF objectives Focus on commercial projects Prefer non-grant financing Minimize use of GEF resources Maximize leverage of GEF resources Where possible, co-finance with IFC

Renewable Energy and Energy Efficiency Fund

Global investment fund providing equity, debt and (selectively) concessional funding
US$ 50-100 M equity + US$ 100 M debt (IFC: US$ 15 M equity + US$ 20 M A Loan) Additional US$ 30 M in GEF funds to cofinance projects and support fund mgmt. costs

Target investments: Mid-sized (<50 MW) on-grid RE, off-grid RE and EE projects

REEF - Highlights

First fund focusing on RE/EE in emerging markets Aims to open new markets and build credibility of RE/EE sectors among sponsors, clients and financiers Channels selective GEF concessional support only to projects that require assistance Expects to finance some commercially viable, or near commercially viable, solar projects Status -- Recently achieved first closing of equity fund at $65 M; preparing to make first investments

Solar Development Group

Objective: Accelerate development of private-sector off-grid PV business in developing countries Structure: Combine investment fund and business advisory services
Investment Fund: Business Advisory Services: Total Target Size US$ 30 M US$ 20 M US$ 50 M

SDG - Highlights
Exclusive focus on rural PV solar home systems in emerging markets Provide strong support - both $ and advice for commercially viable PV investments Joint initiative by World Bank, IFC, GEF and U.S. charitable foundations Status: Providing advisory services already & financing services to begin in March 2001

Small and Medium Scale Enterprise Program

US$ 21 million program funded by GEF Provides contingent, concessional loans to financial intermediaries (FIs) that on-lend or invest in SMEs

Incentives for FIs to seek repayment from SMEs

20 FIs selected to date, $13.7 M committed

SME Program - Highlights

Three solar energy projects approved to date, all off-grid PV:

Soluz Dominicana (through EEAF) Grameen Shakti, Bangladesh SELCO Vietnam

One geothermal project: Fideicomiso para la Conservacion en Guatemala

Carbon Offset Financing

IFC is able to facilitate financing from investors interested in purchasing GHG emission reductions Investors include: Prototype Carbon Fund, governments (e.g., Dutch), private investors. Projects must meet additionality criterion

Carbon Offset Financing may improve projects or bring near-commercial projects to fruition through:

Grants to cover capital expenditures for cleaner technologies Low cost equity (reductions, not dividends) Low-cost or zero-cost debt Interest payment subsidies Interest payment coverage Guarantees (e.g., performance, risk) Options to purchase emission credits at later date Forward contracts (annual payment for certified reductions)

World Banks

Prototype Carbon Fund

$145 M at Second Closing Fall 2000 Investors include 6 Governments & 17 Companies PCF will invest in 15 - 20 Projects Projects will come from WB, IFC and Third Parties Projects must meet WB and IFC Environmental and Social Safeguards

PCF Participation - End 2000

Participation on Januay 18th $mm Governments Finland Norway Sweden Netherlands Companies TEPCO Chubu Chugoku Kyushu Tohoku Shikoku Mitsui Mitsubishi Electrabel Totals 5 5 5 5 5 5 5 5 5 85 10 10 10 10 Additional by April 7th Governments Canada Japan (JBIC) 10 10 $mm Request 2nd Closing $mm

Companies Gaz de France BP-Amoco Statoil, Norway Norsk Hydro, Norway Deutsche Bank RWE, Germany RaboBank, NL Fortum 5 5 5 5 5 5 5 5

60

PCF Project Selection and Portfolio Criteria

Adhering to UNFCCC, Bank standards, with emphasis on renewable energy projects

Balance between CDM and JI w/ initial emphasis on CDM Not less than 2% and no more than 10% of Funds assets in one project Not more than 20% of Funds assets invested in Projects in the same host country Not more than 10% of the Funds assets in forest-based sinks (and only in EITs) Emphasis on renewable energy technology; no more than 25% of the Funds assets in any one technology
20

Carbon Offset Example:

Bagasse Cogeneration

Sugar Factory Re-Development and Investment needs new Power Plant

2 options: 1) in the fence or 2) expand to serve grid

Re-development Proceeding with in-the-fence option Provided Feasibility and Baseline Study Support to Ensure IPP option Considered
contd

Carbon Offset Example:

Bagasse Cogeneration

Cogeneration Option will now be considered, although needs Additional Financing to Compete with Lower Cost power generated using H & L Fuel Oil Buyer Identified for 650,000 tonnes CO2 over 10 years Revenues from sale of Carbon Credits will ensure Cogeneration can Compete with Lower Cost Source of Power

International Finance Corporation

IFC is looking for high quality, private-sector rural RE projects