Transcript Title Page - NCPC

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
Greater importance on social and developmental objectives
Greater importance on financial objectives
Government / NGOs
DFIs (e.g. IDC)
• Non-commercial focus
• Fiscal transfers and grants
• Development objectives (social)
• Commercial and development
focus
Commercial Financiers
• High commercial focus
• Sharing risk
• Private sector capital
• Financial objectives
• Internally generated funds,
government funds, loans
• Known risks
DFIs should not compete with other institutions, but should
instead encourage cooperation to achieve its goals
Partnering for industrial development
Industrialists/
Entrepreneurs
IDC
• 75 years of experience in
industrial development
• Appetite to take risk
• Early stage investment
• Financial muscle
• Targeted funding for specific
interventions
Long-term view on
investments and a
commitment for the
development of the
industry
•
•
•
•
Investment plans
Projects under development
Technology
Operating/management expertise
Introducing IDC
Historical perspective
1940s
1950s & 1960s
1970s & 1980s
1990s
Early and mid 2000s
Late 2000s & 2010s
• World War 2 – Shortage
of industrial goods
• South African economy
largely based on
agricultural production
and gold mining
• South Africa facing
threat of isolation from
the rest of the world
• Decentralisation policy
by government
• Increasing isolation
• Self sufficiency
• Balance of payments
• Change in government
• South Africa introduced
to a globalising world
• Addressing the
disparities created by
apartheid
• Unemployment
• Diversification of
economy
• Reducing inequalities
• Infrastructure
constraints
• Recession
• New Growth Path and
Industrial policy
• Mandate overlap of
DFIs
• Growing financial sector
liquidity
• Climate change
• IDC established to
provide financing for
industrial undertakings –
at this stage only in the
manufacturing industry
• Securing energy
resources for South
Africa a priority
• Increasing natural
resource beneficiation
• 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
• Moves to encourage
regional integration
• Black economic
empowerment
• Export promotion
• Services related
industries
• Investments elsewhere
in Africa
• Job creation
• Developing rural areas
and other previously
underdeveloped regions
• Downstream industries
• Entrepreneurial
development
• Sector strategies
• 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
• Food processing;
• Textiles
• Petroleum
• Fertilizers
• Wood processing
• Chemical beneficiation
• Mining and minerals
Over its history, IDC has adapted to
South Africa’s changing priorities and
expanded into new industries as the
economy developed and policies
evolved
• Resource beneficiation
• Micro-electronics
• Tourism
• ICT
• Film
• Franchising
• Healthcare
• Financial services
• Transport
• Construction
• Industrial infrastructure
Introducing the Unit
Industrial 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
Drivers of Green Economy transition in SA
Challenges:
Carbon intensity;
Natural resource
management;
Unemployment;
Economic concentration;
Competitiveness;
Protectionism;
Operating environment.
Opportunities:
Current drivers:
Amongst best solar
resources;
Wind energy potential;
Biodiversity;
Economic diversification
through infant industries;
Job creation;
Up-skilling of workforce;
First mover advantage.
New Growth Path;
Transition
Integrated Resource Plan
Industrial Policy Action Plan;
National Climate Change
Response White Paper;
National Development Plan.
Limited window of opportunity!
9
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.
Key success factors
Successful implementation of the green economy
Generic issues
Conducive regulatory environment
• Policy framework, pace of regulatory revision, amendment and
development.
• Stakeholder communication and co-ordination.
• Simplification and streamlining.
Taking the lead, growing demand
• Public sector playing an exemplary role.
• Gradual, effective transformation of production and consumption
patterns.
Success factors
• Commitment, awareness and readiness by the private, public
and household sectors.
• Institutional capabilities.
• Funding availability, incentives, mechanisms.
• Regional coordination.
• Integration and coordination.
Localisation
• 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.
Developing skills
• Address shortages of skills in certain areas.
• Re-skilling and development of specific skills capabilities.
Securing resources
• Availability, accessibility, quality, sustainability and pricing of
required resources.
11
Renewable Energy:
IDC participation in REIPPP
4%
SOLAR PV
IDC
10%
96%
• 33 Projects, 1484 MW
IDC
WIND
90%
Total Investment –
R42bn
Total Investment –
R41bn
Total BW1- 3
Investment
R117bn
CSP
• 22 Projects, 1984 MW
HYDRO
IDC
IDC
22%
78%
30%
70%
• 5 Projects, 400 MW
• 2 Projects, 14 MW
Total Investment –
R34bn
Total Investment R631m
REIPPP:
IDC Funding instruments
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
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
BEE, 5%
Direct Equity
Min 10% with minority
protection
Lending to trust or BEE shareholder to invest in
project
Repayment with dividend.
R3.9bn
BBBEE, 20%
R2.7bn
R0.6bn
Equity, 19% R1.4bn
R2.5bn
Senior Debt, 53%
R7.0bn
R0.5bn
Max 30% (not majority)
R0.5bn
Sub-Debt
3%
Tenor of 15 years
post COD
Interest during
construction can be
capitalised
Green FBE (WtE):
Industry structure
Waste Gas
Grown biomass
Organic waste
Animal litter
Steam turbine or
organic rankine
cycle
Combustion
Incineration or
Waste heat
Electricity
Steam
Co-generation
Internal gas
combustion
On-site heating
Anaerobic
Digestion
Sewage sludge
Gas Cleaning
Gasification
Municipal solid
waste or
Biomass or Tyres
Sorting
Feedstock
Pyrolysis
Recycling
Primary Process
Liquefied
Biogas (LBG)
Compressed
Biogas (CBG)
Piped
gas
Vehicle fuel
Industrial fuel
Secondary Process
End Use
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.
In SA competes with low value
coal
Best use for biogas lies in the
Transport sector in SA, in backup power, off-grid or for weak
grid in Africa
Fuel Based Energy
Green FBE (WtE):
IDC Approach to WtE and Co-generation
Feedstock (Fuel) security:
•
•
Feedstock
(Raw
material)
•
•
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:
•
Process
(Technology
options)
Offtake
(Revenue)
•
•
Driven by feedstock qualities, quantities term and
off take options
Typical cost R15-35m/MW
High load factors (e.g. 90%)
Offtakes:
Investment decision
•
•
•
Low O&M cost
If Offtake/feedstock price strong
Repay debt quickly
Energy Efficiency:
4000
NGP
Green
Accord
Green
Industries
a key
sector
Income
Tax Act –
Regulation
s on tax
allowances
for Energy
Efficiency
Savings
(Section
12I and
12L)
2013/14
Industrial
Policy
Action
Plan
(IPAP2)
2012/2013
– 2014/15
2012
Building
Regulati
ons &
Building
Code
(SANS
10400XA:2011
) with
SANS
204
2012
2011
Integrated
resource
plan (IRP)
2010
- Targets
energy
intensity
reduction
of 12% by
2015
Carbon
Taxes-at
R120 per
ton
National
development plan
Energy Efficiency Projects (MW Savings)
Energy
3500
1 million Solar
Water Heater
Efficiency Government Target
3000
Projects
by Minister of
2500
through theAnnouncement
Energy
23
June
2009
various
2000
ESKOM
1500
EEDSM
programmes
1000
>>>
500
0
Jan-04
1 million
SWH
Target by
2014
(revised
to 2016)
2010
National
Energy
Efficiency
Strategy
for South
Africa
2005
(NEES),
Revised
2012
2009
Energy
White
Paper of
1998
2008
Government
Objectives
>>>
2008
Policy environment and enabling legislation
DSM 3 yr target:
To save another 1074MW
Eskom Verified Savings (MW)
May-05
Oct-06
Feb-08
Jul-09
Nov-10
Apr-12
Aug-13
Energy Efficiency:
IDC response - Innovative funding GEEF & AfD
RESPONSE
MARKET SITUATION
Constrained
electricity
supply and high
prices
Access to
finance barrier to
EE/RE
investments
Increased
demand for
ESCO services
High cost of
small scale RE
development
Industrial
Energy
Efficiency
•
Late
2010
2011
•
•
Market Launch of the R500M Green Energy Efficiency Fund(GEEF)- 10% of
FUND committed at launch
Aggressive marketing with Industry Associations & Partnership with
Eskom
•
•
2012
2013
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
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
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
THANK YOU
The Industrial Development Corporation
19 Fredman Drive, Sandown
PO Box 784055, Sandton, 2146
South Africa
Telephone (011) 269 3000
Facsimile (011) 269 2116
E-mail [email protected]