Transcript 슬라이드 0 - Home | Governance of Climate Change

Using Country Systems to Manage
Climate Change Finance
Considerations in mobilizing
private for global climate
finance
2013.12.3
Kim, Sungwoo
Regional Head of Climate Change & Sustainability,
KPMG Asia Pacific
Various area for cooperation with the private sector in the global climate landscape
Through long-standing efforts to integrate the private sector into the global climate finance
architecture, a wide variety of private partners and possible areas for cooperation have been
identified.
Lessons
learned
from
existing
climate
funds
Narrow coverage
Lack of transparency
• Available only to direct
mitigation projects
and its sponsors
 Need to expand
• Uneven support level
due to case by case
approach
 Need to enhance
MRV system
Direct investors
Cooperation
scheme by
investors
Equity Investor
Debt Investor
• PPP (BOT)
• Subordinated loan
Enhancing sovereign •
Credit line support
guarantee
• Equity Investment
examples
KfW
Global Climate
Partnership Fund
AFD
Interact Climate
Change Fund
Public sector
responsibilities
• Possible of harming
public sector’s not-forprofit public service
role in its cooperation
with private entities
 Need to enhance risk
sharing function
Insufficient knowledge
sharing
• Failure in knowledge
sharing with private
investors
 Knowledge sharing
through co-work
Indirect investors
Fund Investor
• PPP
- Investment in
Private Equity
EIB
Global EE and Re
Energy Fund
Bond Investor
• Green Bond
- 1st-loss tranche
WB
Green Bond
Others
Carbon Investor
• Carbon credit
purchase
• Ground price
guarantee
ADB
Future Carbon
Fund
© 2013 KPMG Samjong Accounting Corp., the Korea member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.
Tech. Provider
• Green export
insurance/
guarantee
N.A.
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Four cooperative schemes employed by existing climate funds
Existing climate funds have been utilizing diverse ways of incorporating the private sector
throughout the financing cycle, from raising capital to the disbursement of the resources.
Capital raising
1
Funds
Disbursement
3
1
Co-investment
 Modality of involvement
 Modality of involvement
- Fund of Funds (bottom-up approach)
- Subordinated loans
 Benefits
 Benefits
- Utilizing the private sector’s expertise and experiences
- Enhancing repayment capability of projects and building
in market/technology risk management
capacity of involved (local) private banks
2
1
Bonds
4
1
Investment in relevant infrastructure
 Modality of involvement
 Modality of involvement
- Bond issuance / credit enhancement to bond issuers (top-
- Separate investment
down approach)
 Benefits
 Benefits
- Creating an enabling environment and avoiding possible
- Ease of attracting private capital through guarantee
crowding out effect
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with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.
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Overview of the existing schemes – capital raising through fund
The public’s intervention through a Fund-of-Funds structure aims to expand the boundary
of eligible climate projects to PEFs by sharing risks of other private investors
Cooperation progress
1
Initiation
1
2
Risk sharing
3
1
Profitability
enhancement
Public’s acts required
 raising capital in a form of fund-of-funds
 Identifying suitable PEFs managed by the
private
 acquiring the 2nd priority stock of the
invested PEF (similar to subordinated
tranche)
 GEEREF is sponsored by the European Union,
Germany and Norway and is advised by the
European Investment Bank Group
 Structured as a Fund-of-Funds, GEEREF invests in
private equity funds that specialize in providing
equity finance to small and medium-sized project
developers and enterprises (SMEs)
 These SMEs should focus on renewable energy and
energy efficiency projects and/or technologies
 enhancing other private investors’
profitability through unequal dividends
(through “late charge”)
 The target funding size for GEEREF is €200-250
million and as of March 2013, GEEREF has secured a
total €112 million.
 Utilizing private GP’s expertise and
experiences in risk management
 Portfolio: Renewable Energy Asia Fund (€12.5mn),
Evolution One Fund (€10mn), DI Frontier Market
Energy and Carbon Fund (€10mn), Armstrong South
East Asia Clean Energy Fund (€10mn), etc.
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1
Operation
Example - GEEREF
 This approach has advantages in project identification and support for small-to-medium size projects by utilizing relevant
expertise of the private sector. Methods to attract and leverage more private capital for scaling up need to be developed.
© 2013 KPMG Samjong Accounting Corp., the Korea member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.
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Overview of the existing schemes – capital raise through bond
Bonds are one of the most efficient instruments for mobilizing large capital from the market
and the preference for bonds is growing by new international financial regulations such as
Basel III. Small-to-medium business, however, needs to be integrated into this scheme.
Cooperation progress
1
Initiation
Public’s acts required
 Designing bonds in several tranches with
appropriate yield rates, maturity and
denominated currencies
1
2
Risk sharing
 Utilizing high credit rates of the public
 acquiring 1st-loss tranche
3
1
Profitability
enhancement
 Issuing multiple tranches with different
yield rate
Operation
 Securing project pipeline to be financed
4
1
Example – Green bond
 Green bond was issued by the World Bank in context
of "Strategic Framework for Development and Climate
Change“ aiming to help stimulate and coordinate public
and private sector activity to combat climate change
 Since 2008, the World Bank has issued USD 4 bln in
Green Bonds through 59 transactions and 17 currencies
 The bonds have been issued with AAA credit rate but a
wide range of yield rate from 0.5~8.75%
 Capital raised from the bonds has been utilized in
supporting mitigation and adaptation activities in its 19
member states.
 Investors: institutional investors including AP2 –
Second Swedish National Pension, Blackrock, California
State Treasurer’s Office and Nikko Asset Management
Securing project pipeline to be financed is key for
successful operation of the green bonds
 Bond is an efficient instrument for mobilizing private capital but its applicability is very limited only to high credit rated
entities. A way how to enlarge its applicability to small-to-medium companies needs to be examined.
© 2013 KPMG Samjong Accounting Corp., the Korea member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.
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Overview of the existing schemes – disbursement through co-investment
Syndication between public funds and local institutions in debt financing of climate projects
is effective in enhancing access to local financial markets necessary for micro financing but
the scheme is still in its infancy
Cooperation progress
1
Initiation
Public’s acts required
 Identifying eligible projects and
appropriate co-investment partners
(local financial institutions)
1
2
Risk sharing
 Holding subordinated tranche
3
1
Profitability
enhancement
 Providing favorable interest rate
 The project is located in Oaxaca, Mexico developed by
Acciona of Spain.
 Eurus is the largest operating wind farm in Latin
America and construction was divided into 3 phases.
 1st phase(67.5MW): financed by MDBs with no private’s
involvement
 2nd phase (250.5MW): financed a total of USD 375 mn
by ten financial institutions consisting of 8 MDBs and 2
private entities (BBVA and Banco Spirito Santo)
*The public held subordinated position to help mitigate
off-taker credit risk and other operational risks
 3rd phase (396MW): financed by private (USD 536 mn)
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1
Operation
Example – Eurus wind project
 Working with local banks to build their
risk management capacity
 Through the participation, local banks could build
risk management capacity in wind farm development
allowing active engagement in the subsequent
project
 Capacity building of local financial institutions is crucial for strengthening accessibility to domestic capital markets,
especially for micro-financing, in developing countries. This scheme needs to be further disseminated
© 2013 KPMG Samjong Accounting Corp., the Korea member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.
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Overview of the existing schemes – disbursement through investing in relevant infrastructure
Lack of relevant infrastructure acts as a significant bottleneck of climate change mitigation
and adaptation activities more than market immaturity in many developing countries.
Cooperation progress
1
Public’s acts required
Initiation
 Identifying necessary social infrastructure
for climate change mitigation and
adaptation activities
Risk sharing
 providing related infrastructure which is
necessary for stable operation of projects
funded by the private
1
2
3
1
Profitability
enhancement
4
1
Operation
Example – Rajastan transmission project
 Transmission of renewable energy faces several
challenges including cost recovery and reliability issues
 Government of Rajasthan targeted nearly 8,000 MW of
solar photovoltaic, concentrated solar power and wind
projects by 2018. Financing for this target will mainly
come from private sources.
 The Rajasthan Renewable Energy Transmission
Investment Program formed a part of the overall
scheme for transmission development in Rajasthan
 Establishing related infrastructure as a
separate project which results in cost
saving to private investors
 ADB has agreed to lend $300 million from its ordinary
capital resources and $200 million cofinancing from
the ADB Clean Technology Fund.
 Closely collaborating with local
governments as most of these projects
are categorized as ‘social overhead capital’
 The public supported the private‘s investment
indirectly by providing necessary infrastructure and
subsequently reducing project costs
 Lack of relevant infrastructure of developing countries hinders the private’s participation in the market. Securing adequate
infrastructure is a precondition of attracting private capital
© 2013 KPMG Samjong Accounting Corp., the Korea member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.
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Key considerations in mobilizing private for global climate finance
1
Climate-friendly technologies are still expensive. Thus, financial support from the public is inevitable but it should be
provided in a sustainable manner
 Financial supports from the public should be sustainable though adopting loss offset schemes which can generate revenue
to offset losses from the support
 “Efficiency” in leveraging private capital is also an important criterion in selecting appropriate schemes
2
Public-driven approach is generally suitable for large-scale programs/projects resulting significant impacts to the market.
This approach, however, is not effective to be duplicated by private,
 “Green bond” is a applicable scheme only to high credit rated entities. This limitation of applicability hinders dissemination of
the scheme and consequently leverage of private resources.
3
To fully leverage private finance, the public should utilize the private’s expertise and their languages
 Finding business opportunities and maximizing benefits from them is the private’s distinct expertise. Who can identify and
manage risks of the market most effectively and efficiently is also those who lives in there, the private
 Timing is a virtue for the private sector, which is often ignored by the public. To attract the private, the sector needs to
communicate in terms familiar to the private sector.
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The market is the answer
 Provided the public gives clear signal, the market will leverage the private capital by itself
 The market has proven its ability to evolve itself to attract more players and secure greater liquidity in many other industries
© 2013 KPMG Samjong Accounting Corp., the Korea member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.
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Quick ideas for innovative schemes to leverage the private finance
– Bond guarantee program
The bond guarantee program can facilitate micro-financing for small scale projects and
induce active participation of private parties by providing credit enhancement to bond
issuers
Program overview at glance
Bond Guarantee Program
Key features
1
 The bond guarantee program can generate revenue through guarantee
fee charged to bond issuers and offset losses of performance
‘default’ events
(IFI)
Public
Fee payment
Credit enhancement
(offsetting losses)
 The expected leverage ratio of ‘Project Bond initiative’ in EU is 20
times and the program will have a similar degree of leverage ratio
Securitization of assets*
PJT
#1
Private
PJT
#2
Bond investment
Tranche A
2
PJT
#3
Bond issuance with
multiple tranches
Tranche B
(pension funds) (insurance com.)
Business model tailored for small-to medium size companies
 The program is applicable to small-to-medium size companies through
establishing an asset pool consisting of small projects
3
Tranche C
Private-driven approach
 Roles of the public in the program is limited to providing guarantees
to bond issuers and the transaction is executed by private parties
(PEFs)
Higher yield with lower priority
* Borrowing the “covered bond” concept
Profit generating scheme with a leverage rate of 15~20 times
4
Utilizing the market mechanism
 Transaction is taken place in the market and diverse derives (forward
rate, Asset/liability swap, IRS, CRS, etc) can be involved gradually.
© 2013 KPMG Samjong Accounting Corp., the Korea member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.
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Quick ideas for innovative schemes to leverage the private finance
– Acquisition program for small scale renewable projects
This program will give a clear market signal by acquiring small renewable projects after its
commissioning and performance verification. The signal will induce participation of
diverse private players, which will turn the program into private-driven
Program overview at glance
<introduction stage>
Identification
Financing
EPC
Early operation
operation
<Maturity stage>
Identification
The Private
(mainly developer
or EPC company)
Financing
The Public
1
The Private
(mainly developer
or EPC company)
EPC
operation
The Private
(bridging finance)
2nd transaction
(asset transfer)
The Public
3rd transaction
The Private
(asset M&A)
Clear signal to the market
 The program is to acquire small
renewable projects after commissioning
and performance verification.
 The program will give a clear signal to
private parties involved and induce
participation of other private financiers
1st transaction
Early operation
Transaction
(asset transfer)
Key features
2
Market mechanism utilization
 The clear signal will enable the program
to fully utilize the market mechanism
and diverse investors will participate into
the market accordingly through various
derives and transactions
 The participation of diverse private
parties will turn the program into
private-driven
© 2013 KPMG Samjong Accounting Corp., the Korea member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.
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reflects prevailing conditions and our views as of this date, all of which are
accordingly subject to change. In preparing this presentation, we have relied upon
and assumed, without independent verification, the accuracy and completeness of
any information available from public sources.
Kim, Sungwoo
Regional Head of Climate Change & Sustainability,
KPMG Asia Pacific
[email protected]
82-2-2112-3200
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