# Presentation: 787034

## Asian Development Bankand Private Sector Energy Efficiency Financing   

- Hisaka Kimura
- Structured Finance Specialist
- Private Sector Operations Department
- 26 September 2006, Beijing

**Notes:**
Goode morning ladies and gentlemen. 

Today I am pleased to have this opportunity to introduce Asian Development Bank (ADB) and its private sector energy efficiency financing.

## Contents

- Asian Development Bank (ADB)
- Issues for Energy Efficiency
- What does ADB offer?

**Notes:**
In this presentation, first I will briefly introduce what is ADB. 

Then, I will touch upon key issues for energy efficiency. 

Finally, I would like to introduce what ADB can offer. 

The allocated time for me is quite short, just 15 minutes, but I hope this will be our first step to work together for good projects in the future. 

If you should have any questions, please ask me anytime. 

## Asian Development Bank (ADB)

- _[ ](http://www.adb.org/About/ADB_Map.gif)_

- _[   ](http://www.adb.org/About/ADB_Map.gif)_

**Notes:**
ADB

## ADB

- Multilateral development finance institution
- Owned by 66 member governments including PRC
- Established in 1966
- Headquarters in Manila, Philippines
- Provides financing for both governments and private sector enterprises

**Notes:**
ADB is a multilateral development finance institution, owned by 66 member countries including China. 

ADB has 40 years track record with clear focus on Asia. 

ADB provides assistance for both governments and private sector which distinguishs it from the peers. 

## ADB: Public-Private Institution

- Public sector funding and private sector funding operated under _one_ corporate umbrella and strategy
- 		-	Public Sector Departments provide assistance to   		governments
- 		- 	Private Sector Operations Department provides			assistance to private enterprises _without_ 				government guarantee

**Notes:**
It is important to emphasise that both ADB public sector and private sector operate under one strategy. 

Public sector departments provides assistance to governments with government guarantee.

On the other hand, private sector operations department provides assistance to the project without government guarantee.

## Private Sector Operations

- $1.5 billion assistance for private sector projects without sovereign guarantee
- The third largest department in ADB in terms of lending
- Operating in two divisions:
- 		-  Infrastructure Finance Division
- 		-  Private Sector Operations Division

**Notes:**
Now I would like to briefly introduce ADB Private Sector Operations Department to which Mr Wang and I belong. 

Our annual operation is about 1.5 billion dollar, which is third largest department in ADB. We have two operating divisions right now but it is planned to be double in the near future. 

## ADB Private Sector Portfolio - Countries

**ADB Private Sector Portfolio - Countries**

**Notes:**
As this pie chart shows, China is the most important country for our operation.  

China Operation commenced in 1987, about 20 years ago, and ADB has office in Beijing which is staffed with more than 35 staff

## Issues for Energy Efficiency

**Notes:**
Let’s move on issues for energy efficiency

## Background - Current Energy Path

- Energy use in PRC increasing to support economic growth
- Energy investments (mostly for electricity) largest in Asia-Pacific through 2030
*Chart: IEA World Energy *
*Outlook 2005*

**Notes:**
The rational for Energy Efficiency and the justification for developing more energy efficiency projects, are based on an analysis of current energy use patterns, and what would happen if business as usual patterns continues. 

This chart shows energy investment needs from 2004 to 2030.

Energy use in China is estimated to be increasing further to support economic growth, and estimated energy investments are expected to be  largest in Asia Pacific.

## Issues

- Rapid growth and larger share of world energy use
- Manufacturing and urban migration
- Relatively low efficiency in energy use
- Relatively low per capita energy consumption
- High demand is increasing international fuel prices
- Increased greenhouse gas emission is causing global warming

**Notes:**
We recognise the following key issues:

First of all,  rapid growth and larger share of world energy use. 

Secondly, further growth of energy use is projected due to expanding manufacturing and also urban migration

And  relatively low efficiency in energy use combined with  relatively low per capita energy consumption indicates further potential growth in energy use. 

The implication of this high growth rate of energy use is huge. It will impact not only on China’s economy but also global economy and global environment.

## Energy Efficiency (EE)

- Current energy development path is environmentally and economically unsustainable
- Energy Efficiency (EE) will slow the growth of greenhouse gas emissions without sacrificing economic gains or living standards
- Improving energy use efficiencies will directly lower the cost of energy services, and thereby create financial savings
- EE is the largest and most cost-effective single energy resource

**Notes:**
It is clear that current energy development path is environmentally and economically unsustainable.

Energy efficiency is crucial to slow the growth of greenhouse gas emissions without sacrificing economic gains or living standards

Improving energy use efficiencies will directly lower the cost of energy services, and thereby create financial savings

Energy efficiency used to a fringe of energy policy but now it is recognized as the largest and most cost effective single energy resource. 

## Potential Transactional Barriers for EE Projects

- Smaller project sizes
- Newer technologies
- Unfamiliar to financiers
- Newer concept to the project sponsors

- Higher transaction costs
- Higher development costs
- Scare/higher-cost capital
- Less incentive to implement/ meet targets

**Notes:**
However, we observed some transactional barriers for EE projects. 

First, most of EE projects are small to medium size. Traditionally, this causes higher transaction costs in particular financial costs.

Secondly, newer and cleaner technologies tend to be expensive. This is partly because environmental benefits are often not internalised in investment decision making. 

Thirdly, financing in EE projects are new to bankers. Thus, we observed some commercial banks are reluctant to take energy savings as pledge.

Lastly, EE is new concept to the many project sponsors who have production targets but no energy efficiency targets. 

## New financial source of EE financing-CDM

- Examples of energy efficiency CDM projects:
- Ningguo Cement Plant 9100KW Waste Heat Recovery and Utilisation for Power Generation Project of Anhui Conch Cement Company Limited  (Estimated Ave. GHG Reduction 55,897 tCO2e/y)
- Taishan Cement Works Waste Heat Recovery & Utilization for Power Generation Project (Estimated Ave. GHG Reduction 107,116 tCO2e/y)

## ADB’s Commitment to EE

- ADB launched Energy Efficiency Initiative (EEI)
- ADB is committed to increase its investments in EE. Indicative annual lending target of $ 1 billion.
- ADB is also developing the Carbon Market Initiative (CMI) to compliment the EEI

**Notes:**
To address such transactional barriers and mainstream energy efficiency projects,  ADB launched the energy efficiency initiative or EEI to expand its operations in energy efficiency to 1 billion dollar a year. Meeting the target means ADB needs to dramatically increase its investment portfolio of EE. 

EEI is being implemented in three phases. Phase 1, the initiation phases, was completed in June 2006 with the ADB Management’s endorsement. Phase 2 is ongoing from June 2006 through December 2007will develop country level and regional strategies and action plan on how to reach targets set for EEI. The strategies and action plans will be implemented in phase 3 (2007-2010).

ADB is also developing the Carbon Market Initiative (CMI) to provide up-front carbon finance and ongoing support for carbon reducing projects. 

CMI compliments the EEI by providing an additional source to energy efficiency financing. I will talk about more details of CMI in next section.

## What does ADB offer?

**Notes:**
Lets’ look at what we are willing to offer to energy efficiency projects. 

## No Single Model for ADB’s Involvement in EE

- Types of Projects:
- Supply-side energy efficiency
- Demand-side energy efficiency
- ESCOs
- Types of Financing Models:
- Direct investment in energy efficiency projects
- Credit line / partial credit guarantee through local financial institutions
- Carbon finance

**Notes:**
In short, ADB does not have single model for all, but we structure financial solutions for each individual energy efficiency project. 

ADB will support both supply and demand side energy efficiency and also energy service companies. Energy efficiency includes changes in production technology and end-use efficiency. For example, we would like to support ESCOs to provide services to cement companies to improve energy efficiency.

Types of financial models - We structure finance to meet the unique needs of the each client. We combine our sector and country experience and wide rage of financial products to offer the best financial solution to the client. Here is just a summary of financial models. Let’s take a look at one by one. 

## ADB Debt

- Long term direct loan in foreign currency
- Long term loan in local currency (PRC, India, Thailand, Malaysia and Philippines)
- Mezzanine debt
- Corporate or project bonds
- Loan syndication under ADB B-Loan coverage

**Notes:**
First, as a bank, we can provide loan in foreign currency and also in local currency. We can arrange mezzanine debt and bonds.

In addition to ADB loan, we arrange loan syndication with and also without ADB B-loan coverage to mobilise commercial banks loan for the project. 

## ADB Guarantee

- Political risk guarantee
- 	-	To protect commercial financiers from specifically 	identified political risks such as, expropriation, 	currency inconvertibility, political violence and breach 	of contract.
- Partial credit guarantee
- 	-	To cover commercial financiers and/or bond holders 	against all risks both commercial and political for a 	portion of debt service.

**Notes:**
ADB can also offer guarantees. Mainly we have two types of guarantee – political risk cover and credit risk cover. 

## ADB Investment

- Investment in ordinary shares
- Investment in preferred shares
- Investment in private equity fund
**ADB Carbon Market Initiative**
- Carbon credits are expected to become an additional source of EE financing
- Upfront financing and ongoing support for carbon-reducing projects

**Notes:**
ADB can invest in both project companies and holding companies equity – ordinary shares or preferred shares. We also invest in private equity funds with focus on energy efficiency and environmental improvement.

In addition, we can offer supplemental financial support to energy efficiency projects. 

For example,  Carbon credits are expected to become an additional source of EE financing but revenue from Carbon Emission are usually pay- on- delivery.

Thus initial capital expenditure remain entirely with project sponsors. To make the project happen, ADB will provide upfront financing to the project sponsors. 

## Technical Assistance Facility

- Provide assistance for non-lending measures, such as:
- -  policies, regulations, standards
- -  institutional capacity building
- project preparation
- Build capacity in local financial institutions providing finance in EE projects
- Develop monitoring and evaluation (M&E) mechanisms for EE projects

**Notes:**
Moreover, we can mobilise donor fund for technical assistance subject to ADB country strategy. 

Here are a list of sample Technical Assistance that we are planning. 

## ADB Value Additions

- Risk mitigation
- 	-	Multilateral institution owned by 66 countries
- Assistance for both public sector and private sector
- 	-	Knowledge of countries, sectors, and business
- Variety of financial products
- 	-	Flexibility in structuring financial solutions
- 	-	Willing to share risks with private sector investors

**Notes:**
In this final slide, let me summarise ADB value additions. 

ADB is fully committed to support Energy Efficiency projects. 

As a multilateral institution with Chinese government's shareholding and also extensive operational experience in China, 
we can offer a wide range of solutions to the project 
and we are also willing to share commercial risks with the project sponsors. 

To structure most useful financial solution, it is very important for us to learn your experience and your needs. 

We are also looking forward to round table discussion and also follow-on bilateral meetings with you in the near future.  

## Thank you