innovative financing instruments€¦ · 10 the industrial development corporation your partner in...
TRANSCRIPT
Innovative financing instruments
- Unlocking Energy Efficiency and Renewable Energy Investments
October 2013
Honey Mamabolo
Green Industries Specialist- IDC
Contents
– Economic Outlook
– South Africa’s Growth Projections
– Macro Economic
– Key Cost Drivers and the Case for
Energy Efficiency
– Introducing the IDC
– Policy Directive- NGP and IPAP2
– Growing the Green Economy
– Green Industries SBU
– Focus areas
– Achievements
– IDC’s Funding Instruments
for EE and RE
– Green Energy Efficiency
Fund (GEEF)
– Funded Cases – including
support for ESCOs
3
SA economy: Growth moderating as consumer spending slows down, inflation to remain high
Outlook for the SA economy
Economic variable 2011 2012e 2013f 2014f
% Change (y-o-y)
GDP 3.1 2.3 3.0 3.7
Household expenditure 5.0 3.2 3.6 4.1
Durable 15.7 9.9 6.0 6.7
Semi-durable 7.0 5.2 4.9 6.0
Non-durable 2.9 2.7 3.6 4.0
Services 3.8 1.4 2.6 3.0
Fixed investment 4.4 5.3 4.9 6.6
Exports 5.9 1.0 3.4 7.2
Imports 9.7 7.3 6.9 8.7
Current account (% of GDP) -3.3 -5.7 -5.9 -5.2
Inflation 5.0 5.5 5.2 5.3
Forecast not far from the
truth : Q1 2013 = 0.9% from
2.1% in Q4- 2012. Current
GDP growth at 2.7%
4
SA Economy: Poor labour productivity, whilst rise in unit labour costs remaining high
• Output per worker has been on a decline since mid-2010, with the uptick in employment levels in 2011 not being accompanied by sufficient production growth.
• Notwithstanding the relatively poor labour productivity trend, the pace of increase in salaries and wages for the non-agricultural sector at large has exceeded the inflation rate in recent years.
• This resulted in relatively high increases in unit-labour costs, although moderating to 5.7% by Q1 of 2012.
• In the manufacturing sector, however, unit-labour costs increased by 6.8% in the three months to March 2012.
• In nominal terms, private sector wages increased at a more moderate pace of 6.4% in Q1 of 2012 (6.8% in Q4 of 2011), but for the public sector, wage increases accelerated to 7.5% (4.9% in Q4 of 2011).
0
2
4
6
8
10
12
14
Q1 Q22006
Q3 Q4|
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1
% C
han
ge (
y-o
-y)
Labour productivity and unit labour costs
Labour productivity
Nominal unit labour costs
Source: IDC, compiled from SARB data
5
The CASE FOR ENERGY EFFICIENCY
THE CASE FOR ENERGY EFFICIENCY: COST DRIVERS
6
THE CASE FOR ENERGY EFFICIECNY: KEY COST DRIVERS
COST OF
GOODS
SOLD
STAFF
COSTS
COST OF
DEBT
COST
OF
ELECTRICITY
• Increasing raw material costs squeezing margins -
• Labour law requirements limiting flexibility in terms of staff costs
• Capital market pressures increasing cost of debt
• Increasing electricity costs due to requirement for cost reflective
electricity prices
Green Energy Efficiency Fund Implemented by:
Energy
Efficiency
Reduced
consumption
Saving
Money
Higher Profit
Competitive Advantage
Positive Image Transfer
Contribution to Nature Conservation
Benefits for Enterprises
Green Energy Efficiency Fund Implemented by:
Impact of energy efficiency on costs
Scenarios:
A.Today: Power 12% of total costs
B.In 3 yrs with business as usual: power costs double, increase total costs by 11%!
C.In 3 yrs with implementation of EE and RE measures: the total costs can be equalised on the today‘s level.
Appropriate measures to reduce
the energy cost factor:
- Energy efficiency measures
- Use of Renewable energy
The appropriate combination of those
measures can result in 30-50% energy
cost reduction.
9
INTRODUCING THE IDC
Your Partner in Development Finance
THE CASE FOR ENERGY EFFICIENCY: COST DRIVERS
10
The Industrial Development Corporation Your partner in Development Finance
The IDC’s Head Office in Sandton
(Johannesburg)
o Established: 1940
o Type of organisation: Development Finance Institution
(DFI)
o Ownership: South African Government
o Main business area: Funds entrepreneurs and projects
that contribute to industrialisation and job creation
o Products: Custom financial products to suit a project’s
needs including debt, equity, guarantees or a mixture of
these
o Stage of investment: Early stage (feasibility),
commercialisation, expansion
o Project development: Identification and development of
projects adding to the industrial base
o Risk and Return:maximize developmental and financial
returns within an acceptable risk profile.
o Pays income tax at corporate rates and dividends to the
shareholder
11
IPAP2- The Green Economy in IPAP2
• Key Sectors – Wind power generation – Photovoltaic power generation (PV) – Concentrated solar power generation (CSP) – Industrial energy efficiency – Water efficiency – Waste management – Biomass and waste management – Energy-efficient vehicles
• Key action programmes – Roll-out of national solar-water-heating programme – manufacturing and installation capacity – Solar and wind energy – Development of an industrial energy-efficiency programme – Strengthen water-efficiency standards – Demonstrate viability of Concentrated Solar Thermal (CST) power as a major renewable energy generation source – Biomass Energy – Clean and Multi-Energy Stoves – Water- and Energy-Efficient Appliances – Efficient Motors, Variable-Speed Drives, Energy Metering and Control and Electricity Storage – (Batteries and Fuel Cells) – Waste and Waste Water Treatment – The South African Renewables Initiative (SARI
Source: Industrial Policy Action Plan 2011/12 – 2013/14 – February 2011
12
New Growth Path- The Green Economy in the NGP
• The New Growth Path targets 300 000 additional direct jobs by 2020 to green the economy, with 80 000 in manufacturing and the rest in construction, operations and maintenance of new environmentally friendly infrastructure.
• Additional jobs will be created by expanding the existing public employment schemes to protect the environment, as well as in production of biofuels. The IRP2 targets for renewable energy open up major new opportunities for investment and employment in manufacturing new energy technologies as well as in construction.
• The main strategies to achieve these targets are:
– Comprehensive support for energy efficiency and renewable energy as required by the IRP2, including appropriate pricing policies, combined with programmes to encourage the local production of inputs, starting with solar water heaters;
– Public employment and recycling schemes geared to greening the economy;
– Stronger programmes, institutions and systems to diffuse new technologies to SMEs and households;
– Greater support for R&D and tertiary education linked to growth potential and developing South Africa as the higher education hub for the continent; and
– Continuing to reduce the cost of and improve access to broadband.
Source: The New Growth Path - The Framework
13
Growing the Green Economy- R25 billion allocated
The development of Green Industries in the Green economy is a key focus area for development in South Africa and especially the Industrial Development Corporation of South Africa (IDC).
IDC has been at the forefront in supporting industrial growth and development in South Africa since its inception in 1940. More recently, IDC adopted a pro-active approach in developing the green economy and specific focus and effort has been given to green industries and technologies. The objective is to develop, grow and invest in green industries focusing on investments to enhance the environment, support carbon emission reduction, avoidance and adaptation.
A value chain approach will apply with the emphasis on industrial
development (including localization) and job creation.
Green Industries SBU focus areas
Energy efficiency
Heat,
Electricity
& building
efficiency
Cleaner
production
/ Industrial
Efficiency
Transport
Efficiency
Waste to Energy
Fuel Based
Energy
Co-generation
Emission and pollution mitigation
Air
pollution
control
Water &
treatment
Waste
Management/
Recycling
Clean
stoves
Bio Fuels
Bio
Ethanol
Bio
Diesel
Renewable Energy: Non-Fuel Power
Wind Power
Generation
Concentrated
Solar Power
Solar Photo
Voltaic Power
Services
related to
renewable
energy &
energy
efficiency
Local
manufacturing
related to
renewable
energy &
energy
efficiency
Late 2010
2011
2012
2013
• Market Launch of the R500M Green Energy Efficiency Fund(GEEF)- 10% of FUND committed at launch
• Aggressive marketing through Industry Associations and Partnership with Eskom
• 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
• 17 companies financed at R174 million ( ca 35% of GEEF) • 69 % funds committed to SMES • 100% of funding to new clients
MARKET SITUATION
Constrained
electricity
supply and
high prices
Access to
finance barrier
to EE/RE
investments
RESPONSE
-increased
demand for
ESCO
services
-
HIGHLIGHTS/IMPACT
8MW cogen SACC plant-45GWh/yr and 46ktCO2
Magnet
Electrical’s
mass rollout
of 310GWh
/34MW
showerheads
60% of
committed
funding to
ESCOS
27 FREE
Walk
through
audits and 4
investment
grade audits
Industrial
Energy
Efficiency
Addressing market challenges through Innovative Financing Instruments
16
IDC Funding Instruments for Energy Efficiency and Small Scale Renewable Energy
THE CASE FOR ENERGY EFFICIENCY: COST DRIVERS
17
Green Energy Efficiency Fund-
Competitiveness through energy savings
• Facility size: R500 million
• Loan size: R1 – 50 million
• Interest rate: Prime less 2%
• Term: Up to 15 years, based on payback period of the investment
• Standard fees will apply
• IDC has structured the repayment of these loans to effectively match the savings profile of the technology installed.
– e.g. On a Roof Top PV the savings over 15 years are equivalent to the debt service repayment and hence the facility of 15 years is then proposed.
– This is to ensure that the savings justify the investment without the business incurring out of pocket expenses
18
GEEF: Eligibility Criteria
Private sector companies
who plan to:
* Implement Energy Efficiency Projects that
provide significant energy and/or emissions savings.
* Offset grid-connected electricity through self use Renewable Energy
Priority will be given to SME’s that have less than
or equal to:
* R51.0 million turnover or
* R55.0 million assets or
* 200 employees
Businesses registered and operating in South
Africa
19
GEEF : Eligibility Criteria
• Address the Power
Crisis in SA
• Generate Green Jobs
• Assist companies in
becoming competitive
Target: 20% energy
savings and/or CO2
emission savings
IRR:10-30%
(Do not want to subsidize
projects that do not need it)
Qualifying borrowers
Qualifying sub-projects
Locally manufactured
technologies preferred
GEEF Impacts and Future Focus
19 Number of
Deals approved
Programme supported by the German Cooperation and Development Ministry
Future R174m
Amount committed
circa: 35% of R500m
SWH
Energy Performance Contracts
Cogeneration
Waste to Energy
Variable Speed Drives
Roof Top PV
INDUSTRIAL
ENERGY
EFFICIECY (VSDS,
refrigeration, etc)
Developmental and Environmental Impacts
CO2 Tons
Equivalent
Avoided
383,445/year
Energy saved
386,930/year
22
Funded cases
• A Cape Town-based company that produces sport wear and leisurewear under license to an international brand.
• The company has embarked on a project to install a grid connected (grid-tied) rooftop PV system to generate 25% of the company’s annual electricity requirement
“Electricity accounts for more than 90% of our carbon emissions and is a scarce resource that is vital to the successful operation of our business. We are confident that the solar installation will generate between 30 – 40% of our energy requirement, thereby reducing our carbon footprint, save money and improve our sustainability into the future.”
William Hughes, MD, Impahla Clothing
Sector Textile Industry
Region Western Cape
Goals Reduced reliance on coal
based electricity from grid
Investments Solar Photovoltaic (PV)
system – 30kW peak
Financial
Savings
Investment cost covered by
energy and cost savings
Other
Benefits
Positive image as a
progressive
environmentally friendly
company
CO2
Reduction
50 CO2 tons per annum
23
• The chemical production company wants to use the waste gas as fuel for a 7.8 MW CHP plant to replace part of the power supply from the grid.
• This results in 18% savings from using the waste gas to feed the CHP plant.
“The company spends close to R7-million on electricity a month, and this new co-generation plant will cut this bill by about 20%. The additional 8 MW capacity will enable the company to operate at full production compared with the 70% capacity because of electricity constraints. „
Claudio Siracusano, GM, SACC
Sector Chemical Industry
Region KwaZulu-Natal/South
Africa
Goals Reduced reliance on coal
based electricity from grid
Investments • 4 co-generation units
• Scrubber plant
Financial
Savings
• Investment cost covered
by energy and cost
savings
Other
Benefits
Increased reliability from
own energy supply
CO2
Reduction
46,000 CO2 tons per
annum
Case Study 2: 18% Energy Savings from Utilisation of Waste Gas to feed a Combined Heat and Power (CHP) Plant
24
Other funding instruments for Energy Efficiency and Renewable Energy Investments
Capital Source French Development Bank (AFD)
Targeted Projects • Greenfields Energy Efficiency in
manufacturing entities under IDC
mandate,
• Small Scale Renewable Energy sold
under PPA and Refurbishment of RE
plants
Project Size ZAR 1 – 100 million ( limit project size)
Pricing
Fixed rate of 10% or
Prime less 1%
Loan Term Up to 12 years, after which risk rate
applies
Conclusion
• Pro-active approach to develop Green Industries
• Renewable energy
• Energy efficiency
• Fuel based green energy & Emission and pollution
management
• Bio fuels
• As well as localisation opportunities
• Develop specific funding interventions;
• Support and development of an emerging industry at
various levels (including marketing studies)
• Value chain approach with an objective to develop a
long term sustainable industry.
