++ 14/01/2019

Programme d’investissements vert Brief Overview of Issues Associated with Energy Efficiency Financing - including an Introduction to the IDC’s SUNREF II Facility Rob Short. SUNREF II Team Leader. Cell: +27 82 454 2193 E-mail: rshort@encludesolutions.com 07/09/2018 Programme d’investissements vert

Concerns you hear about financing: There is no funding available. Financing institutions are unreasonable. Conditions are too onerous (especially around collateral). Never take risk. They take too long. Always wanting more information. 07/09/2018 Programme d’investissements vert

Give you a sense of the key issues that are looked at: Will focus on project finance (SUNREF financing mechanism). For example an ESCO, with a partner, sets up a special purpose vehicle to provide an energy service to a company and the SPV takes on the finance including some debt. But there are other types of financing routes, for example: Companies self fund. Companies borrow for a project. There is no silver bullet to getting financing. 07/09/2018 Programme d’investissements vert

Projects Funded and Looked At: Energy optimisation in various industries e.g. bakery (also included a fuel switch from heavy oil to biomass). Energy efficient lighting installation in a number of retail outlets (special purpose vehicle set up). CHP project in a manufacturing facility. Manufacturing of energy efficient lighting. 07/09/2018 Programme d’investissements vert

Its Not Different To Any Other Financing Deal: The issues a financier will look at, include (focus here project): Credible Off-Taker High probability revenue will be paid over to the project on time and over its life-span. Ensure that the revenue stream can support the project (tariff being paid). 07/09/2018 Programme d’investissements vert

Programme d’investissements vert Key Issue …… Credible Project Implementer Credible technical partner with evidence of delivering similar projects (solid understanding of designing and implementing energy efficiency projects). Need to be sure savings are going to be delivered and how to prove it (and contract for it). Know what are the required, and how to put together, effective legal agreements. Experienced management and operating team (skills). Legal structure of partners and SPV gives comfort (e.g. directors). Empowerment addressed effectively. 07/09/2018 Programme d’investissements vert

Programme d’investissements vert Key Issue …… Solid Financial Analysis and Structure Adequate financial structure with reasonable contribution by promoters (debt to equity ratios). Robust financial analysis and model (look at assumptions). Profitable, sustainable and capable of repaying debt. Business case must exhibit economic merit (DFIs look for development impact e.g. GHG reductions, job creation, women and youth involvement). Optimised the incentives available? All brought together in a solid business plan. 07/09/2018 Programme d’investissements vert

Programme d’investissements vert Others …… Insurance in place (e.g. pubic liability in event of damage) Need for guarantees Foreign exchange cover in place. Guarantee of equipment performance e.g. light bulbs by supplier. Identifying and satisfying all regulatory requirements. Specific funding requirements e.g. minimum size, repayment periods. Numerous issues that need to be addressed – but is an EE initiative any different from what you should be looking at normally to develop a solid project? 07/09/2018 Programme d’investissements vert

SUNREF II Facility: Two elements: Credit line from the French Development Agency, AFD to the IDC Focus is Renewable Energy and Energy Efficiency (GHG Reductions) US Dollars 100 Million. Funds placed by end of December 2019. IDC processes apply. Technical Assistance Facility To support the IDC appraisal process to get projects to financial close. Provision of independent technical advice (e.g. verification of energy savings and GHG reductions). Supporting the IDC in capacity- building around specific project types. Remove internal barriers at the IDC De-risking projects (ESCOs providing services to state entities?). 07/09/2018

The Credit Line EE and RE (“other” category) Debt facility only. For South Africa only. Private sector only. Maximum of Prime of + 1.6%. Minimum investment period of 3 years. Maximum payback based on energy savings of 8 years. Standard IDC fees and requirements apply. Projects can be supported by the technical assistance facility. 07/09/2018 Programme d’investissements vert

Programme d’investissements vert Final Comments …… Its not rocket science. Solid methodical approach is required integrating numerous issues. From SUNREF side not been approached for process efficiency improvements – would like to see that. Our view is that there is a market – so are receptive to projects. Solid drivers exist e.g. energy price paths (liquid and electricity), regulatory initiatives on GHG reductions, energy security, competitiveness. Good to have an initial discussion and go from there. 07/09/2018 Programme d’investissements vert

Contact Information Rob Short, Team Leader, rshort@encludesolutions.com (+27 82 454 2193) Charlotte Ache, Project Assistance, cache@encludesolutions.com www.sunref.org Programme based at: SANEDI Block C, Upper Grayston Office Park 152 Ann Crescent, Strathavon, Sandton 2146 South Africa   07/09/2018

www.sunref.org