Intermediation of Small-Scale Carbon-Financed Clean Infrastructure Projects – The Development Bank of Southern Africa’s Experience and Prospects Rob Short Environmental Specialist DBSA 19 th November 2003

Presentation Contents  Introduction to the DBSA  Background  Experiences  Barriers  Prospects  Next Steps

The DBSA  Infrastructure DFI.  Owned by the South African Government.  Mandate to operate in the Southern African Development Community (SADC).  Self-capitalised.  Key operational units: International Finance Unit, Project Finance Unit (SA) and SA public sector units.

Background  Signed agreement at the WSSD in  Assist our clients in accessing an additional finance source for their sustainable development objectives.  To assist the DBSA in promoting and developing new markets.  To enhance our developmental impact.  Develop our relationship with the World Bank.

Experience to date…….Energy  Main area of success.  Use of biomass to generate energy through the installation of a wood fired boiler (SA – Private).  5MW and 3.9 MW micro-hydro plants (SA – Private).  Micro-hydro in Zambia (Private).  Financing opportunity for a combined wind and hydro.  Discussions around solar water heating.

Experience to date…….Waste Management  Enormous interest in landfill capture and use.  DBSA is currently supporting two feasibility studies with local authorities.  Been interest in bagasse but no real progress.  The cost of land filling is becoming a significant issue.  Discussions with rural local authorities re agricultural residues.  Significant interest in composting as part of resource recovery initiatives.

Experience to date……Fuel Switching  Approached re biodiesel (including a sink element).  Conversion of diesel generators to natural gas.

Experience to date…….General Points  No energy efficiency projects, though are working with donors in this area.  No transport, but is emerging awareness of the opportunity.  Have not turned away any CF projects for financing yet…..is early days though.  Issue of amount of financing required is a potential problem (tends to be too small).  No bundled projects to date.

Barriers  Barriers are more broadly about project development, than just around the supply of financing.  ER Price (concerns about losing out on the upside). Wait and see approach.  Lack of project development funds for small-scale start- ups, specifically with regard to CF element.  Lack of regulatory certainty in terms of CF and also the restructuring of the energy sector.

Barriers (Cont.)  Lack of knowledge and capacity (in many areas including the financial sector).  Grant mind set.  Lack of entrepreneurs (with financial experience) in this sector because of historical and existing institutional set- ups.  Need for upfront payments (unrealistic expectations).  Energy prices (low income generating ability)  Development of PPAs.  Perceived lack of support from Government.

Addressing the Barriers……  Have the benefits of intermediation been proven?  Buying down the risk through the provision of project feasibility support.  Providing comfort to other financiers through our involvement (depth of due diligence and expertise available in house).  Other financiers do not want to take whole risk.  Shown opportunities in and support for this area which has stimulated activity.

Addressing the Barriers……  Internal advocacy for CF (lack of internal familiarity re these projects – risk and project leaders).  Building understanding of what should be considered in a contract.  Assisting project developers in identifying and mitigating risks upfront (value of local knowledge).  Better understanding of potential currency fluctuations and hedging opportunities.  In at the beginning of the process.

Prospects……  Confident for a number of reasons.  Enabling environment for these projects in SA and the region is about to change for the better.  DNA being set up in South Africa. Process beginning in other SADC countries e.g. Mozambique and Zambia.  South Africa in the process of finalizing its renewables\clean energy policy (includes a target).

Prospects…..  Number of key grant processes that will change perceptions of the opportunities that exist i.e. REMT (WB – GEF), SAWEP (UNDP – GEF) and other EU initiatives.  South Africa’s (and therefore the region’s) up coming energy “problem” offers opportunities e.g. DSM and energy efficiency.  Problems with quality of supply in some areas (promoting idea of “shared benefits”).

Prospects…….  Support for natural gas in the region offers fuel switching opportunities.  The cost of developing and managing landfill space is increasing. Waste minimization is therefore looking more attractive.  Opportunities for bundling solar water and energy efficiency projects.  Need the first examples.

Next Steps…….  Identifying possibilities in the different categories of small-scale projects to be taken through to implementation. To show their potential and to test different methods of financial structuring.  Need to identify bundling opportunities (housing sector?).  Work with other funds and banks in the region.  Mobilize more project development support internally and externally.