1. 1 Mr. Anat Prapasawad Executive Officer Business Development Department TMB Bank Public Company Limited Sustainable Energy and Practice - Financing Issues Presented by

2. 2 Opportunities Overview of the barriers and/or risks affecting investment in RE projects Risk / Return analysis to asses each major risk and the means to mitigate its potential impact on the project Financial risk management instruments currently supporting RE projects and those that could be developed to reduce uncertainty as barriers Innovative financial services Topics

3. 3 Opportunities Technologies Distribution Renewable Biofuel (biodiesel ethanol) PV Biomass gen, Co-gen Waste to energy Wind Turbine Hydro Geothermal Etc. Energy Efficiency Controling Replacing Modifying Fuel Switching Conventional fuel Biofuel/NG

4. 4 TE = Traditional Energy NRE = New & Renewable Energy 201 1 NRE 0.5% TE 16.5% Commercial Energy 83.0. % 2002 52,939 KTOE 81,753 KTOE TE 11% NRE 8% Commercial Energy 81 % TARGET 4

5. 5 Thailand Targets in 2011 RE Power 1,060 KTOE (2,400 MW*) Liquid Biofuel 1,570 KTOE Heat 3,910 KTOE 6,540 KTOE 8% of final energy use in 2011 (81,753 KTOE) * Existing 560 MW Industry Agriculture Transport Agriculture

6. 6 RE Power Production Solar200 MW Wind100 MW MSW 100 MW Biomass 740 MW Small Hydro 350 MW Solar Home System 50 MW SPP 300 MW 1840 MW* (+560 MW) * Existing SPP 560 MW RPS 5% Obligation for new fossil power plant Incentives Guaranteed buy back Soft loan Tax incentive MSW=Municipal Solid Waste

7. 7 Thailand Target of RE 2003 2012 5% 8% Electricity 2,400 MW (1,060 KTOE) Heat 4,000 KTOE ; Industry + Agri. Biofuel 1,570 KTOE ; Transport + Agri. Measures: 1. RPS 5% (Renewable Portfolio Standard) 2. Incentives 3. R&D 970 Ethanol 600 Biodiesel

8. 8 Barriers risks? “Financial risk management is a key element of any commercial investment in conventional energy …, yet little attention has been paid to its use in the development of renewable energy technologies, particularly in developing countries, … if used transfer certain types of risks away from investors and lender.” Monique Barbut Director Division of Technology, Industry and Economics UNEP

9. 9 “The financial incentive package for each country is carefully crafted to suit its economic, legal, and fiscal system. The types of incentives used include concessional import duties, excise tax benefits, corporate and income tax benefits (including tax exemptions, holidays, credits, and deduction as well as depreciation), subsidies against investment cost, low interest loans, and premium power purchase prices.” World Bank Discussion Paper No. 391

10. 10 Type of Finance Funding of major capital Cashflow of the project as sources of fund for repayment Asset of the project as collateral Risk management through transference (allocate to parties best able and willing to accept) Project Finance (PF)

11. 11 Corporate Finance Comparison with Project Finance Financiers Company Project Assets Sponsor Companies Financiers Govern ment Contra ctors Supplie rs Custo mers Manag ers Insurer s Limited resourse Contractual Assignment Project Entity Project Assets Finance Risk transference to contract Consul tants ESCO

12. 12 Major Risk & Management Major risk categories (throughout project cycle) Control of risks (identifying, analyzing, allocating)

13. 13 Project Feasibility Analysis Financial aspect Marketing aspect Technical aspect Management aspect

14. 14 Major Risk Categories (throughout project cycle) Project Identification Project Development Project Appraisal Project Implementation Project Operation Project Cycle

15. 15 Typical Barriers High transaction Relatively small size Low marginal return Perceived weak credit worthiness of companies Resource availability and supply risk Country risk (political & economy instability) Lack of legal and Institutional Frameworks to support RE projects Analytical barriers (quality&availability information) Cognitive barriers Other priority investment Unfamiliarity with technologies Collateral problem Lack of expertise in company FI lack of knowledge Benefit sharing Cultural

16. 16 Risk Management Instruments Contracts (gov., suppliers, consultant, ESCO) Insurance / Reinsurance Credit enhancement products (Guarantee) Alternative risk transfer instruments (various type of asset backed securities) Private sector risk management Risk pooling Securitization structure Bundling small projects (reduce transaction cost) Carbon Finance Guarantee

17. 17 How to build portfolio? : Lesson Learned Barriers 1. 1 Access ability to financial resources 1.2 Low priority projects 2. Technical Barriers 2.1 Unfamiliarity with technologies 2.2 Lack of capacity to develop projects 2.3 Bad experience with consultants/suppliers 3. Management Barriers 3.1 Lack of time 3.2 No policy to invest 1. Financial Barriers

18. 18 Lesson Learned Removal of Barriers 1. 1 Access ability to financial resources PFI 1.2 Low priority projects PFI Technical Barriers 2.1 Unfamiliarity with technologies ESCO 2.2 Lack of capacity to develop projects ESCO 2.3 Bad experience with consultants/suppliers FI Management Barriers 3.1 Lack of time PFI 3.2 No policy to invest PFI Financial Barriers

19. 19 Project Cycle How to develop projects (FI views) PI : Project Identification (financial & technical screening) PD : Project Development (feasibility & engineering design) PA : Project Approval (FI + Shareholders) PR : Procurement OM : Operation + Maintenance (Repayment) PG : Performance Guarantee PDD : Project Due Diligence

20. 20 Case Study Ethanol Project : Demand Government policy : deplete all of UPG 95 * consumption with gasohol (comprising a mixture of gasoline and ethanol) by yr.2007 UPG 95: Unlead Petroleum Gasoline with 95% octane

21. 21 Ethanol Project : Supply Total licensee 24 plants, registered capacity 4.985 Million litres/day Yr.2006 : operate only 3 plants with total production capacity 0.285 Million litres/day

22. 22 Ethanol Project : Case Study Plant capacity :200,000 litres/day Raw material :tapioca Investment cost :35 M. US$ Land and land improvement3.25M. US$ Building0.75M. US$ Machinery24.13M. US$ Pre-operation1.63M. US$ Stock of raw material0.50M. US$ Working capital4.25M. US$ Contingency0.50M. US$

23. 23 Ethanol Project : Project IRR

24. 24 Ethanol Project : Barriers Security of raw material Technology –Proven technology –Efficiency –Contractor –EPC (Turn-key) Marketing –Uncertainty price –Buying agreement (non-firmed) High Investment Cost Project Barriers

25. 25 Ethanol Project : Barriers Government Policy Commercial Bank Policy External Barriers

26. 26 Ethanol Project : Barriers Security of raw material Through Contracts Technology Through proven technologies/ Bank guideline Marketing Through Contracts High Investment Cost Equity Fund Removal of Barriers

27. 27 Mr. Anat Prapasawad Executive Officer Business Development Department TMB Bank Public Company Limited Thank you Presented by