Financing sustainable energy and development

FINANCING SUSTAINABLE ENERGY AND DEVELOPMENT

PROPARCO,

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AN INSTITUTION COMMITTED

TO THE FIGHT AGAINST CLIMATE CHANGE

Climate change is a tangible reality. To deal with this threat, Proparco and its parent organisation, AFD, have been pursuing an ambitious programme for the past decade. Together we have mobilised nearly €18 billion for projects that will have a positive impact on climate change.

This has made us one of the most active financial backers in this field. And our commitment is ongoing our goal is to pledge 30% of our annual financing to combating climate change. To this end we support private actors who are turning climate challenge into an opportunity. Our aim is to encourage sustainable development in sectors such as infrastructure, manufacturing, financial institutions and agriculture.

© UN Women/Gaganjit Singh/Flickr

Our “Clim’action” plan has several strands. For example, following the pledges made at the Climate Change Conference in Paris (COP21), the AFD Group is actively helping to boost synergies between lenders and to standardise practices and climate-related financing tools.

Working with its European partners, Proparco has also helped create a facility dedicated to co­ financing renewable energy and energy efficiency projects led by the private sector in developing and emerging economies. This stands as one of the most successful lender collaboration accomplishments to date.

But our goal is to go even further, supporting innovation and creativity so that technical and financial solutions can be brought to the fore.

For instance new mobile phone technology now makes it possible to deploy off-grid power systems across the African continent. Then there is our collaboration with our peers and traditional and new investors, which will enable us to develop new products for the sector, including green bonds, repayable grants and credit enhancement.

We firmly believe that the private sector will be a key player in the transition to more eco-friendly economies that benefit the greatest number of people. As a financial development institution, our goal is to enable the private sector to play its part as fully as possible.

Grégory CLEMENTE,

Chief Executive Officer, Proparco

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AN INSTITUTION SERVING THE PRIVATE SECTOR AND SUSTAINABLE DEVELOPMENT Proparco – a subsidiary of Agence Française de Développement (AFD) devoted to private sector funding – has been supporting sustainable development for almost 40 years.

It operates in 73 countries in Africa, Asia, Latin America and the Middle East and helps finance and support financial institutions and corporate private-sector projects. Today it has almost 400 clients worldwide.

Through its work, Proparco has a powerful impact on sustainable economic growth, job creation, access to essential goods and services and, more broadly, on poverty reduction and combating climate change.

In addition to providing financing, its role is to promote the emergence of responsible and innovative economic and financial actors in developing and emerging countries. It also assists its clients in improving their environmental, social and governance performance.

Proparco focuses on the key development areas, such as renewable energy-based infrastructure, agribusiness, financial sector, health and education.

Proparco is one of the leading European development finance institutions which together spearhead a large number of joint programmes.

THE AFD GROUP IN 2015 €8.3 BN of commitments

OF WHICH

€35.3 BN

FOR THE

of commitments in

AFRICA

OF WHICH

€1,054 M

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€3,8 BN

on the balance sheet

OF WHICH

€648 M

AFD GROUP

OF COMMITMENTS €5 BN

BY PROPARCO

PROPARCO’S 10-YEAR COMMITMENT TO THE FIGHT AGAINST CLIMATE CHANGE (2005–2015) INCREASED FINANCING

€2BN

(in M€)

of commitments (€18bn for AFD Group)

300

28 countries involved 25% of our clients

330

200

255

200

100 52 2005

2008

… AND COMMITMENTS ON FOUR CONTINENTS

2010

2014

€537 M

Asia

€313 M

Mediterranean and Middle East

€727 M

28%

16%

38%

15%

Latin America

€278 M Africa

Multi-country: €66m (3%)

DIVERSIFIED OPERATIONS

6% 11%

€591m

3%

(€55m) (€122m) Other Fuel switch

(€209m) Energy efficiency

33%

APPROPRIATE FINANCIAL TOOLS

(€630m) Dedicated credit lines

Credit lines for financial institutions

€88m 47%

(€904m) Renewable energies

Equity investments

€1,245m Loans

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PROPARCO, A NETWORK PLAYER OFFERING A FULL RANGE OF SOLUTIONS FINANCIAL OFFER EQUITY AND DEBT FINANCING

Long-term financing of projects requiring a round of financing from several lenders within a tight time frame.

Shared investment risk in projects.

• Debt/guarantee arrangements or cofinancing.

• Subordinated debt, quasi-equity, shareholders’ equity.

• Amount: €10m to €100m.

• Amount: €5m to €20m.

• Maturity: 15 years and over.

• Average period for return on investment: 7-10 years.

• Customised structuring (sculpted repayment, fixed/variable interest rate, etc.).

Financing of renewable energy and energy efficiency projects (< 10 MW).

TECHNICAL ASSISTANCE • Upstream assistance in the development of your projects.

• Assistance to improve your environmental and social (E&S) management processes.

• IRR target – min. 10% to 15%.

• Bi-lateral and multi-lateral lenders.

OUR PARTNERS

INDIRECT FINANCING

• Dedicated financing facilities for local banks to increase the availability of long-term resources and foreign currencies.

• Amount: €30m to €50m.

• Interact Climate Change Facility (ICCF).

• UE-IEFD facility (partial credit guarantees) for sub-Saharan Africa (EEDF).

• Assistance with implementation of E&S procedures for certification purposes.

• Maturity: 10–12 years.

EXPERTISE Greater understanding of sector developments so you can plan your service offers/ Meetings with peers.

• Private Sector & Development (proparco quarterly publication).

• AFD-Proparco/European Development Research Network (EUDN) conference.

• Equity investment in investment funds.

• Financial intermediaries: local and regional banks, non-banking financial institutions, investment funds, FISEA in sub-Saharan Africa, etc.

• FMO, DEG and SFI (partnership agreements to raise funds quickly and easily).

• Grants (reimbursable or non-reimbursable).

ICCF, A EUROPEAN FACILITY FOR CLIMATE PROJECT FINANCING

• French Global Environment Fund (FFEM): Innovation facility for the private sector in the field of climate change (FISP Climat).

• European Union and European Development Finance Institutions: EU-EDFI technical assistance for sub-Saharan Africa (EEFD).

© The Danish Wind Industry Association/Flickr

OUR SOLUTIONS

YOUR NEEDS

DEBT ARRANGEMENTS AND CO-FINANCING

EXTRA-FINANCIAL OFFER

AFD Group and its European counterparts have been coordinating their “climate finance” efforts for several years. In 2011, the European Investment Bank (EIB), Proparco and 10 other European Development Finance Institutions (EDFIs) set up the Interact Climate Change Facility (ICCF), a vehicle dedicated to cofinancing renewable energy and energy efficiency projects led by the private sector in developing and emerging countries. AFD and Proparco have been among the main contributors to ICCF since it was set up. The Group has provided €160m out of a total amount of €461m.

Between 2012 and 2014, ICCF committed €269m for 15 “climate” projects submitted and financed by its members, including five by Proparco.

These projects have avoided the emission of 2.5 million metric tonnes of CO2 equivalent per year.

Wind projects account for almost half the projects financed by ICCF, followed by energy efficiency, solar energy, geothermal energy and hydropower. They are divided in almost equal proportions between Asia and Africa.

© Laurent Weyl for the AFD

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THE 3 PILLARS OF OUR CLIMATE STRATEGY

OUR FIVE PRIORITY AREAS

1. Commitment

2. Assessment

3. Selection

Proparco’s strategy for developing energy and combating climate change focuses on five key areas:

Proparco has pledged to reach a high level of “climate” activity for 20122016: 30% of its financing to private-sector projects will have a positive impact on climate change.

All projects financed directly with a significant and quantifiable impact on greenhouse gas (GHG) emissions are required to undergo an ex ante analysis of their carbon footprint.

Project impacts in terms of GHG emissions are taken into account via the application of a selectivity grid, which may lead to certain projects being declared ineligible for Proparco financing.

RENEWABLE ENERGY (INDEPENDENT POWER PRODUCTION)

ENERGY EFFICIENCY IN MANUFACTURING

SUSTAINABLE TRANSPORT

Examples of funded projects

POWER ACCESS (GRID AND OFF GRID)

WATER SUPPLY AND SANITATION (ADAPTATION)

Odeabank Turkey

Far East Horizon Ltd

Scatec

Chine

Jordan

Armstrong

Southeast Asia

Azure Power

Azito

India

Ivory Coast

AEGEA Brazil

Fajar

Indonesia

Energy Access Ventures Fund

Lake Turkana

Africa

Kenya

Polesine Uruguay

Bujagali Uganda

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RENEWABLE ENERGY Solar, wind and hydro power: key resources for a global energy transition Developing renewable energy – wind, solar, hydro, geothermal and biomass – is a viable, sustainable way to meet the world’s growing demand for energy while helping to combat climate change. These technologies diversify national energy mixes, reduce dependence on fossil fuels (oil, coal and gas) and lower GHG emissions.

The development, production and use of renewable energies also has a ripple effect on economies. For example it offers numerous opportunities for job and wealth creation, and research and development. But this involves massive investment, aggressive incentive policies and the opening up of the market to independent power producers. The challenge is to achieve cost parity with traditional energy production methods in the short and medium term.

KENYA

Arrangement of a debt of USD 50m (2014)

LAKE TURKANA, THE LARGEST WIND POWER PRIVATE INVESTMENT IN SUBASAHARAN AFRICA Power shortages and frequent outages hinder Kenya’s competitive strength of growth potential.

In 2014, Proparco provided part of the financing for the Lake Turkana Wind Power (LTWP) project developed by the companies KP&P BV Africa and Aldwych International Ltd. Located in the Great Rift Valley, the LTWP wind farm will have a capacity of 310 MW and will provide approximately 20% of the current installed generating capacity.

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Proparco has played an active part in structuring the deal, mobilizing funds from the Interact Climate Change Facility (ICCF), Europe’s cofinancing facility dedicated to clean energy and energy efficiency.

At €623m, this will be the largest single private investment in Kenya’s history. The LTWP wind farm will generate electricity almost 60% cheaper than from the country’s thermal power plants.

URUGUAY

Arrangement of a senior debt of USD 88.5m (2013)

© E. Legrand/Akuo

POLESINE, ENCOURAGING PRIVATE-OPERATOR INVOLVEMENT IN “CLIMATE” POLICIES In 2008, Uruguay launched an ambitious plan to develop green energies. The objective: provide 90% of its supply using renewable sources by 2016. To that end, the authorities actively support the development of wind energy, which is expected to supply 25% of domestic electricity as early as in 2016, thanks to the construction of about twenty wind farms by private operators.

In 2013, Proparco was involved in structuring the financing of one of the first wind farms in Uruguay, developed by Polesine (a subsidiary of the French group Akuo Energy) and serving as lead arranger with its European counterparts DEG and FMO. This wind farm, with a total capacity of 50 MW, was commissioned in 2014. It now supplies electricity to the equivalent of 30,000 households.

JORDAN

Senior debt of USD 50m (2014)

AFD GROUP, A PARTNER IN DEVELOPING ALTERNATIVES TO OIL Jordan is surrounded by fossil fuel producing countries and is highly dependent on their imports. The authorities have set out to reduce this vulnerability. By 2020, renewable energies are expected to account for 10% of the country’s energy mix.

In 2014, Proparco allocated three loans, with the European Bank for Reconstruction and Development (EBRD), for the construction of three of Jordan’s first photovoltaic power plants (region of Ma’an).

These new power plants, with a total capacity of 40 MW, have been developed by the Norwegian company Scatec Solar and its Jordanian partners (European Jordanian Renewable Energy Projects, Greenland Alternative Energy and Quest Energy Investments).

AFD Group has been operating in the country for ten years and is one of its largest financial bilateral donors, particularly in the energy and environment sectors.

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RENEWABLE ENERGY SOUTHEAST ASIA

Equity investment of USD 13m (2013)

© Asian Development Bank/Flickr

ARMSTRONG, FINANCING CLEAN ENERGY PROJECTS OF SMES

TURKEY

The rapid economic growth in Southeast Asia leads to increased pressure on the natural environment and growing energy needs.

To ensure sustainable development, the challenge for the countries in the region lies in adopting energy-saving and low-carbon production methods.

In 2013, Proparco invested in Armstrong South East Asia Clean Energy Fund, a fund managed

by Armstrong Asset Management (AAM), an asset manager specialized in financing energy efficiency and renewable energy projects in Southeast Asia.

This USD164m fund aims to invest in the capital of companies leading small-scale clean energy infrastructure projects (up to 10 MW), especially in Indonesia, the Philippines, Malaysia, Thailand and Vietnam. It is the leading capital development fund in this sector in the region.

Dedicated credit line of €20m (2014)

ODEABANK, FINANCING LOCAL COMPANIES’ INVESTMENT IN GREEN ENERGY To reduce its dependence on imports and fossil fuels (90% of its mix), Turkey is developing a programme to promote green energy. But in order to finance projects led by private companies, local banks need long-term foreign currency resources, which the Turkish market lacks.

In 2014, Proparco granted a credit line to Odeabank (a subsidiary of the Lebanese group Bank Audi) specifically to finance renewable

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energy and energy efficiency investments by medium-sized Turkish companies. Two flagship projects are the financing of extensions to a 23 M W wind farm and a 15 M W geothermal power plant.

In line with the AFD Group’s strategy, this support aims to reduce the negative impacts of the country’s growth on the environment and the climate.

UGANDA

Senior and subordinated debt of USD 60m (2007)

BUJAGALI, A PRIVATELY OWNED HYDROPOWER PLANT TO DOUBLE THE COUNTRY’S CAPACITY With less than one inhabitant in ten connected to the grid, Uganda is one of the least developed countries in terms of access to electricity.

This is mainly due to the major lack of generation infrastructure.

In 2007, Proparco provided funding for the construction of a run-of-river hydropower plant on the Nile with a generation capacity of 250 MW. The AFD supplemented this funding with a concessional loan to develop a rural electrification programme using power from the site.

This project, for a total amount of €902m, has benefited from the support of a number of other donors (IFC, EIB, AfDB, FMO and DEG/KfW).

Since it was commissioned in 2012, the Bujagali dam has raised power generation in Uganda by over 40%. © BEL

INDIA

Equity investment of 600 million rupees, the equivalent of €7m (2012)

AZURE POWER, SUPPORTING THE DEVELOPMENT OF A LOCAL SOLAR POWER PLAYER India is the world’s fourth largest energy consumer and must meet increasing needs related to its population dynamics and economic development. Demand is expected to double by 2035, whereas the country already has a power deficit which affects its public finances, its competitiveness and its population. It must also reduce its dependence on fossil fuels and its carbon footprint, which is one of the highest in the world.

To boost energy production, Proparco is supporting the growth of one of India’s solar energy specialists, Azure Power, by investing in its capital.

This financing has allowed the company to reach a critical size and win several bids, which will potentially allow it to quadruple its generation capacity: from 52 MW to 210 MW.

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ENERGY EFFICIENCY Opportunities to save energy and reduce industry’s carbon footprint Businesses, specifically those in the manufacturing sector, consume a huge amount of energy. Not only is this level of consumption reflected in a dependence on fossil fuels (gas, oil and coal) and heavy financial expenditure, but it also raises the question of environmental responsibility. For example, the cement sector alone accounts for 5% of CO2 emissions – a percentage that could exceed 10% by 2050.

Energy efficiency is part of the solution. Recovering the heat produced during a manufacturing process would provide businesses with their own power supply.

IVORY COAST

Arrangement of a debt of USD 170m (2012)

AZITO, INCREASING THE GENERATION CAPACITY OF A THERMAL POWER PLANT Since it was commissioned in 1999, the Azito Energie thermal power plant has covered a third of the country’s electricity needs. It uses a technology combining two gas turbines to provide a constant and affordable electricity supply.

In 2012, Proparco arranged financing of 50% of the project’s debt with its European counterparts and the Emerging Africa Infrastructure Fund (EAIF) for the construction of an extension to the plant.

This project is based on the installation of a 139 MW steam turbine, which will generate some 1,000 additional GWh a year and raise the country’s power generation capacity by some 15%. It is based on improving the power plant’s output by recovering energy released in the form of heat (combined cycle).

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The addition of this new steam turbine will prevent the emission of 400,000 metric tonnes of CO2 equivalent per year.

BANGLADESH

Senior debt of USD 30m (2013)

A LESS EMISSIVE MOBILE NETWORK In Bangladesh, the rate of mobile penetration is still low, around 50%. Grameenphone, the leading service provider in the country, has implemented a large investment plan of USD 1.128bn to expand its network in rural areas and launch 3G over the entire national territory. This plan includes an ambitious USD 90m energy efficiency program designed to reduce the provider’s carbon footprint significantly between now and 2015.

In 2013, Proparco participated in financing this program. Noteworthy plans include implementing solar panels to power the generators of offgrid relay antennas and replacing the towers’ cooling system with ventilation.

This is the first time Proparco has supported energy efficiency efforts on the part of a telecom provider. This will help to avoid greenhouse gas emissions on the scale of 47,000 teq of CO2 per year.

INDONESIA

Senior debt of USD 10m (2010)

FAJAR, SUPPORTING A RESPONSIBLE MANUFACTURER The local industrial paper manufacturer Fajar Paper, one of the leaders in the sector, stands out from its competitors for its environmental commitment. This company only uses recycled paper and sources 70% locally. It also recycles 80% of the water used in its production and has two cogeneration systems, as well as an incinerator, which allow it to reduce its ecological footprint.

In 2010, Proparco allocated a loan to finance the construction of a second incinerator, which today allows Fajar Paper to treat 100% of its waste and generate 10% of the steam used in the paper manufacturing process.

This project not only contributes to reducing the company’s energy consumption, but also the volumes of waste disposed of in the neighboring landfills. © Njambi Ndiba/Azito Energie

Timber trade and oil palm plantations are the two main causes of Indonesia’s high deforestation rate.

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ACCESS TO ENERGY Off-grid offers innovative, clean and affordable solutions Sustainable access to energy is a key driver of economic and social development. Energy services have multiple, profound impacts on companies’ productivity, people’s health, teaching and learning conditions, food security, and so on.

Today the United Nations estimates that 1.4 billion people have no access to modern energy services, while 3 billion people depend on “traditional biomass” and coal as their primary fuel source. Africa remains the continent with the least access to power, averaging less than one household in two. A lack of infrastructure and technical skills are the two main reasons for the sector’s underperformance in the region.

Off-grid projects, which are now accessible to the poorest populations, are an innovative solution to this problem.

AFRICA ENERGY ACCESS FUND, BOOST FOR ACCESS TO ENERGY In 2014, Proparco took part in the launch of Energy Access Fund (EAF), to be managed by Aster Capital.

This private equity fund is jointly backed by Schneider Electric, CDC Group, European Investment Bank, OFID and the French Global Environment Facility (FFEM). It has secured commitments of €54.5m to invest in 5-year instruments for around 20 African SME. EAF will target smaller businesses in Africa that specialize in promoting low-carbon and low cost electricity access solutions in rural areas and close to main towns and that cannot access regular finance. The goal is to provide access to electricity for a million people by 2020.

Funding will focus in a first instance on Burundi, Ethiopia, Kenya, Malawi, Mozambique, Rwanda, Tanzania, Uganda, Zambia and Zimbabwe.

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Equity investment of €5m (2014)

SUSTAINABLE TRANSPORT For efficient, eco-friendly transport networks By 2050, more than 70% of the world’s population will live in towns or cities.

As major energy consumers, urban areas are simultaneously one of the main causes of climate change and one of the principal vectors for reducing greenhouse gas emissions.

Rail transport is preferred over road transport with regard to transport capacity, cost per kilometre, infrastructure longevity, safety and climate. Rail is also crucial for transporting certain raw materials or opening up landlocked countries.

To respond to these challenges, Proparco is investing in clean urban and interurban public transport and developing rail services for passenger and freight transportation.

CHINA

Loan guarantee of USD 20m (2015)

© Benoit Colin/EMBARQ

FAR EAST HORIZON LTD, CLEAN BUSES AGAINST URBAN POLLUTION Today, more than one in two Chinese live in a city. The development of non-polluting public transport has become a priority in order to tackle the deterioration in air quality in the country’s major cities, such as Shanghai and Beijing.

In 2015, Proparco took a risk subparticipation on a USD 100m loan allocated by the Asian Development Bank (AsDB) to Far East Horizon Ltd, a Chinese financial service company, to allow it to develop its leasing activities in the public transport market, especially for clean buses.

This partnership between Proparco and AsDB will contribute to the replacement of old diesel bus fleets by less polluting technologies, such as compressed or liquefied natural gas, biomethane and electric or hybrid engines. It will thereby help reduce greenhouse gas emissions caused by public transport.

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WATER AND SANITATION Private operators – partners for cost-efficient water services Climate change will have an extremely serious impact on the availability of water resources in a large part of the world. Added to this are the consequences of pollution of rivers and water tables.

Consequently, the sustainable management of this resource, the protection of its quality, and the management of demand, are crucial issues. Proparco supports projects for integrated water resources management, to improve the yields of water networks, and increase capacities for storing water resources and wastewater treatment in countries subject to high water stress.

BRAZIL

Senior corporate debt of USD 40m (2014)

AEGEA, TOWARD MORE EFFICIENT WATER RESOURCE MANAGEMENT to support its plan to invest in four municipalities. The goal is to increase the supply of drinking water and boost waste water collection and treatment capacity.

With this financing, the water needs of the population and of key industries like agribusiness and power generation can be met.

© AEGEA

Several regions in Brazil have become areas of high water stress. To improve drinking water supply and sanitation, the authorities are working to raise USD 126bn by 2030 and to enlist greater private sector involvement.

In 2014, Proparco allocated a loan to Aegea Saneamento S.A., Brazil’s third largest private provider of water and sanitation services,

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YOUR CONTACTS HEADQUARTERS Jérôme BERTRAND-HARDY Deputy Chief Operating Officer bertrand-hardyj@proparco.fr

Emmanuelle MATZ Head of Insfrastructure and Energy Division matze@proparco.fr Julien LEFILLEUR Head of Manufacturing, Agribusiness and Services Division lefilleurj@proparco.fr

WORLDWIDE ASIA

SUB-SAHARAN AFRICA

North and Southeast Asia

West Africa

Bangkok, Thaïland Tel.: +66 2 663 60 90 afdbangkok@afd.fr

Abidjan, Ivory Coast Tel.: +225 22 40 70 40 proparcoabidjan@proparco.fr

South Asia

Central Africa

New Delhi, India Tel.: +91 11 42 79 37 00 afdnewdelhi@afd.fr

Douala, Cameroon Tel.: +237 233 42 06 24 proparcodouala@proparco.fr

LATIN AMERICA AND THE CARIBBEAN Central America and the Caribbean Mexico D.F., Mexico Tel.: +52 55 5281 1777 afdmexico@afd.fr

South America São Paulo, Brazil Tel.: +55 11 3149-7907 afdsaopaulo@afd.fr

Sophie LE ROY Head of Banking and Capital Markets Division leroys@proparco.fr

Anne-Sophie RAKOUTZ Head of Private Equity Division rakoutzas@proparco.fr

© Philippe Jacob, Rastoin P.-E Couverture: © Benjamin Petit for the AFD, Bill Christian-Flickr, Laurent Weyl for the AFD, James Moran-Flickr

Southern Africa and Indian Ocean

Johannesburg, South Africa Tel.: +27 11 540 71 00 proparcojohannesbourg@afd.fr

Nigeria Lagos, Nigeria Tel.: +234 816 387 8459 afdlagos@afd.fr

East Africa Nairobi, Kenya Tel.: +254 20 271 12 34 afdnairobi@afd.fr

MEDITERRANEAN AND MIDDLE EAST Mediterranean Casablanca, Maroc Tel.: +212 522 29 53 97 afdcasablanca@afd.fr

Caucasus, Central Asia, Eastern and Southern Europe and Middle East Istanbul, Turkey Tel.: +902 122 833 111

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151, rue Saint-Honoré –75001 Paris Tel.: +33 1 53 44 31 08 – Fax: +33 1 53 44 38 38 www.proparco.fr

advitam.org agence de communication 2015 – communication agency

Proparco is a development finance institution – a subsidiary of Agence Française de Développement (AFD) devoted to private sector funding. Its role is to promote the emergence of responsible and innovative businesses and financial institutions in emerging and developing economies with the aim of supporting growth and sustainability.

01 53 17 30 40

© Carlos Tobón for the AFD