climate finance consultation - william a. pazos

8/4/2019 Climate Finance Consultation - William a. Pazos

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September 2nd, 2011

Climate Finance Consultation

William A. Pazos

Managing Director Standard Bank Plc.


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Overview of Standard Bank Group

A global emerging markets bank, headquartered in South Africa

In terms of total assets, Standard Bank is the largest bank domiciled in Africa

Full-service bank covering:

Personal & Business Banking

Corporate & Investment Banking

Investment Management & Life Insurance

Leading financial services provider in South Africa one of the fastest growing emerging marketbanking sectors. Growing market share across all sectors and a consistent track record of increasing profitabilityand franchise value

The largest bank in Africa with presence in 18 countries Global reach on the ground in 20 countries outside Africa with distribution capabilities in the worlds leading financial

centres New York, London and Hong Kong

Signed strategic partnership with the Industrial and Commercial Bank of China Limited (ICBC), the worlds largestbank by market capitalisation

Total assets US$174 billion

Market capitalisation of US$15 billion

Present in 38 countries around the world

Employs over 48,000 people (including Liberty Life)


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Standard Bank Group operations

Operates in 38countries worldwide

18 African countries

20 countries outsideAfrica

Locations

Over 1000 branchesworld-wide

Over 4000 ATMs


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Energy Supply/Demand Gap

Sources: Oxford Analytica, World Bank & IFC Publications (Various)

Some $22 trillion of investment in energy-supply infrastructure is required up to 2030.

More than half of this, $16 trillion of capital expenditure, is needed to increase power capacity.

The balance will be required to update transmission and distribution infrastructure.

Developing countries account for more than 74% of the increase in global primary energy use, with the most notable growth coming from Indian andChinese power sectors.

What is going on in Asia?Over 1 billion people remain without access to modern energy sourcesRenewable sources are plentiful in the region

Demand is projected to increase by 89% by 2030.

We are destined to fall short. In some countries rolling black-outs are already taking place.

Growth in energy consumption has outpaced economic growth in the developing world.

Driven by:

Rising incomes resulting in the creation of substantial middle classes in countries such as

India and China

Rural electrification programs

Population increase

Industrialization.

This sustained rapid rise in energy demand requires large-scale investment in all areas of the power sector


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Low Hanging Fruit: Recommended Green Climate Fund Targets

Energy Efficiency is the low hanging fruitfrom a cost benefit standpoint. GCF should

concentrate on promoting efficienciesthrough projects involving:

Lighting

Building efficiencies

E.g.: Chiller Plants

Waste Heat Recovery

Fuel Switch

Forestry REDD/REDD+. Several projects arestagnating as a result of uncertainties in thefuture value of REDD credits.

Renewable Energy:

Wind

Solar Hydro

Biomass

Biogas


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Typical Financial Continuum

Most common issues faced by projects:

No equity. A great number of projects look to CDM as the source of equity.

Lack of track record: Market is littered with entrepreneurs who have limited experience and are

looking to capitalize on the market. Regulatory hurdles and uncertainties. CDM/EB risks (2012), municipal waste issues, energy

market issues

Stage One: Stage Two Stage Three

Conceptual Stage: Largenumber of projects fail to

leave this stage.

Financial Closing. Moniessecured, land acquired.

Equipment purchased andactivity commences.

Commissioning. Projectbegins to deliver

promised energy and/orcarbon offsets. Loan arepaid down and investorssecure promised return.

Requirements

Equity. Equity. Equity!

Requirements Requirements

Debt financingTechnical know-howTrack recordPolitical connections

StaffMonitoring

Opportunity


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Securitization of future cash flows

Future Cash Flows:CERsEnergy Efficiency Gains

REDD VCUsPPAs

Carbon mitigating projects, once completed, generate future cash flows:

Enabling the securitization of future cash flows will assist projects to achieve financial

closure while securing equity type returns to GCF.

Credit enhancement of these cash flows.

Outright purchase with prepayment of the future cash flows.

Eliminating regulatory hurdles and uncertainties (e.g.: CDM/EB risks (2012)) through

price guarantees or off take contracts has the same effect.


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REDD Opportunity

Hundreds of REDD projects are struggling to finance VCS certification due to:

Market uncertainties

Cost of registration

Project characteristics

Projects would willingly give up 20-30% of the first ten year flows of VERs in exchange for fundingcapable of securing first issuance.

Implied return to the investor can be as high as 20 to 30%.

GCF has the chance to make REDD projects a reality by entering into these transactions.

REDD Project Developer

Prepayment

VCUs over 10 years


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Green Bond Structure: CDM Example

USD [XXX]m

Annual CER Proceeds

SB Discounts 10yr Libor based coupon to PV

USD[XXX]m in year 10

CER ProceedsFloating Libor

Coupon

SB Invests PV intocarbon mitigating

project in exchangefor future CER

deliveries

CDM Project Activity

Bond Issuer

Bond Buyer

GCF can provide liquidity to GreenBond structures enabling the creationof a new asset class.


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Conclusions

GCF should not crowd out traditional investment sources. As a matter

of course it should constantly gauge its effect on traditional financing

options.

GCF should strive to monetize future cash flows through prepayments

or securitizations.

It should strive to bring to market innovative financing solutions

trailblazing the way for financial institutions to follow.


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Disclaimer

This presentation is provided on the express understanding that the information contained herein will be regarded and treated as strictlyconfidential. I t is not to be del ivered nor shall i ts contents be disclosed to anyone other than the ent ity to which i t is being provided and i tsemployees without the prior consent of the Standard Bank Plc (SB Plc). Moreover, it shall not be reproduced or used, in whole or in part, forany purpose other than for the consideration of the financing described herein, without the prior written consent of SB Plc. The informationcontained in this presentation does not purport to be complete and is subject to change. This document does not constitute an offer, or thesolicitation of an offer, for the sale or purchase of any investment or security. The information contained in this document does not purport to becomplete and it is subject to change. This is a commercial communication. If you are in any doubt about the contents of this document or theinvestment or security to which this document relates you should consult a person authorised under the Financial Services and Markets Act 2000who specialises in advising on such investments or securit ies. This document relates to derivative products and you should not deal in suchproducts unless you understand the nature and extent of your exposure to risk. No liability is accepted whatsoever for any direct or consequential

loss arising from the use of this presentation. This presentation is not intended for the use of private customers. This document must not beacted on or relied on by persons who are private customers. Any investment or investment activity to which this document relates is only availableto persons other than private customers and wil l be engaged in only with such persons. SB Plc is authorised and regulated by the FinancialServices Authority (FSA), entered in the FSAs register (register number 124823) and has approved this document for distribution in the UK onlyto persons other than private customers. Persons into whose possession this document comes are required by the SB Plc to inform themselvesabout and to observe any such restrictions. You are to rely on your own independent appraisal of and investigations into all matters and thingscontemplated by this document. By accepting this document, you agree to be bound by the foregoing limitat ions. Kindly note that thispresentation does not represent an offer of funding since any facil ity to be granted in terms of this presentation would be subject to StandardBank Plc obtaining the requisite internal and external approvals.

Standard Bank Plc, Cannon Bridge House, 25 Dowgate Hill, London EC4R 2SBValue Added Tax identification number 625861525

climate finance consultation - william a. pazos

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